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Houston companies do well in northeast electricity auction

Houston electric companies made money this week at the first auction to supply back-up capacity for states along the eastern seaboard and Great Lakes.

NRG, Dynegy and Calpine – all based in Houston – were all winners at selling capacity at Monday’s auction, according to analysts at UBS Financial Services. Prices hit $165 a day per megawatt, which was on the high end of price expectations.

The PJM Interconnection is responsible for supplying wholesale electricity to 14 states in the Northeast and Midwest, including Pennsylvania, New Jersey, Maryland, Ohio, Kentucky and Virginia. Many Texas generators operate power plants in those states.

After repeated problems keeping the lights on when power demand peaked, PJM decided to start paying companies to have capacity on standby rather than just paying for power when it was consumed.

This addition of a so-called capacity market is seen as a boon for electricity companies, which now say they will make enough money to keep generating electricity at a time when natural gas prices are low.

But paying for capacity will also mean higher electricity bills for customers. PJM regulators decided that reliability was worth the extra cost after several embarrassing blackouts.

Texas officials are watching the PJM experiment closely because those utility companies have complained that the demand-only market here is not profitable enough to spur additional investment in new generation. Every summer the demand for electricity peaks, coming close to reaching the state’s capacity to generate power, prompting calls for conservation.

Read full story at The Houston Chronicle