The market oversight division of the Public Utilities Commission of Texas(PUCTT) has launched an investigation into bid activity in the Electric Reliability Council of Texas (ERCOT) markets late last month to determine whether any market participant exacerbated significant power price spikes seen at that time.

“On Feb. 24 and 25, power prices hit $990,” a PUCT spokesperson told NGI last week. “Those were cold days here in Texas and there was a shortage, but the PUCT is looking at all the bidders in the market on those days,” and on other days when the maximum price apparently was “higher than we would have expected.”

The spokesperson said that “it will probably be two weeks from now, at least, before we have something definitive on why those price spikes may have occurred.”

Parviz Adib, director of the PUCT’s market oversight division, updated the PUCT commissioners on the situation in an early March report. “The recent arctic cold front caused significant price spikes in the ERCOT balancing energy and ancillary service markets,” the report said.

ERCOT estimates that the total cost of balancing energy and ancillary services from Feb. 24 through Feb. 27 was around $114 million, all of which will be passed on to load serving entities. The report said that the markets hit by the most severe price spikes were “Up Balancing Energy Service” (UBES), “Responsive Reserve Service” (RRS) and “Up Regulation Service” (URS).

The report broke out the price spikes in each market as follows:

The PUCT’s market oversight division said that it has determined that so-called “hockey stick” bidding was a major factor leading to the $990 UBES price spikes of Feb. 24 and 25.

Hockey stick bidding is when a market participant submits a small portion of its bid at an extremely high price. If ERCOT procures all available bids, including the tip of the “hockey stick,” then the most expensive MWh sets the market clearing price.

In the case of UBES, a market participant had bid a single MWh at $990, while all other quantities in its bid curve were priced at $200 or lower. The second most expensive MWh from all other bidders during the Feb. 24 spikes was $350, while the next expensive MWh of energy on Feb. 25 was $500.

Therefore, the last MWh out of the some 4,100 MWh to 4,900 MWh procured by ERCOT during each price spike interval caused the market clearing price for energy to double or triple. The market oversight division estimates that the additional cost of this last MWh of UBES during the price spike intervals of Feb. 24 and 25 was $17 million. “The price-setting market participant will realize this additional revenue, along with all other UBES bidders, since the market-clearing price is paid uniformly for all MWhs procured by ERCOT.”

According to the report, the following market participants submitted balancing energy bids higher than $300 on the days of the UBES price spikes:

The report said that although hockey stick bidding pushed UBES prices to $990, some price increase was “inevitable” due to the shortage of natural gas and the resulting increase in fuel costs. The PUCT’s market oversight division estimates that the fuel costs for a typical gas turbine generator in Texas rose to around $250/MWh during the cold weather. This assumes complete reliance on the spot market for natural gas, with a $25 per MMBTU gas price and a 10,000 MBTU per MWh heat rate.

The market oversight division is also investigating circumstances affecting the amount of UBES bids, as well as the amount that ERCOT procured during the price spikes.

Specifically, the division is looking at the gap between total MWh bid and total MWh available to be procured. Striking the most expensive MWh implies that ERCOT procured the entire bid stack, the report noted. “However, during most of the $990 intervals the total amount of UBES available to be procured by ERCOT was less than the total bids submitted.” The market oversight division is looking into what happened to the cheaper bids that were not procured, and whether there was an unusually large proportion of bids that were invalid or otherwise withdrawn.

The market oversight division is also examining the effect that relaxed balanced schedules may have had, both on the amount of UBES required by ERCOT and on the degree to which load serving entities were exposed to high UBES prices.

In some cases, retailers were procuring most or all of their supplies from the balancing energy markets rather than under direct bilateral contracts with suppliers. “This practice exposed these retailers to balancing energy price volatility with little or no risk hedging opportunities.”

The market oversight division is “investigating whether collusion or any other anticompetitive behavior on the part of suppliers forced some retailers to rely on the balancing energy market beyond what would have been otherwise reasonably prudent.”

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