Competing In a Low Wholesale Power Price Market

Luminant provides perspective on how declining natural gas prices impact power generation

In today’s Dallas Morning News, energy reporter James Osborne highlights just how far average wholesale power prices have fallen in the Electric Reliability Council of Texas (ERCOT). He reports in January, the average was less than $25 per megawatt hour, down 50 percent from last March.

What’s important to note is that the market reality of low wholesale power prices is nothing new. The average annual power price in ERCOT topped more than $63 in 2008 and has been dropping since, driven by low natural gas prices.

There are plenty of analysts’ forecasts predicting low power prices will stay with us for some time. For Luminant, which makes and sells power in ERCOT’s competitive market, this low price environment is just a factor that makes us adjust our business. We believe in the competitive market and that great companies position themselves for success when conditions change.

For example, we began a transformation last year to make our business nimble and flexible to generate more electricity when it’s needed and makes economic sense. The days of running all plants full time to generate as many megawatts as possible are over. So, we run some plants seasonally meaning they’re only available for generation in the summer months when demand is highest.

We constantly evaluate our costs and make economic decisions based on current and anticipated future conditions. If colder weather is forecast in winter months then we can make a seasonal unit available to the grid again to provide the power when demand jumps and Texans need to keep their homes and businesses warm.

As Osborne correctly points out in his story, sustained low power prices are a factor in deciding when to build more plants. As a generator in the competitive market, consumers need to remember that Luminant bears the cost of financing and building new generation, unlike a regulated utility where ratepayers ultimately foot the cost.

So, we plan for the future since the demand for power continues to go up in Texas. The Texas Commission on Environmental Quality has granted Luminant air permits to potentially build natural gas simple cycle combustion turbines at existing plant sites at Tradinghouse and Lake Creek near Waco and DeCordova at Granbury. Luminant has made no final decision to build these units. The company took these steps to position it to quickly add new generation to the market when price conditions improve to a level that incents new generation.

Low power prices appear to be with us for the long term and Luminant is making smart changes to compete and continue to safely power Texas with affordable, reliable electricity.

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