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Another day of sweltering heat and taxing demand for electricity in the East pushed wholesale power prices above price caps set by federal regulators, a troublesome sign, because it means grid operators are scraping the bottom of the barrel to get enough electricity.
The high prices, upwards of $1 a kilowatt hour for a commodity often priced in pennies, occurred sporadically Thursday in spot markets run by the New York Independent System Operator and PJM Interconnection LLC, the grid operator for the mid-Atlantic region and parts of the Midwest.
In New York City, the price of wholesale power paid by Consolidated Edison Inc. rose as high as $1.33 a kilowatt hour during the afternoon, more than 10 times an average price. In the Washington, D.C., area, prices rose above $1.17 a kilowatt hour.
The price caps are set by the Federal Energy Regulatory Commission to limit the price that power-generating companies can charge to utilities and major customers buying from the grid. They are allowed to charge more, but only if justified by higher costs, such as when they run older, less-efficient plants to meet demand. Surpassing the caps invites audits by regulators to verify their claims. Except in California, which has a lower cap, the price is capped at $1,000 a megawatt hour, translating into $1 a kilowatt hour.
Typically, 95% of the electricity that is consumed each day is garnered through long-term arrangements and isn't subject to volatile spot-market pricing. But consumers will see some price increases, because most utilities, such as ConEd, rely more on spot markets during high-demand times and have provisions allowing them to pass their purchased-power costs to customers.
The trend means that generators at times are able to name their own prices and break through price caps. The grid operators all have market-monitoring units that will go back and look at prices charged to make sure there hasn't been gouging.
High demand this year may have the effect of spurring more plant construction, though some experts said they feared the necessary plants still may not get built fast enough, because it takes at least two to three years to get permits and equipment.
"We're seeing demand that wasn't expected for another three to five years," said Jone-Lin Wang, senior director of Cambridge Energy Research Associates, a leading energy-consulting firm based in Cambridge, Mass. Reserves in New England, especially, are getting thin, she said.
Grid operators said they are paying exceptionally high prices only for short bursts of time, unlike during the California energy crisis of 2000-2001, when the grid operator was forced to pay high prices for protracted periods.
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