Texas warns of blackouts as arctic air freezes central US

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The Texas grid operator warned of possible blackouts while loosening the financial obligations of energy traders as arctic air enveloped the central US and sparked record demand for power.

The Electric Reliability Council of Texas (Ercot) asked consumers on Sunday to conserve “as much as possible” until Tuesday as it coped with frigid conditions that sapped electricity supplies. The state’s utilities regulator repeated the message, imploring businesses to turn off lights and equipment as much as possible.

A frigid air mass pushing south from Canada will send temperatures to 4F (-16C) in Dallas, forecasters said. Texas, the largest US oil and gas producer, is also the top electricity consumer in the US. Buildings that heat with natural gas are competing for supplies with power plants that burn gas.

Wholesale electricity prices for next-day delivery surged above $7,000 a megawatt-hour on Sunday, multiples above average prices of $25 a MWh on the Texas grid.

Dan Woodfin, Ercot’s senior director of system operations, said electricity demand was likely to exceed the record of 74,820MW set during the sweltering summer of 2019. He urged Texans to turn down thermostats, close window shades and unplug appliances to save energy.

“We could be in emergency operations as early as tonight. We would expect to be in emergency operations tomorrow through at least Tuesday morning,” he said on Sunday.

If demand exceeds supply the grid operator could order utilities to undertake “rotating outages” that last about 15 to 30 minutes in each neighbourhood, he said.

The cold spell will be a test of Texas’s freewheeling electricity model. Generators are paid only for the energy that they sell, not for keeping capacity in reserve in times of stress. Electricity retailers compete fiercely for customer business, unlike utility monopolies that operate in some other states.

The prospect of soaring electric bills led some retailers to suggest that customers take business elsewhere. “If the forecast and prices are too extreme for you right now, we understand if you want to switch providers,” said the website of Griddy Energy, an electricity retailer active in Texas.

Griddy in December announced an investment from Macquarie, the Australian bank with a large energy trading arm, and a new management team that would focus on “solutions to combat price volatility”.

AP Gas & Electric, another retailer, emailed customers with tips on conservation titled, “Stop the Blackout. Reduce your usage NOW!”

Days of stratospheric power prices threatened to stretch wholesale power buyers’ ability to pay for their purchases, a process overseen by Ercot. At the weekend the grid operator adjusted the way it calculated the good-faith money required to backstop trades.

“For the duration of the change, this lowers the collateral requirements for our market participants,” said Kenan Ogelman, Ercot’s vice-president of commercial operations, “so they could stay in the market.”

Natural gas supplies have been “limited” to some power plants, Ercot said. Analysts said that cold temperatures had curtailed the flow of gas from wells and gathering pipelines, helping to send spot prices to more than $100 a million British thermal units, up from below $3.

The gas price surge has rippled from Chicago to California, where the grid operator told generators they could update energy bids to account for “exceptionally high” fuel costs.

Texas power supplies were also tight because wind turbines were frozen by ice, with about 12,000MW of capacity out as of Sunday morning, Woodfin said.

Oil prices rose as well, with the West Texas Intermediate crude futures for March delivery climbing $1.17 to $60.64 a barrel, surpassing $60 for the first time in more than a year.

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