Texas’ summer electricity prices expected to jump
Hot summer combined with closing of plants may result in price surges
Wholesale electricity prices in Texas are expected to jump this summer following the recent shutdowns of three of the state’s largest coal-fired generating plants, which have driven the state’s power reserves to their lowest level in more than a decade.
Retail customers in Texas would eventually feel the impact of rising wholesale prices in the form of higher electricity bills, but it is too soon to know when those bills might climb or by how much, analysts said. But anyone without a fixed-rate electricity contract could ride a roller-coaster of spiking power prices should there be a long stretch of extremely hot weather that sends demand soaring and stretches power supplies.
“We are going into a summer where people are going to be paying a lot, potentially paying a lot more,” said Commissioner Brandy Marty Marquez at the state Public Utility Commission last week. “We are not really sure what we are going to see.”
The Electric Reliability Council of Texas, which operates about 90 percent of the state’s power grid, has braced for potential shortages and price spikes since late last year, when it determined that Texas would enter the summer with 7,200 fewer megawatts of power than expected because of plant closings, temporary shutdowns and delays in the completion of natural-gas and wind generating projects. (One megawatt is enough to power 200 homes on a hot Texas day.)
The bulk of the shortfall, around 4,300 megawatts, comes from the shutdown of three coal-fired plants by the state’s largest power company, Vistra Energy of Dallas. Vistra said the plants were no longer profitable after years of low electricity prices and competition from lower-cost natural gas plants and wind energy projects.
If the summer is mild, of course, that would ease prices spikes and the stress on power supplies. But even if the state is spared unusually high temperatures, increased demand, driven largely by population growth, could tighten supplies and push prices higher. ERCOT’s most recent projection estimates that peak demand this summer will reach almost 73,000 megawatts, well above the record off 71,110 megawatts set in August 2016.
Recall summer 2011?
The worst case scenario would be a repeat of the summer of 2011, when ERCOT frequently urged customers to raise thermostats and cut power consumption. If such steps don’t succeed, ERCOT’s next step would typically be to cut off power to large consumers – such as industrial plants.
Industrial customers, who buy directly from wholesale markets, would get hit hardest by price spikes. Most households would likely be shielded from rate increases over the short term by electricity contracts, but extended, elevated wholesale costs would eventually trickle down to retail prices, analysts said.
The best thing Texans can do to prepare for the summer is check their electricity contracts and make sure their rates are fixed and don’t change with fluctuations in wholesale power prices, said Andrew Barth, a partner at CSD Energy Advisors, a Houston energy consulting firm. Shorter retail electricity contracts that span the summer months will already have high prices baked into rates, so customers should be wary of changing electricity plans this summer.
