Switch to nodal grid system could trouble
Texas electric providers
Oct 18, 2010 - Elizabeth Souder - The Dallas Morning
News - McClatchy-Tribune
A new "nodal" electricity grid system could
put your retail electricity provider out of business.
The Electric Reliability Council of Texas, which operates
the state electricity grid, is switching to a fundamentally
different operating system. The new system assigns the
cost of congestion to the companies creating that congestion.
This is supposed to prompt companies to find ways to
relieve power line congestion and cut electricity costs.
The switch happens Dec 1. Several experts at the Gulf
Coast Power Association conference this week predicted
that the transition to the complex nodal system won't
be entirely smooth. Some retailers might go out of business.
Others might charge customers fees to cover new costs.
"I would expect some retailers to default in 2011," said
Chris Brewster, an attorney with law firm Lloyd Gosselink
who represents cities.
Mike Cleary, ERCOT's chief operating officer, said: "People
are going to struggle. It's the nature of the beast."
But they won't struggle because of any technical issue
at ERCOT, he said. ERCOT is ready for the switch. The
problem is that some electric providers may not be ready.
"We're going to have issues with the market," Cleary
Remember summer 2008, when several retailers went bust
because they hadn't protected themselves against the
risk that wholesale power prices could spike?
At first, one retailer, National Power, tried to simply
break fixed-price contracts with customers. When regulators
put the kibosh on that idea, National closed shop, dumping
customers on expensive providers. Several other companies
shut down for the same reason.
A similar situation could happen early next year if
retailers haven't educated themselves about the new market
or if the change brings surprises to everyone.
ERCOT's new chief executive, Trip Doggett, said the
council has offered training sessions for electric companies.
"We're doing our best to educate the retail electric
providers," he said.
Brad Jones, vice president of government relations for
Luminant, the power generation unit of Energy Future
Holdings, said he worries that ERCOT's collateral requirements
may clash with some nodal rules. Some companies could
face billions of dollars in credit calls, making it difficult
for them to trade effectively, he said.
ERCOT was supposed to switch to a nodal system in early
2009, but technical and management problems delayed the
move and doubled the cost to about $660 million.
At the time, the Public Utility Commission ordered an
outside study of the cost benefit of the system. The
study found that Texas consumers would save $5.6 billion
during the first 10 years of nodal operation.
Brewster said at the conference this week that he doubts
consumers will save that much. He said some retailers
are adding language to their contracts that could allow
them to charge customers for nodal-related costs.
"In my mind, that is very telling," he said.
What can an electricity customer do? Watch your bills
and read any bill inserts, he said.