SNL reports that prices in ERCOT North markets “were done in the high $90s to low $100s for an average daily gain of more than $40, while off-peak power parcels saw value jump to near $70. Day-ahead prices also pushed higher, with values pegged in the high $90s, more or less in line with the next-day market.”
This came only a few days after SNL had written, “After reaching a near 18-month high average of $210.51 on Feb. 5, ERCOT North deals for Feb. 10 were marked from the mid-$50s to mid-$60s on Friday, off more than $50 on the day, with day-ahead markets for Saturday, Feb. 8, pegged in the mid-$50s, also off close to $50 on the day.”
This is exactly what we expect to see in a competitive market–dynamic pricing, with higher prices during periods of higher demand. The dynamic nature of price movements can change the market rapidly. And we are seeing just that in ERCOT, with companies taking plants out of mothballs and attempting to move turbines into Texas to take advantage of the opportunity for profit.
Unfortunately, the dynamic nature of the actual Texas market is given the short shrift by the Brattle Group in its reports to the PUC. For instance, in its 2012 report, Brattle said, “An important qualification to these simulation results is that they assume only the current level of demand response,” dismissing the ever-changing nature of demand respond in Texas.
Similarly, in the report it published last month, Brattle stated that its “estimates describe only long-term average prices at equilibrium. They do not describe this year or the next few years.” Brattle has to qualify its estimates like this, because the 11.5 percent reserve margin in Brattle’s theoretical market is far below the 14 to 20 percent reserve margins recently maintained in ERCOT. The upcoming reserve margin forecast from ERCOT will likely place reserve margins in the higher end of that range.
The Brattle Report provides solid evidence that Texas’ competitive electricity market is working well because even Brattle has to conclude that its forecast reserve margin exceeds what is necessary to maintain a reliable supply of electricity.