Retail Energy Buyer

Subscribe to the free weekly newsletter written just for retail energy buyers

West Texas Oil Boom Causes Energy Prices to Soar

August 27, 2014 By Karen Henry

power-lines-energy-manageRecord oil production in West Texas has resulted in congestion on the region’s electrical grid and an unexpected electricity rate hike, the Texas Tribune reports.  Newer drilling practices such as hydraulic fracturing have allowed oil companies to produce more than twice the amount of oil each month than they did three years ago. West Texas’ Permian Basin is currently the most lucrative oil-producing region in the United States.

Unfortunately, experts at the Electric Reliability Council of Texas (ERCOT), which manages the grid covering most of the state, were not prepared for the spike, and infrastructure has not been able to keep up with electricity necessary to produce drastically increased amounts of oil. From 2007 to 2012, energy consumption in West Texas increased by nearly 14 percent, ERCOT said.

While generating enough electricity for the region is a big issue, it isn’t the biggest one. Sending power to all those who need it is an even bigger issue, according to the Texas Tribune article. Transmission companies are scrambling to build power lines. Fortunately, the $7 billion Competitive Renewable Energy Zone power lines were planned years before the drilling surge, but other power upgrades will take years to complete, and oil and gas producers may have moved on to other areas by then.

Meanwhile, congestion prices in West Texas are higher than anywhere else in the state. In 2013, west zone congestion prices averaged about $6.08 per MWh versus 43 centers per MWh for the rest of the state.

Rate increases are taking their toll on nonprofit organizations, schools and businesses in the region. At EBAA Iron Sales in Eastland, for example, congestion added about 1.3 cents per kilowatt hour to the company’s November 2012 bill—about half the cost of the electricity itself—making it difficult for the company to compete with manufacturers located in areas with lower energy prices.

In an attempt to circumvent future rate increases, EBAA signed a multiyear contract last summer with a power provider that locked in the company at a flat rate for electricity. Despite the risk that such a contract might result in businesses overpaying for electricity, other companies in the area are following suit.

Photo via Shutterstock.

Leave a reply