From the Upside Down Market View of Houston Chronicle Columnist Loren Steffy

Michael Giberson

Loren Steffy, business columnist at the Houston Chronicle, is frequently a sensible guy. But his writing gig seems to require him to announce the sky is falling on a regular basis, so you have got to be a little careful when reading him. What else can you say about a column that cites a day (May 9, 2012) during which ERCOT wholesale power prices rose from $23 MWh around midnight to about $32 MWh as an omen of ill things to come? He says unnamed traders are “seeing suspicious activity in the spot markets.” Unnamed traders also “worry that the volatility will get worse.”


For just a little historical context, consider prices during May 2010: on average prices began about $26 MWh, dropped below $20 in the early going, but ran up to an average of $75 MWh during the afternoon peak.

Or how about May 2009? The first hour of the day the price averaged $35 MWh, dropped to $15 in the early morning hours and rose to $55 MWh at the afternoon peak.

These price patterns are even more extreme than the numbers Steffy is worried about. So maybe Steffy’s message is that the whole market has been tangled up in suspicious activity for years – why else would he say “we can only conclude that deregulation has become expensive nonsense.”

Only, if I want to buy into Steffy’s expensive nonsense story, I have got to ignore a bit of reality: average prices in ERCOT have been falling.  Prices in 2004 averaged about $45 MWh.  Power prices followed natural gas prices up in 2005, down a little for a few years then way up in 2008, down again in 2009, and back a little higher in 2010. In 2011 the average price in ERCOT was around $40 MWh.

Now here we are in 2012, years of “suspicious activity” later, and low natural gas prices continue to provide low electric power prices. By the way if you understand how the ERCOT market is supposed to work, and you realize the role natural gas-fired generation plays in Texas, then all of this makes a good deal of sense.

“Suspicious activity”? “Deregulation has become expensive nonsense”?

Before I buy Steffy’s conclusion that the sky is falling, I think I’ll get a second opinion from Henny Penny or maybe Goosey Loosey. I would ask the Unnamed Traders for a quote, but I don’t think those guys have done their homework.

NOTES: My beginning prices are an unweighted average of the four interval prices in the balancing energy market from midnight to 1 AM for each of the four geographic zones in ERCOT in 2009 and 2010. The other prices noted are similarly averages for all four zones over an hour. The market design has changed since May 2010 in ways that don’t much matter at the level of aggregation we’re talking about here, though it makes exact comparisons trickier.

I’m not quite sure how Steffy’s price numbers were calculated – he reports getting them from a trader. When I look at ERCOT real-time market settlement point prices from May 9, 2012  ( it looks like my May 2009 or 2010 numbers. Averaging the HB_HUB_AVG price for each hour: prices start the day about $16 MWh, peak at $55 MWh about 5 PM, and drop back to $18 MWh at the end of the day.