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HOUSTON, Jan 14 (Reuters) - The top U.S. power grid watchdog has turned up the heat on Texas to address a looming shortage of electric capacity that increases the likelihood of rolling outages.
Despite changes made last year to raise wholesale power price limits, the prospect for rolling blackouts remains high in Texas in coming summers as the supply of electricity fails to keep pace with growing demand. And Texas regulators are divided over a long-term solution to encourage new generation.
In a letter sent to the Electric Reliability Council of Texas (ERCOT), Gerry Cauley, president of the North American Electric Reliability Corp, warned that the "solutions have not yet sufficiently materialized" to address NERC concern.
Last month, ERCOT said the state's electric power reserve margin - a cushion against blackouts - will be 13.2 percent this summer, below the agency's minimum target of 13.75 percent.
ERCOT's forecast for a shrinking reserve margin each year through 2022 increases the chance of a power outage from the agency's target of just once in 10 years.
Dwindling reserve levels "imply higher reliability risks especially the potential for firm load shed and ERCOT will need more resources as early as summer 2013 in order to maintain a sufficient reserve margin," Cauley said in the letter.
Cauley requested that ERCOT submit a plan by April 30 to address the declining reserve margin and to include "a discussion of the risks to reliability if new resources are not constructed or acquired in the short term."
"It is essential that NERC understand how ERCOT plans to remedy" the agency's concern, Cauley said.
Trip Doggett, ERCOT chief executive, said reliability and resource adequacy are the agency's top priorities but also represent a "complex issue," with no simple solution.
He said the agency has a variety of tools to maintain a stable grid in a wide range of conditions.
"Electricity is vital to our economy and our way of life and we continue to explore policy and market-based solutions to address future resource adequacy concerns," Doggett said.
A lack of new power plants under construction and two extremely hot summers strained power supplies in Texas in 2010 and 2011, adding urgency to the ongoing regulatory discussion about the need to encourage new generation.
In the past year, the Texas Public Utility Commission (PUC)has raised the price cap for wholesale power in times of scarcity, but changes have not been enough to raise prices to a level that would allow generators to invest in new power plants, generation owners and developers said.
"It is essential to send the right reliability signals to prospective generation, and also ensure that the (PUC) has sufficient information to fully understand the increasing risks," Cauley said in his letter.
Generation owners in the state include Luminant, a unit of Energy Future Holdings, which is owned by Kohlberg Kravis Roberts & Co LLP and several private equity firms; NRG Energy ; Calpine Corp ; NextEra Energy Inc and Exelon Corp.