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ERCOT Tweaks Congestion Rules

Posted in Ercot,Price Spikes,Retail,Texas by Cheryl Morgan on the June 9th, 2008

In response to continued price spikes in its balancing market, ERCOT will be adjusting the way in which congestion rules are applied. An emergency meeting of the ERCOT board held on Friday voted to accept recommendations made by the Public Utility Commission’s independent market monitor, Dan Jones, that it hopes will reduce the severity of price spikes in the system. Although prices in the balancing market are typically in the region of $100/MWh, recent spikes have been as high as $4,500/MWh.

The Houston Chronicle cites congestion on a few key transmission lines and some unexpected outages as causes of the spikes. However, as the market prices have been well in excess of the market’s bid cap of $2,250/MWh it appears likely that some sort of market rule is being applied to create these high prices. Changing the algorithm will presumably reduce the incidence of spikes. The Chronicle quotes Jones as saying, “We were using a tool to fix certain problems that was not particularly effective.”

Meanwhile the high market prices are continuing to pose problems for retail companies. As the Chronicle article explains, ERCOT requires retailers to post collateral equal to three times the value of their wholesale power purchases. The price spikes have caused three small supply companies to default on this requirement and go out of business, while a fourth has applied for bankruptcy protection.

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