Texas grid may alter rules as power prices soar

HOUSTON (Reuters) - The Texas grid agency will meet on Friday to consider a rule change that regulators and market participants hope will return order to the state's real-time energy market where high prices have become chronic and severe.

Directors of the Electric Reliability Council of Texas (ERCOT) have scheduled an emergency meeting to vote on a recommendation approved Thursday afternoon by the grid agency's technical advisory committee.

In recent weeks, balancing-energy market prices in ERCOT's four market zones have ranged from negative territory in the west, where wind-generated power is abundant, to the market cap of $2,250 per megawatt-hour and even higher during times of transmission congestion.

Price volatility has been blamed for the financial collapse of three small power retailers in the past month. The failures forced ERCOT to transfer more than 35,000 customers to new suppliers and exposed them to dramatically higher default prices tied to the spot market.

A fourth Texas retail supplier has filed for bankruptcy in recent weeks, according to the Texas Public Utility Commission.

PUC Chairman Barry Smitherman on Thursday urged ERCOT to take action to address the recent price volatility.

"We're in triage now," Smitherman said. "We need to solve the problem."

The price volatility began in the spring when increased wind generation in the western half of the state and a lack of sufficient transmission to move the power to large cities led to depressed spot prices in West Texas and higher prices elsewhere in the state.

Dan Jones, the ERCOT independent market monitor, called the price volatility "chronic and severe" last week.

The protocol revision to be considered Friday would change the definition of zonal congestion to allow the grid operator to resolve certain congestion situations with "local" congestion methods, rather than the "zonal" methods used now.

While the balancing energy market represents only five percent of the wholesale market, spot prices affect next-day and future electric prices in the private contract market.

Next-day prices surpassed $400 per MWh last month and remain above $100 across the state. A year ago, June power prices averaged $67 per MWh, according to Reuters data.

The uncertainty has already boosted forward power prices for the summer. ERCOT Houston zone power for delivery in the month of July jumped $12, or 7 percent, to $177 per MWh, a 52-week high, according to a weekly report from Suez Energy Resources NA. All four ERCOT zones were at one-year highs last week, ranging from $134 in the West to $177 in the Houston zone.

(Reporting by Eileen O'Grady; Editing by Marguerita Choy)