A May price spike shows vulnerability of power market to manipulation — and cost to consumers
By L.M. Sixel July 26, 2019
The error was inadvertent, an unknowing mistake by an IT worker, and was corrected in three minutes. But within those moments, the price of electricity on Texas’ wholesale market soared from about $40 a megawatt hour to $9,000.
Calpine, one of the nation’s biggest power companies, last week claimed responsibility for the price spike, admitting the data it sent to the state’s grid manager erroneously showed some 4,000 megawatts of generation — enough to power about 800,000 Texas homes — coming offline during a late May afternoon with temperatures in the 90s. The Houston company has called on the grid manager, the Electric Reliability Council of Texas, to reprice the transactions and order refunds to wholesale customers.
The episode, which generated an immediate windfall of $18 million for power companies and tens of millions more from futures contracts priced higher as a result, illustrates how vulnerable the electricity market in Texas is to manipulation. It also shows how bad data, whether by accident or design, finds its way into the control systems of ERCOT and drives wholesale power price higher.
The Calpine incident is far from isolated and unusual only in that the details have become public. Power companies have exploited weaknesses in the design of Texas’ deregulated market almost from the day it began operating in 2002 and often done so with few consequences, reaping windfalls that have cost consumers, traders, industrial customers and retail power companies hundreds of millions of dollars, according to court records, regulatory filings, market reports and interviews with analysts, commodity traders and other experts.
In four months between March and June alone, the consulting firm First Principles Economics of Houston found 55 incidents of power inexplicably moving on and off the market, likely boosting prices and raising red flags about the integrity and oversight of data that controls the flow and cost of electricity in Texas. In a recent filing with the Public Utility Commission, ERCOT said it receives inaccurate production data from generators as frequently as once a day.
Lawmakers and regulators, meanwhile, have done little to harden the system against manipulation and, in some ways, provided incentives for companies to game the market. When it finds irregularities that push prices artificially high, ERCOT rarely reprices transactions and orders power companies to give up the gains. Within an hour after discovering Calpine’s error in May, for example, ERCOT said it would allow generators to pocket the money.