Loren Steffy Shines His Light on Raising Electricity Market Cap

Posted on Posted in Deregulated Electricity, PUC/ERCOT, Texas Electricity, Texas Electricity News

In the past, I’ve had some pretty divergent opinions about deregulation and Texas Electricity with Loren Steffy, the chief energy writer at the Houston Chronicle. His latest article is no different, as I can’t help but roll my eyes at the usual swipes he can’t seem to help but take at the retail electricity market.

However, the subject of his latest article, the raising of the market cap for wholesale pricing (something I’ve been very critical off already) is good news at least in the sense that Steffy is pointing out the obvious flaws in the plan. Steffy is a visible personality in the world of energy, so his critiquing of the move to raise the market cap is a good thing…because it is a terrible, knee-jerk idea with no guarantee to solve the problems it’s aiming to address.

Steffy, like myself and many other people, including PUC Commissioner Kenneth Anderson, think raising the market cap, particularly rushing into it this summer before the study commissioned by the PUC is even complete, is a horrible idea. All it guarantees is that customers will be paying higher electric prices, not that we’ll get new generation construction.

The most interesting part of the article to me, however, is the part hinting at how the electricity trading market might be being manipulated for profit by generators.

Even before the cap is raised, though, traders tell me they’re seeing suspicious activity in the spot markets.

It’s not clear what’s causing the latest spikes, but Dan Jones, the state’s independent market monitor, agreed that the spot markets are behaving differently.

“We know that this spring the weather was really mild and the load levels are pretty low,” he told me. “Gas prices are totally upside down from where they’ve been. The market dynamics are different.”

Jones said he hasn’t ruled out manipulation, but he’s still investigating.

Manipulating the deregulated electricity market for profit by generators is something that is often whispered, but people are often hesitant to address loudly. But there’s no doubt it can have a huge effect on prices in an electricity market…we need look back no further than Enron and California a few short years ago. And raising the market cap from $3000 to $4500 could only encourage anyone who might be willing to manipulate the markets since the potential gains would only be that much higher.

Interesting food for thought. And yet another reason why haphazardly rushing into an increased market cap is a terrible idea.

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