Are ‘Fake Profits’ Driving Up The Cost Of Electricity In Texas?

Texans spend more on electricity than people in just about any other state according to federal data. Hot weather and air conditioners have a lot to do with it. But there are allegations that there’s something else at play.

By Dave FehlingJune 16, 2015 8:01 am|

This story originally appeared on Houston Public Media

One insider calls them “fake profits” that come from the way electricity is sold in Texas. Profits that some say are made at your expense.

The power that flows to your home is priced through a complex, computerized wholesale market. That wholesale market determines the price of electricity moment by moment, with the price sometimes taking big leaps like when demand increases because of hot weather or when the supply drops because a power plant has a breakdown.

The market is managed by ERCOT, the Electric Reliability Council of Texas which in turn is regulated by the Public Utility Commission of Texas.

You needed to know all that to understand why Adam Sinn says you should be very concerned if you pay an electric bill.

“The average ratepayer sets at home and has no idea how flawed the system is,” Sinn told News 88.7.

Sinn started an energy trading business in Houston and now runs it from Puerto Rico which is where we reached him.

Sinn had a surprising admission: He said his company had made what he calls “fake profits” last month selling electricity in Texas, profits Sinn says his company didn’t deserve.

“Those are fake profits derived by a mistake,” said Sinn , “and my company’s feeling was that it is wrong,”

What mistake led to “fake” profits? Sinn explained that some bad data was entered into the ERCOT computer system. It made it seem like there was going to be big decrease in electricity generated in West Texas (it was discussed in an ERCOT meeting June 1st).

But the decrease never happened. Nonetheless, prices skyrocketed. For several hours, wholesale prices shot up to some 23 times the average price.

How much did that add to the cost of Texas electricity that day?

“We calculated this mistake was somewhere in the ballpark of 50+ million dollars,” Sinn said. “That’s a lot of money and it’s a large cause for concern.”

But Sinn said this wasn’t the only time recently when a computer glitch caused a price spike. Just weeks earlier, there had been another computer problem that he says also led to false prices, “also into the tens of millions of dollars.”

But here’s why Sinn told us he’s speaking out about this: He says the state regulator’s own rules call for the money to be returned.

“The protocols actually state that when there’s a mistake of false data … they should re-price this,” Sinn said.

In other words, the extra revenue power companies derive from a mistake should be returned by lowering prices for a bit.

“That didn’t happen. It’s been some two to three weeks later now and instead of them pricing it like we feel they should have, they’re now debating what they should do,” said Sinn. His company has previously instigated litigation questioning if prices can be manipulated in the Texas electricity market

We contacted ERCOT but a spokesperson said they had no one available to talk to us. So we emailed the state’s regulator, the Public Utility Commission and its three commissioners. A spokesperson responded that they’re reviewing the price spike but wouldn’t have an answer for weeks.

We also asked the state’s biggest electricity company, Luminant, if profits earned by mistake should be returned.

A Luminant spokesperson said in an email, “We support ERCOT’s determination that its systems and the wholesale market responded appropriately and correctly.”

Ed Hirs is an energy economist at the University of Houston who brought all this to our attention.

“At this point the money has not been given back. ERCOT has not quantified the damages that were wrought upon the market, or the damages that in essence were placed on the Texas consumer. The Texas consumer paid the price for this so-called mistake,” Hirs told us.

Hirs says it’s time for Texas to question why electricity here costs what it does.