Bloomberg News

Texas Should Raise Power Prices to Avoid Blackouts

June 01, 2012

Texas regulators should triple peak wholesale power prices to avert blackouts later this decade when electricity demand is predicted to outstrip supply, according to a report today by Brattle Group Inc.

The study, commissioned by the operator of Texas’ main power grid, recommends that the state with the highest power- consumption adjust its free-market framework to encourage electricity producers to invest in new generation needed to keep pace with economic growth.

Texas should increase peak wholesale rates from the current price of $3,000 a megawatt hour to $9,000 a megawatt hour or a similar amount, but only in times of “extreme scarcity,” when the stability of the grid is at stake, Brattle said in a report posted today on a website run by the Electric Reliability Council of Texas.

“The Brattle Group’s report confirms that we are moving in the right direction,” Donna Nelson, chairman of the Public Utilities Commission of Texas, said in a statement today.

When power demand is building, yet hasn’t reached critical levels, the report recommends raising prices to $500 a megawatt hour. Brattle suggests the state adjusts pricing mechanisms so that price spikes are tied to locations where demand is greatest and avoiding pricing standards that may trigger unwarranted increases.

Utilities regulators have proposed raising the maximum price generators can charge during period of heaviest demand to $4,500 a megawatt-hour as of Aug. 1, and tripling peak pricing to $9,000 a megawatt hour by 2015.

Ercot, which serves 85 percent of the state’s load, said in a May 22 report that without new sources of generation available electricity will fall critically short of demand by 2014.

Power supplies may be tight this summer in Texas and Southern California as insufficient reserves increase the risk of rotating blackouts, the North American Electric Reliability Corp. said in a May 30 report.

To contact the reporter on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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