Market Information System Grid and Market Conditions

News Release

May 22, 2012

New report reinforces future electric resource adequacy concerns

Additional capacity, conservation and other tools needed to ensure future electric reliability

May 22, 2012, AUSTIN, TX – A new long-term study released today confirmed that the Electric Reliability Council of Texas (ERCOT), grid operator for most of Texas, foresees potential electricity shortages within the coming decade as electric use in Texas continues to hit new records.

"To ensure future electric reliability in the ERCOT region, we need to take immediate steps to address this issue — on both the supply side and the demand side of the resource adequacy equation," said ERCOT CEO Trip Doggett.

The newly revised Capacity, Demand and Reserves (CDR) report shows a reserve margin of 9.8 percent as soon as 2014. That is well below ERCOT’s 13.75 percent target for electric generation capacity that exceeds the forecast peak demand on the grid. The 2014 outlook includes slightly more than 75,000 megawatts (MW) of power to serve anticipated peak demand of 68,403 MW. A megawatt is enough power to serve about 200 Texas homes during the highest-use period, which typically occurs between 3 and 7 p.m. during the hottest days of summer.

By 2015, projected reserves drop to 6.9 percent, with 76,623 MW of resources available to serve peak demand of 71,692 MW.

The 13.75-percent target planning reserve margin, approved by the ERCOT Board in 2010, is set to ensure enough power is available for contingencies such as extreme weather and unplanned power plant outages.

Resources and risks within long-term outlook

The CDR provides a 10-year outlook based on anticipated peak demand, existing and planned generation capacity, and other long-term factors. Peak electric use in the ERCOT region is driven by high temperatures and economic conditions. The mid- and long-term peak demand forecast is based on a 15-year average weather profile combined with economic factors such as per capita income, population, gross domestic product and various employment measures. This report does not include the outlook for summer 2012, which was updated in the Seasonal Assessment of Resource Adequacy released by ERCOT on May 1, 2012.

Although the long-term report projects a negative reserve margin by 2022, the outlook for summer 2013 actually has improved since the previous CDR was released in December 2011. That report showed the reserve margin slightly above 12 percent by summer 2013 and in negative numbers by 2020. Since that report was released, about 1,240 MW of previously "mothballed" capacity has returned to service for the foreseeable future. Anticipated capacity now also includes 1,130 MW of coal-fired generation that expected to discontinue operations under the Cross-State Air Pollution Rule proposed by the U.S. Environmental Protection Agency. That rule has been stayed in federal court.

Since the last CDR report was released in December 2011, nearly 600 MW of new renewable power has begun operations within ERCOT. That includes 105 MW of biomass, 432 MW of wind power and 59 MW of solar power.

By 2016, the forecast includes 3,657 MW of new gas-fired capacity, more than 2,000 MW of new wind power, about 900 MW of new coal-fired generation and 60 MW of solar power.

New wind power will include about 600 MW of coastal wind, which historically has provided significant power to the grid when it is needed most — late in the afternoon on hot summer days.

ERCOT also has factored increasing "demand response" services into future summer load scenarios. While ERCOT has plenty of electric power to serve users during most days of the year, the system must be built to address the highest demand, which occurs a very small percentage of the time. Through demand response programs, consumers agree to reduce the amount of power they use when certain conditions occur.

ERCOT planners warn that the generation outlook is based on current plans and agreements, which are subject to change within the 10-year planning horizon. A variety of factors, including economic conditions and evolving regulatory requirements, could affect generators’ future plans. Additionally, the peak forecast in the CDR report could be conservative as the Texas economy continues to thrive in spite of slow growth elsewhere in the country and the outlook for summer temperatures remains above the 15-year average.

Seeking resource adequacy solutions

In recent months, ERCOT and the Public Utility Commission of Texas (PUC) have taken proactive steps, such as revising protocols and looking at scarcity pricing rules to begin improving the future outlook. New market rules related to Emergency Response Service, previously known as Emergency Interruptible Load Service, will open that program to distributed generation and possibly other types of demand response resources as well.

ERCOT in March selected the Brattle Group, Inc., to examine factors that influence investment in new generation and other projects related to ERCOT’s resource adequacy goals. The Brattle Group has been gathering and analyzing input from investors and other stakeholders to determine what incentives or other changes could improve the outlook for future electric generation and other resource adequacy solutions. Its final report is due for release June 1. ERCOT and the PUC will explore the report’s findings with market participants and other stakeholders to find viable solutions.

The need for continuing conservation

For now, energy use — or "load" — will play a significant role in the near-term reliability equation. During 2011, ERCOT experienced challenges during both the winter and summer. Rotating outages on the morning of
Feb. 2, 2011, helped prevent grid failure when many power plants tripped due mostly to extremely cold temperatures. Later in the year, ERCOT issued conservation alerts six times when most of Texas experienced the hottest summer on record. Power demand in the ERCOT region reached its current record peak of 68,379 MW on Aug. 3, 2011.

"Last summer, every business that reduced its operations when called upon — and every resident who turned up the thermostat when we asked for conservation — helped ERCOT keep the lights on and air conditioners running," Doggett said. "This year, we are beginning to test new approaches to Emergency Response Service, and we also will try more ways to notify the public when conservation is needed most."

Those new communication avenues will include a mobile phone application that will notify subscribers when ERCOT needs their help to reduce demand on the grid. The app is scheduled to launch in June for iPhones and Droid devices. PUC and ERCOT staff have been working with the state’s transmission and distribution providers to find other opportunities to make consumers more aware of the need for energy conservation.

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The Electric Reliability Council of Texas (ERCOT) manages the flow of electric power to more than 26 million Texas customers -- representing about 90 percent of the state’s electric load. As the independent system operator for the region, ERCOT schedules power on an electric grid that connects more than 46,500 miles of transmission lines and 710+ generation units. It also performs financial settlement for the competitive wholesale bulk-power market and administers retail switching for nearly 8 million premises in competitive choice areas.

ERCOT is a membership-based 501(c)(4) nonprofit corporation, governed by a board of directors and subject to oversight by the Public Utility Commission of Texas and the Texas Legislature. Its members include consumers, cooperatives, generators, power marketers, retail electric providers, investor-owned electric utilities, transmission and distribution providers and municipally owned electric utilities.