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Texas Power Prices Briefly Surpass $9,000 Amid Scorching Heat

Christopher Martin and Naureen S. Malik

(Bloomberg) -- Electricity prices in Texas soared to $9,000 a megawatt hour as the state’s grid operator called for energy conservation amid extreme heat scorching the region.

With temperatures in Dallas approaching 100 degrees Fahrenheit (38 Celsius), the Electric Reliability Council of Texas warned that it was increasingly likely the electricity system could experience shortages -- a prospect that may prompt regulators to ease environmental restrictions and allow generators to run at maximum capacity. The region’s power supply cushion has fallen close to 2,500 megawatts, less than 5% of total demand on the system.

Wholesale electricity prices have shot up by as much as 21,147% to $3,848.69 a megawatt-hour across the Texas grid. On Monday, they jumped 36,000% to average as much as $6,537.45 a megawatt-hour across the Texas power grid. It’s a record that has turned the Lone Star State into the most expensive place to buy power in all of America’s major markets.

“Prices could hit the ceiling” at $9,000 a megawatt-hour, said Flannan Hehir, a power analyst at energy data provider Genscape. “We’re already a bit tighter than we were at this point yesterday.”

And the worst of the heat has yet to come. Temperatures were forecast to reach 103 degrees in Dallas Tuesday afternoon before cooling off. The mix of heat and humidity will make temperatures feel closer to 112. The National Weather Service has issued a heat advisory until 8 p.m. local time.

What BloombergNEF says

“Power demand is growing faster in Texas than anywhere else in the U.S.”--Brian Bartholomew, analyst covering U.S. power marketsClick here to view the research

The unprecedented market rally highlights how volatile the Texas power market has become as coal-fired power plants, which have seen their profits squeezed by cheap natural gas and renewable energy resources, continue to close. Texas’s grid operator has been warning for months that plant retirements and increasing electricity demand has left it with slim supply margins.

“We are seeing the coal fleet retirement hasn’t been replaced with a lot of large gas plants,” said Campbell Faulkner, chief data analyst for commodities broker OTC Global Holdings. “We are changing the generation mix and that is what this is caused by.”

Electricity demand hit an all-time high of 74,531 megawatts as people blasted their air conditioners on Monday afternoon and was already totaling 73,405 megawatts at 2:34 p.m. local time Tuesday, according to Ercot. Demand may peak at more than 75,000 megawatts.

“Extreme heat across the Ercot region will continue to result in high loads,” Ercot said in a statement. “We may set another new record today.”

This week’s price spikes also underscore how dependent the region’s power grid has become on wind farms, which now make up about a quarter of the generation capacity in Texas. Lackluster breezes have contributed to the higher prices, Hehir said.

Wind power generation in the region has plunged for three straight days, grid data compiled by Bloomberg show.

--With assistance from Brian K. Sullivan, Reg Gale and Millicent Dent.

To contact the reporters on this story: Christopher Martin in New York at cmartin11@bloomberg.net;Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Steven Frank

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