Dallas Vs. Houston: the Differences in Retail Power Charges

Michael Giberson

Dallas and Houston draw electricity from the same ERCOT power grid, but the Dallas area has sported lower retail power prices for the last few years. The Houston Chronicle explains some of the reasons for the differences:

Houston’s residential electric power prices are consistently higher than in the Dallas-Fort Worth area, ranging in recent years from about a half-cent per kilowatt-hour higher to more than 2 cents higher in May and June, according to data from power shopping site ChooseEnergy.com.

A penny or two may not seem like much, but if your house uses 1,000 kilowatt-hours per month — which is on the low side for Houston — that 1 cent equals $10, or $120 per year.

The article points out that the Houston area utility divested more generation – and receives a higher ‘stranded cost’ payment from area customers as a result; the Dallas area utility kept more generation and hence receives a lower payment. The Houston-area fee for managing the transmission and distribution lines is just a little lower than that in the Dallas area.

Most of the bill, however, comes from the wholesale cost of power, and on that score Dallas has been much better to customers. The high congestion costs in ERCOT have been one big contributer this year.

To meet its peak power needs, Houston often has to draw on power from North or South Texas. The connections between those zones can become congested during peak hours, so power generators are offered higher rates to relieve that congestion. That means higher wholesale prices for the Houston area.

Flaws in the way the state’s main grid operator manages those bottlenecks amplified those problems this year, however. Instead of hovering around the $100 to $200 per megawatt-hour range that is typical, wholesale prices in Houston and South Texas briefly reached over $4,000 per megawatt-hour. The average wholesale price in Houston so far this year has been 22 percent higher than in North Texas, [Reliant Energy manager Charles] Griffey said.

The grid operators have tried to fix the problem and, for the time being, the price spikes have lessened.


5 thoughts on “Dallas Vs. Houston: the Differences in Retail Power Charges

  1. Zonal congestion management in TX is pretty screwed up, and I don’t know enough about how it really works to comment. But if it were working as it should, then the Chron’s statements are misinformed.

    In a properly functioning locational market, it should work like this: To meet its power needs, Houston would like to draw all of its power from less-expensive generators in North or South Texas. But because not enough transmission capacity is available, the Houston area must rely to some extent on higher-cost local generation, which sets the local wholesale price.

    This is clarified to some extent further down in the article where traders are consulted: Because of transmission limitations the Dallas area often has surplus generation. One points out that the heat rates are higher in the Houston area. The “heat rate” is mis-identified as a measure of the efficiency of *all* the generation in the area. I would guess that they are referring to the implied heat rate, which is determined more by the efficiency of the *marginal* generators in the area. But the unemphasized point is that the importing Houston area has to rely on high-cost local generation to get through the day. This seems to get lost when high prices are blamed on congestion, which, I’d wager, most reporters don’t understand.

  2. Zonal congestion management in TX is pretty screwed up, and I don’t know enough about how it really works to comment. But if it were working as it should, then the Chron’s statements are misinformed.

    In a properly functioning locational market, it should work like this: To meet its power needs, Houston would like to draw all of its power from less-expensive generators in North or South Texas. But because not enough transmission capacity is available, the Houston area must rely to some extent on higher-cost local generation, which sets the local wholesale price.

    This is clarified to some extent further down in the article where traders are consulted: Because of transmission limitations the Dallas area often has surplus generation. One points out that the heat rates are higher in the Houston area. The “heat rate” is mis-identified as a measure of the efficiency of *all* the generation in the area. I would guess that they are referring to the implied heat rate, which is determined more by the efficiency of the *marginal* generators in the area. But the unemphasized point is that the importing Houston area has to rely on high-cost local generation to get through the day. This seems to get lost when high prices are blamed on congestion, which, I’d wager, most reporters don’t understand.

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