ERCOT, the Electric Reliability Council of Texas, operates the electric grid for 24 million Texans, for about 90% of the state’s electric load. Potomac Economics is the independent market monitor, with no enforcement ability. Platt’s Management Daily reports on the daily electricity usage. The mission of ERCOT is to avoid brown outs and black outs. Several years ago ERCOT cut off electricity to the Dallas Medical Center and that was a mess. When there is an approaching brown out or black out, ERCOT can raise price of wholesale electricity to bring on line mothballed, inefficient or otherwise withheld power plants to increase supply.
In 2013 wholesale electricity costs were as much as $332 million more than competitive prices with the cost attributed to the behavior of GDF Suez by Potomac Economics (page 115 of report), and perhaps more. For one instance, Aspire Commodities and Raiden Commodities sued in U.S. federal court GDF-Suez North America. Inc. et al. They allege GDF Suez and several other electric providers send false information through market manipulation by running the price of wholesale electricity up. They claim they lost $20 million dollars on the Intercontinental Exchange (ICE), where derivatives trade based on price and deliveries of electricity in the ERCOT market. The case was dismissed on standing, not on merits and the appeal is working its way through the appellate court.
One issue is the ERCOT “small fish swim free” 20.504c rule. Electric providers who supply less than 5% of the state load are exempt from many of the market manipulation rules. The Small Fish rule 20.504(c) subsequently excludes all ‘uncontrollable wind resources’ (aka wind generation).
In February, 2013 Paul W. MacAvoy Yale professor and former member of the President’s Council of Economic Advisors and Ed Hirs, Energy Economics professor at the University of Houston, pointed out in a Houston Chronicle article that ERCOT is structured in a way in which market manipulation is very easy.
On May 18, 2015, Platt’s Management Daily reported ERCOT’s billion dollar software model went haywire because of false information causing wholesale prices to rise rapidly from less than $30 per megawatt hour to $124 megawatt hour for ERCOT’s West hub and $174 per megawatt for ERCOT’s West load Zone B. By 3:30pm on the follow normal day the system was $33.17 per megawatt hour. Aspire Commodities estimates this outrage was about $50 million in what he calls price gouging.
On June 25th, 2015, Dave Fehling of Public Radio News 88.7 raised the issue, “should millions in fake profits be returned to Texas electric users?“ He noted the Public Utility Commission is looking into the matter.
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