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Recent Power Price Spikes Catch Eye of Texas Utility Regulators

December 13, 2004
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Recent Power Price Spikes Catch Eye of Texas Utility Regulators

Top officials at the Texas Public Utility Commission (PUC) are voicing concerns over a recent run up in wholesale power prices in the state and, in particular, the electric wholesale market activities of TXU Corp.

The power price surges were a topic of discussion among PUC commissioners and staff at the state commission's most recent open meeting on Dec. 2.

Terry Hadley, a PUC spokesperson, noted that staff at the commission recently launched a project [Docket 30513] in the wake of last week's meeting. The only item filed under that docket number so far is a control number request form filed by PUC staff under the header, "Staff Investigation into the Electric Wholesale Market Activities of TXU."

"If you have each been watching some of the transactions that are occurring in the balancing energy market, I hope that you'll join me in expressing some extreme concern over some of the pricing strategies and apparent bidding behavior by certain entities," PUC Chairman Paul Hudson is quoted as saying in a transcript of the Dec. 2 meeting provided to NGI.

"And, you know, I don't want to suggest that all the facts are in on this particular issue; I know that we're still in some discussions with certain market entities," Hudson said. "But the fact that we went two-and-a-half years without seeing $450 to $500 pricing in multiple segments, time in and time out, leads me to believe that there's been some change in the marketplace or some desire to do something different in the marketplace that may have an untenable result in my mind."

According to the transcript, Hudson told Parviz Adib, the head of the PUC's market oversight division, that if Adib doesn't "have enough resources, I need to know that. If we need to talk to the attorney general's office, I need to know that. If we need to talk to the SEC, I need to know that. I expect us to be on top of this and not letting it fester."

In response, Adib said that "...we have been watching the market very carefully in the last few weeks." He noted that on Nov. 29, "out of 96 intervals, we had 17 intervals with prices above $400." In some of those intervals, "actually, when you look at [the] ERCOT website, you see that TXU is really the company that is offering prices over $300, and also because the market clearing prices are set at that level, so it's very clear for people to make a judgement that it's really TXU. In fact, in most of those cases it has been TXU."

Adib noted, "We have had meetings with TXU -- very good meetings, as well as the last one that we had even last night [Dec. 1]..." Referring to the power company, Adib said, "They are doing their best to demonstrate to us what kind of information they are relying on in order to price their products. For example, they rely on a lot of expensive units in order to offer their supplies into the market."

But the PUC staffer said that "there are occasions that those units really are not operating. So that's really creating a lot of concern for us, so we are asking for additional information to be sure we can verify various pieces of information."

TXU spokesperson Chris Schein told the Associated Press that the plants "that we're bidding in are high-cost plants. If our bid is struck, that is the lowest price that was bid into that market at that time segment."

Meanwhile, at the open meeting, PUC Commissioner Julie Parsley said that from what she understood, the timeframe in question did not involve one of scarcity.

"You're absolutely right. There are significant amount[s] of capacity," Adib responded, according to the transcript. "Of course, during...November, when you come out of the October period, some of the units may be put aside, but at three o'clock after midnight you see [a] $400 price -- about $400 -- I really don't know how we can justify that on the basis of scarcity."

Another PUC commissioner queried Adib as to the possibility that weather may have played a role in the power price increases. "Always weather can be a factor, but -- and natural gas prices can always be a factor," Adib responded. "There are a lot of factors and we are looking...into most of them. We are not really satisfied with those factors as the reason for high prices."

Adib said that the "main argument that I've heard is really 'these units are very expensive and we have to price them accordingly.' I think that's a very valid point, I can understand that. But there are occasions that those units are not operating. And it's not really a few. There are several occasions that price is high and those units are not operating."

He said that PUC staff has "listened to QSEs [qualified scheduling entities] and their explanations. They are trying to do their best to explain what is the basis. I cannot tell you we are satisfied with the explanations as of this moment."

In February, the PUC adopted a new enforcement rule for the state's wholesale electricity market that, among other things, clarifies specific prohibited activities such as creating artificial congestion, in which a market participant is paid for relieving transmission congestion that it created.

Other prohibited activities under the new rule include pre-arranged offsetting or "wash" trades, which create a false picture of market activity. Also, the rule prohibits collusion, manipulating prices or power supplies, withholding production, misrepresentation and other behavior harmful to the wholesale market.

A report issued by the PUC's Market Oversight Division (MOD) earlier this year recommended implementation of market rules in the state aimed at mitigating the "unilateral influence" of any dominant power supplier. MOD concluded that while TXU has a "measurably dominant position" in the Electric Reliability Council of Texas' (ERCOT) balancing energy market, the utility had not engaged in any "egregious" activities in that market based on the results to date from an ongoing investigation.

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