Energy expert warns capacity-price spikes and grid stress could raise local bills

Mark Pruett, principal of Power Bureau LLC and an adjunct professor at Northwestern University, told the county board on Aug. 25 that recent wholesale market behavior and weather shocks have increased the risk of high bills and outages. Pruett said the wholesale auctions that determine generation and capacity payments can create sharp price swings when supply tightens. “This is why prices are hugely volatile in electricity markets because this auction process happens on a day ahead basis and then on the day of generation it happens every 5 minutes,” he said. Pruett walked the board through a recent PJM trend in which actual load exceeded prior recorded peaks multiple times in June and July, and explained that capacity-clearing prices rose dramatically — from about $28.92 per megawatt-day in one recent year to many times higher in the latest auction cycle — because expected future supply could not be assured. He cautioned that the clearing price in an auction is paid to all successful bidders, which amplifies cost exposure when the marginal bid is high. He also described the February Texas (ERCOT) cold-weather emergency, where frequency dropped below safety thresholds and operators ordered rolling outages to avoid a wider blackout. “If that period of imbalance at that level exceeded for another 5 minutes, they would have had to turn down or blackout, manage blackout of the entire ERCOT grid, which ... would have taken weeks to restart,” Pruett said. Pruett emphasized that electricity must be balanced moment-to-moment and that limited short-term storage means grids rely on capacity that can be called on in emergencies. He said markets aim “to get the highest level of reliability at the lowest price,” but noted tradeoffs when dispatchable assets retire and intermittent wind and solar increase as a share of supply. Discussion only: board members asked clarifying questions; there were no board decisions tied to grid market policy at the meeting. Context for local readers: Pruett noted that wholesale price volatility affects retail bills through three components: energy commodity, capacity charges, and transmission/delivery costs. He urged local officials to follow state resource-adequacy work and to expect persistently elevated capacity-driven bills until new capacity or other solutions come online.