The August Scorcher: ERCOT Retail Energy Providers Reeling

Blog September 23, 2019

Texas Retail Energy Providers (REPs) are busy triaging the financial aftermath of what turned out to be a historic ERCOT August 2019. People are left picking up the pieces wondering: What happened? How can we cope with this past August? How can we prepare for Summer 2020? Essentially, REPs experienced the pricing effects of weather driven peak loads coupled with unforeseen generation shortages. West Texas experienced persistent average temperatures more than five degrees above normal weather. We witnessed an average peak load of 70.24 GWs for the month, with an August 12 peak load record of 74.5 GWs.

Unfortunately, generation couldn’t keep up increased usage. On August 13, ERCOT saw a wind generation miss of more than 800MWs. On August 15, baseload combined cycle generation realized greater than 1.5 GW increase in outages as well as roughly 400 MWs of solar generation weakness. High heat, high load, and weak generation is certainly a recipe for real-time price disaster. This was the case, as REPs experienced an August off-peak average settle of $227.63 including the $1,523 North Hub settle on August 13 and the $1,743 North Hub settle on August 15. Capacity shortages triggered EEA1 events on both days and we experienced hourly settles of nearly $9,000.

REPs were left underjudged at abnormally high prices. Having settled their ERCOT bills over the first two weeks of September, most REPs are left with a 2019 profitability hole. We are seeing REPs declare for bankruptcy, liquidate their customer books, and sell their entire companies. Opportunistic companies are swooping in, promising fast cash for distressed retail energy providers and REPs are reevaluating their risk management strategies. Should they have hedged more, utilized a professional risk management desk and meteorologists, or explored more exotic weather hedges? What we do know is that given a generation stack bloated with intermittent wind assets and an uncapped pricing market, this is neither the first nor last time Texas REPs will be left reeling from unanticipated market phenomena.

Our Energy Management (GEM) group helps REPs and energy supply companies nationwide enhance their retail business and price right. With a seasoned portfolio management team, deep relationships with hedge providers, and expertise in defending REPs against profound and unforeseen weather events and outlier market moves, GEM can help Texas REPs after this historic August. We will help you redesign and execute your risk management strategy to guard against future outlier events, opportunistically acquire or liquidate distressed positions, and expand into new markets to geographically hedge your market exposure. With GEM as your partner, future market anomalies won’t sink your ship, but instead present growth opportunity. To learn more about Genscape Energy Management or to request a demo, please click here.