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 said.

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.