One Small City Beat the Texas Heat That Sent Power Price Soaring

(Bloomberg) -- On Tuesday afternoon, as virtually all of Texas was facing the prospect of rolling blackouts and electricity prices skyrocketed to unprecedented levels, a small city on the southeastern edge of the state was so awash in power that it was basically giving the stuff away for free.

Welcome to Victoria. Population: 63,000. This city, in the heart of the Lone Star State’s “Golden Crescent” region, isn’t known for much beyond plastics factories and chemical plants. A business roster of the local Chamber of Commerce boasts some big names including Formosa Plastics Corp. and Caterpillar Inc. It’s these industrial roots that may have saved it from one of the biggest power price spikes Texas has ever seen.

Victoria’s giant industrial complexes are capable of making their own power with on-site generators. They’re handy resources when the state’s entire grid is running out of reserves and electricity is selling for $9,000 a megawatt-hour, more than anywhere else in America. While the rest of Texas was facing a shortage, these plants may have ramped up their own power generation, creating a supply glut in the city because of a lack of space on transmission lines.

“Power plants around Victoria went full bore,” said Adam Jordan, an analyst at Genscape. The limits of the grid turned the area into a tiny island where -- as wild as it sounds -- electricity was selling for as low as negative $250 a megawatt-hour.

Power grid operators call this phenomenon “congestion.” Indeed, when asked about extremely low prices there on Wednesday, a spokeswoman for the Electric Reliability Council of Texas said it “related to transmission congestion around the Victoria area.” At one point, a color-coded map of electricity prices on Ercot’s website was covered in bright red -- the shade for power trading at thousands of dollars a megawatt-hour. Victoria stood out as the lone cool-blue spot where electricity was below zero.

The region may have been trying to cash in on soaring electricity prices by making their own power and feeding it onto the grid. But the ramp-up threatened to overload transmission lines that export power to big cities like Houston. The negative power prices signal to generators that they need to back off. “Ercot wanted power everywhere but there,” Jordan said.

“These plants that self-serve are always looking to capture high prices when they can,” Josh Danial, a BloombergNEF analyst, said in an interview. The swings in power generation from these so-called private-use networks, he said, have actually sparked some controversy in the market as traders and power-plant operators can’t track their capacity, making it challenging to forecast prices.

Victoria may have also turned into a power oasis on Tuesday as the region’s industrial giants idled some operations, said Adam Sinn, president of Aspire Commodities LLC. Big customers like them get paid to cut demand when electricity use is soaring, through programs known as demand response.

“Either the plants shut off in demand response,” Sinn said, “or they shut off and started using their on-site private generation for the grid.”

Caterpillar and Formosa didn’t immediately respond to requests for comment.

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net

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

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