May 22, 2012

Electric Reliability Council of Texas warns of tighter power supplies

The grid operator says Texas has too few power plant projects.

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The operator of the state's largest electricity grid said Tuesday that it expects power supplies to grow tighter in the next few years and recommended taking immediate steps to boost capacity or limit demand.

The Electric Reliability Council of Texas, which operates the transmission lines that serve about 85 percent of the state's electricity demand, gave that outlook with the release of its latest long-term report. ERCOT said that while it aims for a 13.75 percent margin of capacity over demand, its outlook shows a 9.8 percent reserve in 2014, dropping to 6.9 percent in 2015.

The report is based on "anticipated peak demand, existing and planned generation capacity, and other long-term factors."

ERCOT recently issued its immediate outlook for this summer, when it expects to have adequate capacity to meet demand, which typically peaks in August.

The problem, from ERCOT's perspective, is that it expects demand to continue to rise as the population grows, yet it sees too few power plant projects in the works. And some of the state's coal-fired plants could be adversely affected by new federal pollution rules issued by the Environmental Protection Agency.

Warren Lasher, ERCOT's director of system planning, told reporters on a conference call Tuesday that it can take a little less than two years to add natural-gas-fired capacity to a facility and two years or longer to build a completely new power plant.

Generators "need to be actively pursuing their air permits" and other approvals to bring new power on line when ERCOT's reserve margin begins to shrink, Lasher said. But instead, "we've seen a decline in projects" signing interconnection agreements with ERCOT, an important step that indicates a generator's intention to add capacity.

He said ERCOT's outlook includes more big power users participating in demand response programs -- agreements to trim consumption when the grid approaches capacity during peak demand.

Under Texas' deregulated electricity market, generators are paid only when they sell power. A burst of construction projects followed the launch of the state's deregulated market in 1999, but that ended with the financial crisis in 2008. And the lowest natural gas prices in a decade have kept the lid on prices in the state's wholesale power market, giving generators less incentive to add capacity.

To address that, the Public Utility Commission of Texas took steps this month to raise the maximum price at which generators can sell power to ERCOT from $3,000 per megawatt-hour to $4,500, starting Aug. 1. The PUC is also expected to approve further increases in the cap.

Houston-based Calpine recently said it intends to add 520 megawatts of capacity at two facilities, "based on tightening reserve margins and the potential impact of EPA regulations on generation in Texas."

It said it expects those units to be operational by summer 2014.

ERCOT's next report on its system is expected June 1, when The Brattle Group plans to release its report.

Jim Fuquay, 817-390-7552

Twitter: @jimfuquay

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