Texas sees higher summer power supply amid slower demand growth

HOUSTON Fri Feb 28, 2014 2:26pm EST

HOUSTON Feb 28 (Reuters) - The Texas grid agency issued a healthier outlook for the state's summer electricity supply on Friday after lowering its expectations for growth in peak power consumption in the years ahead.

The Electric Reliability Council of Texas (ERCOT) projects electricity demand will peak this summer at 68,096 megawatts, 850 MW, or 1.3 percent, above last summer's peak, but 209 MW below the state's hottest summer in 2011 when extreme weather and drought strained electricity resources at the same time new power plant construction stalled.

The new 2014 peak forecast is 1,700 MW, or 2.4 percent below the ERCOT forecast issued last May, reflecting months of work by the agency to better understand changing patterns of electric use, said Warren Lasher, ERCOT director of system planning.

Although Texas' population and economy continue to grow, "the relationship between economic growth and peak electric demand has changed in the past several years," Lasher said. "We believe recent improvements to our load forecasting methodology are providing a more realistic view of the future electric demand we need to be prepared to serve."

Separately, NRG Energy officials said they will not bring about 760 MW of generation online for the peak summer season as they have in previous summers, citing ongoing low wholesale prices.

Summer electric use in Texas has become a critical question for the grid operator, regulators, generators and consumers.

The Capacity, Demand and Reserves report from the Electric Reliability Council of Texas (ERCOT) was delayed from December while ERCOT updated its forecasting methods after Texas Public Utility Commissioner Ken Anderson said the existing method produced results that were "wildly off."

Friday's report shows the state's electric power reserve margin, a cushion against blackouts, will be 13 percent this summer, below the agency's minimum target of 13.75 percent and below last year's forecast.

The cushion may increase to 16 percent if about 2,100 MW of new generation currently under construction is completed before summer demand is expected to reach its highest in August, ERCOT said.

With lower peak demand expectations in future summers, however, ERCOT's latest reserve-margin forecast improves considerably from prior-year reports.

The reserve margin climbs above the 13.75 percent target in 2015 and 2016 as a few new power plants come online. The previous forecast showed summer reserves shrinking to single digits in 2018, while the latest forecast maintains a 10 percent reserve through 2020.

Regulators have said that slower growth in peak-power demand lessens the urgency in the continuing debate over reform in the $35 billion wholesale power market.

However, the report is unlikely to end calls from major power generators that market reform is needed sooner, rather than later, to give companies time to plan, finance and construct new generation.

Citing a draft of Friday's report, Thad Hill, chief executive of Calpine Corp, said the summer forecast would show future peak load growth some 30 percent below the state's actual load growth since 2009.

"Reports of the death of load growth have been much exaggerated," Hill said on an earnings call earlier this month.

ERCOT said its latest forecast expects peak demand to grow by 1.3 percent a year over the next decade, compared to actual growth of about 1.1 percent a year in the past 10 years.

NRG officials told analysts they disagree with the 1.3 percent growth outlook.

"We remain bullish on our overall ERCOT position, but we need to be prudent about our investment of maintenance dollars in marginal assets," Mauricio Gutierrez, NRG's chief operating officer, told analysts Friday in disclosing NRG's plan to keep its older gas-fired units at the Bertron station mothballed.

Other major power producers in Texas include Luminant, a unit of Energy Future Holdings, owned by Kohlberg Kravis Roberts & Co LP ; NextEra Energy ; and Exelon Corp .