Besides leaving Texans without power, the rolling blackouts of last February also sent shockwaves through the state’s wholesale energy market. Electricity that typically sold for less than $75 suddenly was fetching $3,000. The price spikes were nearly unprecedented. Clearly somebody was making money off the crisis.
And now a new report is raising troubling questions about the event. Robert McCullough, an Oregon-based economist best known for investigating Enron’s shenanigans, concludes in a brief analysis released last week that weather alone was not to blame and he instead hints there may be some defect in the state’s newly revamped system for managing wholesale energy.
In his five-page report, McCullough cites evidence that power plant efficiency has been consistently lower and more volatile under the new “nodal” system. McCullough also notes that the inclement weather during the February 2 blackout and during a separate incident on June 27 were unusual but not unprecedented.
The nodal system only became operational late last year. Under it the ebb and flow of wholesale energy is monitored across thousands of discrete nodes. This is different from the old system, which employed only a handful of zones. The state”s grid operator, an organization known as ERCOT, manages the nodal system.
McCullough in no way lays the blame definitively on the new nodal system, but rather raises questions about the increased lack of efficiency under it, as well as a lack of transparency in the wholesale energy market, and the possibility of “artificially-created scarcity” — which is regulatory lingo for Enron-type market manipulation. But “what is clear is that the weather is not the reason for ERCOT’s inability to operate reliably,” he writes.
An earlier investigation by the state’s Independent Market Monitor did not cite any problems with the nodal system and found that it worked efficiently during the February outages. Likewise, a federal report largely blamed the inclement weather, although it said plant operators could have done a better job.
But an incredible 3,800 megawatts of power unexpectedly went off line last week and ERCOT twice has warned recently of potential power shortages. Why is this happening when the state supposedly enjoys sufficient power reserves? Is the state’s market design somehow related?
McCullough’s report raises more questions about such issues than it answers. But as the Houston Chronicle’s Tom Fowler notes, the questions are important ones. Fowler notes that McCullough has touched upon “a strain of skepticism” that many feel in the wake of the blackouts. You can read the McCullough report here.
— R.A. Dyer
Is a policy analyst consultant for TCAP, a coalition of political subdivisions in Texas that purchase electricity in the deregulated market for their own governmental use. Because energy costs are typically a significant budget item to our members, TCAP is consistently looking for ways to save our members money, through cost-saving contracts, energy efficiency or demand response programs.