August 2018

Texas Electricity Market Update

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Since the record heatwave that settled over much of Texas in mid to late July, temperatures in Texas have moderated by comparison.

The heatwave also brought high usage demands to an ERCOT electric grid that already saw a number of generator retirements in early 2018. This was shaping up as a major test of the ERCOT electric grid. To date the market has met all users demand without any rolling brownouts or blackouts being necessary.

Since late July, temperatures have returned to more traditional levels and the electric system continues to operate smoothly.

Market prices have remained at reasonable levels the past few weeks. However, the summer is not over yet and if we experience another major heat wave event, prices could spike during high demand periods.

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Congestion costs, which had been high in both the West and South zones for the past few months have also returned to more historic levels the past few weeks.

It appears that future congestion costs for both zones may remain at more historic levels unless future system outages occur or during periods of high demand.

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If you do not need to contract now, TCAP suggests waiting until markets are more stable.

Finally, we are hearing that sales agents and brokers are encouraging cities to lock-in long-term contracts now, suggesting higher future prices.

TCAP feels exactly the opposite.  Hot weather, high demand, lowered generation resources and lingering hurricane damage has all created uncertainty in the immediate ERCOT market. Currently, TCAP sees nothing to suggest a significant fundamental long-term market price increase beyond this temporary period of uncertainty.

If you must contract now, consider doing so for a shorter term and plan to recontract shortly thereafter when market conditions improve.  Above all, do not fall victim to scare tactics and panic. TCAP is happy to discuss our views of the market and contracting at any time. Please feel free to reach out to us.

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