Report Finds No Evidence of Market Manipulation During Blackouts

A report prepared for the Public Utility Commission and released on Wednesday has found no evidence of market manipulation during the Texas rolling blackouts in February.

The report, produced by a consulting company charged with independently monitoring activities in the Texas electricity market, also said the market "operated efficiently" during the eight-hour rolling blackouts, when wholesale prices for power rose by roughly 100 times as more than one-tenth of the state's power plants failed in abnormally cold weather. The blackouts and associated price spikes were "not the result of market manipulation or an abuse of market power," the report said.

A separate report, about grid reliability during the blackout event, should be ready for the Public Utility Commission in several weeks.

The report released on Wednesday found no evidence of companies withholding electricity on Feb. 2, the day of the blackouts — something electricity generators could in theory resort to in order to drive up prices. The report also found that companies coping with major outages "found themselves unprofitable that day," a finding that further undercuts the market-manipulation theory. Luminant, one major generator with outages that day, has said it lost $30 million from the blackouts.

The price spikes — up to the cap of $3,000 per megawatt-hour, when $20 or $30 is more normal for early February — simply reflected efficient operations of the market, with the limited supply and skyrocketing demand sending the correct pricing signals, the report said.

One area for improvement going forward, the report noted, may involve planned down-time at power plants. Plants must occasionally be turned off for maintenance reasons. But on Feb. 1, two major units (with 1,500 megawatts of capacity) were scheduled for outages, and it does not appear that the grid operator, noticing cold weather coming, asked those plants to defer the outages, the report said. However, another, smaller unit was asked to defer, and did.

Other information has also been trickling out about the blackouts.

The Electric Reliability Council of Texas, which manages the Texas grid, has posted spreadsheets on its website that show which companies took part in trading electricity during those days. The information is difficult to decipher, though data miners should be able to determine which companies did well or badly by comparing their trades (sometimes made a day ahead of time) to the general market prices. The data do clearly show the fluctuating bids and offers for electricity posted by different companies, including financial institutions like Morgan Stanley and Merrill Lynch (although there is nothing inherently strange about these companies' participation in early February, because they trade in the Texas electricity market on other days too, as this list of "market participants" suggests).

ERCOT released the information on the purchases and sales of electricity by individual companies two months after the trading occurred. The lag time in releasing the information is due to secrecy rules designed to protect companies from their competitors — something the electric industry says is important.

In general, electricity experts say, the scope of electricity-trading activity in Texas has recently expanded with an arcane — though costly and important — switch last December in the method of dispatching electricity in Texas (technically, from "zonal" to "nodal"). Until December traders could trade electricity only in four Texas "zones," but now they can trade for seven zones and 500 other points, according to Matt Mereness, the manager of the "day-ahead" market for ERCOT. The day-ahead market itself is new: The "nodal" market enables companies to sell electricity one day ahead of when it is needed, as well as on the day it is used.

In addition, "there are even more participants in our market now" than previously in the zonal market, according to Mark Bruce, a principal with the consulting firm Stratus Energy — including more retail electricity providers, renewable generators and financial players.

Financial companies also trade in other markets, including those in California, New York and New England, as well as an electricity transmission zone called PJM in the mid-Atlantic, Bruce says.