Companies plan new generation even as Texas power reform stalls
* Twenty new power projects seek state, federal permits
* Low wholesale prices discourage investment, prod reform
* Newly appointed third commissioner likely to break PUC stalemate
By Eileen O'Grady
HOUSTON, Aug 22 (Reuters) - Power companies in fast-growing Texas are drawing plans for 20 new generation plants, even though most projects cannot be financed because of a standoff between state regulators over how to reform the state's $29 billion electricity market.
All told, the projects could potentially add 13,000 megawatts of new generation, according to state and federal air permit filings.
Panda Power Funds of Dallas, considered a maverick among developers, overcame significant financing hurdles this year to begin construction of two natural gas-fired plants totaling 2,200 MW.
But for now, few of the proposed plants will move forward. That is because persistent low wholesale prices in Texas are insufficient to justify new construction. Reform is being debated to raise wholesale prices.
"If you put the right amount of money into the market people will invest," said Stefaan Sercu, president of GDF Suez Energy Marketing NA, which has worked to boost output at six of its Texas power plants by 200 MW while waiting for market changes.
The Texas grid agency has warned that electric supply is not keeping pace with rising demand as the state's population and job base grows. That increases the likelihood of rolling outages or blackouts, especially during hot summer months when Texans keep their air conditioners running continuously.
Atlanta-based Southern Co is one of the latest companies looking to add generation in Texas. In June, Southern Power filed applications for state and federal air permits to build a 470-megawatt gas-fired plant in Henderson County, a move described as "an early step in an extensive process" by a spokeswoman.
The state's largest generating company, Dallas-based Luminant, seeks permits to potentially add 800 MW of simple-cycle gas plants while No. 2, NRG Energy, is considering adding 2,000 MW at three existing Texas power plants.
Houston-based Calpine Corp is already expanding two sites by 550 MW while Exelon Corp has a permit pending to add 400 MW at one of its older sites.
Other companies holding or seeking permits for new power plants include Tenaska, Cobisa, Invenergy, Guadalupe Power, InterGen and electric cooperatives Golden Spread and South Texas Electric.
Whether any of the 20 proposed projects break ground is in the hands of the Texas Public Utility Commission (PUC) and the grid operator, the Electric Reliability Council of Texas (ERCOT).
"Every week, every day that we delay causes more damage to the ERCOT market and increases the likelihood that we'll have a problem ... in 2015 or 2016," said PUC member Ken Anderson at an open meeting earlier this month.
Anderson and PUC Chairman Donna Nelson have been unable to agree on a long-term solution to the state's "resource adequacy" problem.
CAPACITY MARKET DEBATE
The debate is over the long-term viability of ERCOT's "energy-only" market design - where power plants are paid only when they produce power.
Solutions being discussed would raise wholesale prices to encourage new generation, but in different ways. Market players generally fall into two groups: those who want to keep the "energy-only" market design with some changes and others who want more extensive reform to create a capacity market.
A capacity market, used in most other U.S. power regions, would pay power plants to make power available in future years, or pay users who cut consumption when needed.
Nelson has favored the capacity market idea while Anderson wants to begin by altering the "energy-only" design.
Commissioners are expected to discuss adoption of an "operating reserve demand curve" at next week's open meeting, a move that keeps the "energy-only" structure but could increase the frequency of higher wholesale prices paid as supply begins to tighten.
Adoption of the price curve "is a good idea to do," but won't solve the resource adequacy problem by itself, said William Hogan, a professor at Harvard University's John F. Kennedy School of Government, who explained his proposal at a PUC workshop in July.
Anderson said he believes if Hogan's price curve idea is adopted, "1,000 megawatts of quick-start generation would close financing this fall."
In fact, nine companies have filed permits seeking to build 4,200 MW of quick-start or "peaker" units that are able to produce power in minutes to meet rapidly changing demand.
"Every bit we delay in giving some certainty to the market we are just exacerbating the problem both of us ultimately want to avoid," Anderson said to Nelson earlier this month.
Nelson is still considering the price curve and wants to take more time to develop it through a formal regulatory process.
"I want to make sure I'm moving forward with something I'm comfortable with that will contribute to the resource-adequacy construct," Nelson said earlier this month.
This week's appointment of Brandy Marty as the third PUC commissioner is expected to eventually break the stalemate.
"At a minimum, without substantial energy background, she is likely to at least prove diligent in weighing the issues," said Julien Dumoulin-Smith, an electric utility analyst with UBS Securities, in a note to clients.