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CERAWEEK-Texas struggles as power demand grows, reserve shrinks
March 7, 2013 / 11:17 PM / 5 years ago

CERAWEEK-Texas struggles as power demand grows, reserve shrinks

HOUSTON, March 7 (Reuters) - Texas’ top power regulator said Thursday it should have all the information needed by the fall to decide which direction the state’s $35 billion electric market should move to ensure electricity is available to keep pace with the growing economy.

Despite several changes made in the past year to boost the wholesale power price cap to a level that would attract investment in new power plants, the prospect for rolling blackouts remains high in Texas in coming summers as the supply of electricity fails to keep pace with growing demand.

“We’re moving forward on a lot of fronts now,” Texas Public Utility Commission Chairman Donna Nelson told the IHS CERAWeek energy conference in Houston.

A lack of new power plant construction and two extremely hot summers strained power supplies in Texas in 2010 and 2011, adding urgency to an ongoing regulatory discussion about the need to encourage new generation in the deregulated market.

The state’s grid operator, the Electric Reliability Council of Texas (ERCOT), warned that it will likely increase its calls for consumers to reduce power use on hot afternoons this summer when air conditioners run for extended periods.

But the discussion has left Texas market participants and regulators divided over a long-term solution to encourage new power plants.

The PUC is studying two general options: whether to modify ERCOT’s existing energy-only market to incorporate more “demand response,” 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.

Companies that generate power approve of what the PUC has done so far, and generally favor creation of a capacity market such as that used in other U.S. power markets.

“We need a lot of investment,” said Thad Hill, president of Calpine Corp, an independent power producer with a large presence in Texas.

Demand response efforts to curb peak demand will be needed, Hill said, but “we will need more steel in the ground.”

To get financing to build new plants, lenders want the certainty of payments a capacity market can provide, not just the possibility that scarcity will lead to high prices, Hill said.

Large power consumers generally dislike the capacity market for fear of added cost.

Nelson said she wants to foster an “honest discussion” about the cost to consumers between the different options which she thinks would be comparable. “Texans need to understand the pros and cons of each direction,” Nelson said.

While the PUC is studying methods used around the nation, the ultimate solution in Texas will likely be unique, she said.

“Whatever path forward we take, it will be the Texas way,” Nelson said.

The biggest transmission and generation companies in ERCOT include units of privately held Energy Future Holdings, owned by Kohlberg Kravis Roberts & Co ; CenterPoint Energy Inc , American Electric Power Co Inc, PNM Resources Inc, NRG Energy Inc, Exelon Corp, NextEra Energy Inc and Calpine Corp. For more stories on CERAWEEK, please see:

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