Texas power grid redesign may save $5.6 billion: study

HOUSTON (Reuters) - A delayed redesign of Texas' system for setting the cost of electricity on its power grid could save consumers more than $5.6 billion over 10 years, according to a study filed with Texas regulators on Thursday.

Despite software glitches that have delayed implementation of the proposed nodal redesign and doubled its price tag, it could deliver a "significant reduction" in electricity costs, according to CRA International, a Boston-based consulting group.

The Electric Reliability Council of Texas, the state's primary grid operator which is developing the nodal market, has come under fire for cost overruns that will delay the launch until at least December 2010, more than two years behind schedule, at a cost of $660 million, more than twice early estimates.

The new design creates pricing points for more than 4,000 "nodes," or generation locations, in ERCOT, to identify areas of transmission congestion.

That information should allow more efficient dispatch of power plants, a change projected to save money and reduce use of natural gas to produce electricity.

"This seems to confirm our original belief that nodal is the right thing to do for consumers," Barry Smitherman, chairman of the Texas Public Utility Commission said at an open meeting Thursday. But the program must overcome complex implementation problems to produce the savings, he said.

The Texas PUC ordered an update of the 2004 cost-benefit study to see if soaring nodal development costs might limit future savings.

The new analysis calculated a "net present value" for system-wide benefits of $520 million, well above the $222 million cost to complete development. The original analysis pegged costs at roughly $157 million and benefits at $587 million in 2003 dollars.

Compared with the zonal system now used in ERCOT, the nodal model results in lower costs for fuel, power-plant operations and environmental permits, the report said.

New generation will be attracted to build in locations that avoid grid congestion, the report said.

Moving to a nodal market with faster power-plant dispatch is also expected to end volatile real-time power prices that cropped up earlier this year from a boom in West Texas wind generation, according to the report.

An ERCOT spokeswoman said the agency found the report "fair and accurate."

ERCOT postponed a 2008 nodal launch in May while requesting more money to continue development.

While plagued by software problems, abandoning the nodal project at this point would create additional costs, CRA said.

The commission is expected to decide early next year whether to move ahead or suspend the nodal project.

Nodal systems are used in U.S. Northeast power markets. California has delayed its nodal launch until March.

(Reporting by Eileen O'Grady, editing by Chris Baltimore and Walter Bagley)