[UNITED STATES] The american summer has come early for Texans, but it's not because of the weather

The price of electricity already was rising toward records because of climbing natural gas prices. Now it's getting an extra boost from unexpected spikes in the wholesale markets where electricity is bought and sold in bulk.

For several days this month and in April, the price of power briefly spiked in the so-called balancing market where the state's grid operator buys electricity at 15-minute intervals to keep supply and demand in balance.

Those prices didn't show up directly on any homeowners' bills, but they may have helped push two smaller electric retailers out of business, dumping almost 25,000 customers back into the market.

And those customers likely will pay more to their new providers because of the wholesale spikes. Customers who were seeing monthly bills of $110 for 1,000 kilowatt hours of use could see their bills shoot up to $200 or $300. The balancing market wholesale price typically is around $100 per megawatt hour. Price spikes into the thousands are expected during the hottest summer days, when Texans crank up their air conditioners and pool pumps.

But shortly after midnight on April 25, the price surged to $3,805.72 in the Houston area and $4,514.68 in South Texas. And at 4:30 p.m. on May 23, the price hit $3,460 in Houston and $4,233 in South Texas.

The cause of the spikes appears to be congestion at a few key points in the grid, most notably near the Sandow power plant operated by Dallas-based Luminant in Milam County, officials said.

Ineffective methods
For reasons still not entirely clear, the techniques used to handle such problems by the state's grid operator, the Electric Reliability Council of Texas, have become ineffective.

The April and May power spikes didn't threaten the grid's reliability, said Public Utility Commission Chairman Barry Smitherman, but the problem is forcing officials to reconsider how to address congestion.

"It's a question of if Electric Reliability Council of Texas is using the right tools to solve specific congestion points," Smitherman said.

ERCOT, the PUC and industry officials expect to work starting as early as next week toward changing the rules for handling congestion, in an effort to permanently fix the problem, he said.

The wholesale power spikes may have contributed to pushing two smaller electric retailers out of business — Houston-based National Power and Bridgeport-based PreBuy Electric.

Both appeared to be in trouble at first because they failed to hedge their power purchases against rising natural gas costs, promising customers long-term rates as low as 11 cents per kilowatt-hour shortly before the typical retail price rose to 15 cents or more.

But the steeply spiking wholesale market also may have hurt the two companies because of an Electric Reliability Council of Texas requirement that smaller retailers post collateral equal to a percentage of their wholesale costs.

Javier Vega, president of Amigo Energy, a company that took on about 6,000 National Power customers, said it could create a situation where a relatively small retailer has to come up with $1 million in extra collateral.

For the National Power and PreBuy customers dumped back into the market, the timing couldn't be worse.

Since Jan. 1 the average rate companies offered for a 12-month commitment in in Houston, climbed 28.5 percent, from 11.9 cents to 15.3 cents, according to data compiled by ChooseEnergy.com, a reference site for electric customers.

The increases are driven in large part by a 56 percent rise in natural gas, a key power plant fuel that essentially drives the price of power in Texas.

Retail prices typically climb as summer approaches, but this year's prices are much higher than a year ago.

Early last June, for example, TXU's variable rate plan price was 13.9 cents per kilowatt hour. On Monday the rate will be 16.9 cents, according to data compiled by WhiteFence.com, a Houston-based utility shopping site. Commerce Energy's 12 month plan was 13.6 cents in June 2007, but will be 17.7 cents this year.

Change in companies
Plans for power from renewable sources, which generally run higher than other plans, are also higher this year. Green Mountain Energy's 12-month renewable energy plan was 14.3 cents last June but will be 16.9 cents this June, according to WhiteFence.

Customers of companies that fail are automatically transferred to so-called providers of last resort.

PUC rules let the POLRs charge rates significantly higher than the spot rate.

On Friday Reliant Energy and TXU Energy, the two largest retailers to take on the abandoned customers, said they would either put them on less costly month-to-month plans or help them move quickly to those plans.

Randy Chapman, executive director of Texas Legal Services Center, a consumer advocacy group, said among the customers who were moved to the POLR are poor and elderly customers hit hard by any rate increase. Many customers of failing retailers also may have a hard time recovering deposits.

"We could see more retailers go under this summer, meaning more customers getting POLRized," Chapman said.

Source: The Houston Chronicle |By TOM FOWLER

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