* NERC wants to see Texas plan by April 30
* Texas regulators divided on long-term solution
* Developers say more changes needed
By Eileen O'Grady
HOUSTON, Jan 14 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
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's concerns.
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.
NERC wants to see ERCOT's plan to address declining reserves
by April 30 and wants the grid agency to include "a discussion
of the risks to reliability if new resources are not constructed
or acquired in the short term."
The warning letter refers to a November NERC report which
said that given economic growth in Texas, ERCOT's supply outlook
does not appear sufficient to meet "normal" summer peak demand,
never mind extreme or prolonged weather conditions.
Trip Doggett, ERCOT chief executive, said reliability and
resource adequacy are the agency's top priorities but represent
a "complex issue" with no simple solution.
He said the agency has a variety of tools to maintain a
stable grid under 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 that and other 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.
PUC members are studying two general options: whether to
modify ERCOT's existing "energy-only" market to incorporate more
programs that pay customers to curtail electric use when
supplies are tight, or to create a so-called "capacity market"
that pays generators to be available in future years.
The Brattle Group, hired to evaluate the state's options,
called the energy-only design the most efficient market, but
favors a capacity market as the best option to address supply in
a competitive, market-based fashion if state leaders want more
generation as a cushion against potential power disruption.
PUC Chairman Donna Nelson favors creation of a capacity
market while commissioner Kenneth Anderson is against the idea.
Commissioner Rolando Pablos has called for additional time to
better understand long-term implications of any action.
"The commissioners are trying to balance several complex
issues - trying to preserve low-cost energy and maintain
reliability," said John Moore, a principal of Stratus Energy
Group of Austin. The panel is looking for a combination of
changes that will work with ERCOT's specific market design.
"They are making progress on a number of fronts, but the
silver bullet has not been found," said Moore.
Power-plant developers say time is running out.
"We are now well past the time when new construction must
begin in order to assure Texans a reliable supply of power,"
said Greg Platt of Cobisa Corp, a Houston company working to
develop a large natural gas-fired plant north of Dallas. "The
short-term measures taken and currently contemplated do nothing
to provide potential lenders and investors with any assurance
that they will recoup their substantial investment."
Despite ongoing market uncertainty, affiliates of
Dallas-based Panda Power Funds were able to finance and start
building two natural gas-fired plants last year which they hope
to complete in 2014.
Todd Carter, Panda Power Funds president, acknowledged the
difficult position the PUC is in.
"The PUC and Texas will have to take a really hard look at
the generation system, make some tough calls and stick by its
guns to make it happen so that it allows companies like ours to
build generation and sell power," Carter said.
Other 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.