Texas electricity wholesalers profited from congestion

Ann de Rouffignac
OGJ Online

HOUSTON, Nov. 27, 2001 — Certain Texas wholesale electricity market participants have made money by "consistently" overscheduling load and generation across known transmission constraints, state regulators concluded.

In a cautiously worded analysis, the oversight division of the Texas Public Utility Commission examined scheduling behavior for15 days in August when payments to specific market participants approached $86 million to keep them from running powers plant or to reduce scheduled load. Three of six scheduling coordinators received 91% of the imbalance payments during the 15 days, the report said.

When a generator overschedules, it means the Electric Reliability Council of Texas, the grid operator, must pay schedulers to turn off power plants or reduce load to keep the transmission lines from becoming overloaded or congested.

By deliberately overscheduling, certain market participants benefit at the expense of all other players. The ERCOT market rules contain no penalties for overscheduling. ERCOT spreads these extra costs among all market participants.

While only a few companies benefited from overscheduling, the cost was borne by all ERCOT wholesale market participants. Unless the costs are absorbed by the companies, retail customers will ultimately bear the cost.

Some public power companies such as Public Service of San Antonio complained about these costs in recent legislative committee oversight hearings and in correspondence with the PUC.

Even though the report found consistent patterns of overscheduling by individual market participants, the PUC staff said overscheduling could be 'rational behavior'. The QSEs [or schedulers] may overschedule load in order to minimize the risks associated with uncertain market clearing prices for balancing energy," the report said.

One market participant said the pattern of overscheduling amounted to "gaming" or manipulating market rules to increase profits. "The patterns on overscheduling show they figured it out. It's pretty clear there was gaming," he said.

PUC spokesman Terry Hadley said the commission is not "quite ready to use the 'G' word yet. But we will be meeting with several QSEs [schedulers] next week about scheduling."

ERCOT is developing an alternative method for allocating congestion costs called 'direct assignment' to avoid excessive imbalance charges from being shared by all market participants. The method assigns the costs of congestion to those participants that caused it.

But ERCOT observers are not sure that direct assignment will fix all the overscheduling problems. "In the end it will be a numbers game," a market participant said. "How much do you make by overscheduling versus how much of the congestion costs are assigned to you."

Consumer advocates are also wary direct assignment won't eliminate market abuse. "Our concern is that the PUC may let bad behavior slide because they are expecting direct assignment of congestion costs to reduce the potential for gaming," said Janee Briesemeister, senior policy analyst with Consumers Union.

"Even during the pilot there should be zero tolerance for companies manipulating the market rules to increase profits."

Contact Ann de Rouffignac at annd@pennwell.com

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