Eventful Week for the Power Grid: nuke shutdown, price spikes, new usage record

The South Texas Project: "human error" apparently caused the partial shutdown of the nuclear reactor on Friday.

It’s been an eventful few days for the Texas power grid. Since last week, prices have spiked in the wholesale electricity market, one of the units of a major nuclear plant tripped off due to “human error,” and Texans broke another record for energy usage. Given the comparatively high electric prices already paid by Texans and concerns over continuing problems with the deregulated market, the developments merit examination.

Here they are, in no particular order:

*On Monday, wholesale electricity that more typically sells for less than $30 per megawatt-hour spiked to more than $2,000. That’s an increase of more than 7,000 percent. Prices also spiked several times to the $1,000 level. A price spike for $2,200 is especially startling, given that the regulatory cap is set at $2,250. That is, the wholesale prices legally could not have gone much higher. In most other jurisdictions the caps are set no higher than $1,000 per megawatt hour.

*According to the organization that manages the power grid, the Electric Reliabiilty Council of Texas, a new record for statewide power use was set on Monday. It was the fourth new usage record in as many weeks. ERCOT reported that the new record was broken at about 4 p.m., when demand spiked to 65,715 megawatts. The usage spike came just as the spot market price was spiking to $2,200 — probably not a coincidence.

*Unit 1 of the South Texas Project apparently tripped off on Friday. The event, first reported in a trade journal SNL Power Daily, was apparently caused by human error. “The NRC said in its Aug. 23 event report that the unit experienced an automatic reactor trip that was caused by an inadvertent turbine signal initiated during testing,” reported SNL's Jay Hodgkins, citing the U.S. Nuclear Regulatory Commission. The publication reported that power was restored by Monday. It’s unclear whether the outage contributed to the price spikes, although that seems likely.

*In response to the loss of a major unit on Friday, ERCOT activated the first stage of its emergency response procedure to prevent blackouts. That means that some industrial consumers that previously agreed to have interruptible service lost their power. It was the third time this year that ERCOT has gone to that stage of its emergency response procedures. The major unit that went down was probably the nuke (as referenced in the SNL Energy article) although ERCOT won’t say for sure. That's because such a disclosure would violate ERCOT's rules for competitive information.

The developments are unsettling, especially given that wholesale prices tend to trickle down to residential consumers. A dysfunctional wholesale market can lead to higher home lighting bills. Already Texans pay more than consumers in Oklahoma, Louisiana and Arkansas. Prices also remain higher than the national average. Prior to deregulation, Texans paid below the national average.

-- R.A. Dyer

Of debt and ring-fencing: EFH in Default

Souder

This just in: The Dallas Morning News reports that the debt rating for Oncor’s parent company, Energy Future Holdings, has been downgraded by all three debt rating agencies. Reporter Elizabeth Souder notes in a blog post that EFH has offered to exchange old notes maturing in 2017 for new notes maturing in 2020 — but that the company is paying debt holders less than 80 cents on the dollar.

“In response to these exchange offers, two agencies, Moody's and Standard and Poor's, downgraded the Company to default because EFH didn't pay the entire loans back,” explained Souder. “Both agencies said the default ratings are temporary. Another agency, Fitch Ratings, cut its rating to CCC from B-.”

You can find a link to her blog post here.

In response to the downgrades, Oncor issued a press release “reiterating its separateness” from EFH’s shaky debt situation. EFH is the majority owner of Oncor, which is the regulated transmission and distribution company that serves the Dallas-Fort Worth area. It appears the press release was intended to dispel fears that EFH’s deteriorating financial situation could threaten Oncor and its ratepayers.

Under the terms of Energy Future Holdings’ 2007 buyout of TXU, there were legally binding “ring-fencing” agreements put in place that are intended to separate and protect Oncor’s ratepayers from the risk created by EFH’s massive debt. As a consequence, EFH’s debt cannot be transferred to Oncor, nor can Oncor have any obligation to support that debt, according to the press release. It also notes that Oncor and its assets are legally separate from EFH, and that EFH’s debt holders cannot initiate any bankruptcy, reorganization, insolvency, liquidation or any like proceeding against Oncor.

The situation merits close attention. Citing the massive amount of debt involved, consumer groups previously have questioned whether EFH’s buyout of the state’s largest electric company was in the public interest. Questions also have been raised about whether “holes” in the ring fence have led to higher-than-necessary rates for Oncor’s ratepayers.

You can check out a copy of the Oncor press release here.

PUC sets new energy efficiency rules

State programs intended to increase energy efficiency — but which also stand to increase consumer bills — will operate under new rules as a result of recent action by the Texas Public Utility Commission.

The PUC last year began the process of revamping its rules for its ongoing Energy Efficiency Implementation Program. Under this program, utilities are required to spend money to encourage energy efficiency at the consumer level. For instance, the program provides funding to encourage the marketing of energy-saving appliances. The rules also establish utility goals for reducing overall energy demand and utilities that meet or exceed their goals become eligible for performance bonuses. But the Energy Efficiency Implementation Program can end up increasing electricity bills because both the cost of administering the program and the cost of the bonuses are recoverable by the utility in rates passed on to the consumer.

Rule changes initially proposed by Commission staff and supported by utilities and environmental groups raised the energy efficiency goals dramatically, with a corresponding increase in the program cost cap and available bonuses. The Steering Committee of Cities Served by Oncor, a coalition of municipalities represented by the Lloyd Gosselink law firm, urged the Commission to consider the cost effectiveness of those proposed changes — and the PUC commissioners echoed those concerns.

The rules ultimately adopted by the PUC commissioners on July 30 attempt to strike a balance between the interest of promoting energy efficiency and the interests of ratepayers. For instance, the Commission agreed that the proposed goals will be raised in the future, although they will be raised at a much lower rate than originally proposed. The performance bonus also will remain at current levels, although the administrative cost cap has been raised to account for the raised goals.

Additionally, the Commission imposed a cost cap for both residential and non-residential customers. For the 2011 and 2012 program years the cost cap will be $1.30 per month for residential customers, or .0001 cents per kilowatt/hour — whichever is higher. The cap increases again in 2013. The Commission also instituted cost protections relating to the method by which the cost cap and the bonuses are calculated. For example, under the new rules the cost of the bonuses are to be included in the cost cap for utilities.

The rules will go into effect December 1.

-- Eileen McPhee