Spending by the operator of the Texas power grid should be more closely monitored, and companies that improperly manipulate the wholesale market should face the prospect of greater penalties.

Those are just two of the recommendations found inside a report issued last week by the staff of the Sunset Advisory Commission. The report examines operations of the Texas Public Utility Commission and the Electric Reliability Council of Texas.

Several key recommendations involve the need for more budgetary controls at  ERCOT, which oversees operations of the state”s power grid. The report noted that ERCOT’s debt had ballooned from $40 million in 2000 to more than $360 million in 2009, and that “ERCOT’s older debt represents a 14-year payout for some assets that were in use for only three to five years.”

As such, the report calls for the PUC to pre-approve borrowing by the grid operator.

The report also recommends granting the PUC authority to order restitution payments by electric companies that engage in anti-competitive activities. It notes that one company profited by $18 million after it withheld generation over a four-month period. As a consequence, the cost of energy in the wholesale market increased by $57 million, which is a cost ultimately borne by consumers. Nonetheless, the company paid just $15 million in penalties.

“A company can do substantial harm and profit greatly by manipulating the market to raise the price of energy for all purchasers of power,” the report notes, adding that: “administrative penalties should be sufficiently high to overcome any such profit motive.”

Jay Doegey, chairman of the Cities Aggregation Power Project, said the Sunset report highlights the need for reform of the state’s deregulated electricity market. The coalition of more than 100 cities and political subdivisions has called for greater vigilance against market manipulation, as well as a number of other pro-consumer reforms.

“If electric competition is to flourish in Texas, the state must send a clear signal that market manipulation will not be tolerated,” he said.

What’s Next:

Lawmakers are expected to review the Sunset recommendations during public hearings in Austin in May. The Commission then will make official recommendations to the Texas Legislature, which convenes in 2011.

To read the full staff report from the Sunset Advisory Commission, click here.

Photo courtesy © 2006 Larry D. Moore (GFDL)
— R.A. Dyer