Texas Electricity Prices Cap to double

Texas Electricity Prices are all set to change following a proposal by Texas Public Commission, which is looking at doubling of wholesale electric price cap to $9000. In the last week of September, Texas Public Utility Commission is the announced the double wholesale electric price cap – in the $9,000 per megawatt-hour (MWh).

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Previous Increase

Texas Electricity Prices have been affected with price cap levels increase previously as well – when the wholesale electric price cap rose from $3,000 per MWh to $4,500 per MWh.

Proposed Increase

As per the new proposal, PUC is seeking a three-year transitional wholesale price cap- $5,000 per MWh in June, 2013. $7,000 per MWh in June 2014, $9,000 by June 2015.

The reason for this increase is to ensure that the generating capacity is all set to increase in ERCOT in a bid meet demand. It is most likely that the higher price caps will indicate a rise in Texas Electricity Prices, however the ratio may not be 1 is to 1 relationship; the new decade price caps will not be so high and is not likely to be reached in a few hours every year, when grid conditions are tight and generating capacity is ‘scare.’

Texas Electricity Prices as per ‘energy-only’ wholesale market design has proved to be successful for retail electric providers. The actual wholesale prices are not what the consumers’ actually gain. This is largely because retailers do not have the choice of hedging against a higher price cap of $9,000 towards which they can ensure the price stabilizes against higher rates.

Probable Impact

Texas Electricity Prices hike is likely to be in billions, if Texas PUC were to create a ‘capacity market,’ over and above wholesale price cap. This is largely due to the fact that large Texas retail electric providers are not able to hedge capacity costs, as these are a mandate of the government.

Since a capacity market always ensures customers buy at prices fixed by the government every year. These are handled as separate charges on electricity bills and will typically be costs in addition to the power plant costs.

Texas Electricity Prices will therefore see a rise as retail electric providers are not able to bring in customized features and pricing to protect customers from capacity rates, which are likely to undergo revisions every year.

For all consumers, Texas Electricity Prices should preferably not be bound to capacity charge as Texas consumers will then have to bear additional rates.