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Texas Sees Power Generation Reserves Below Target in 2013

Power-generation reserves in Texas are forecast to be below the state’s target for the summer of 2013, increasing the risk of blackouts during the hottest days, the state’s grid operator said.

Reserves are expected to be at 13.2 percent for the summer of 2013, below the 13.75 percent target, the Electric Reliability Council of Texas said in a report posted on its website today. ERCOT, which serves 85 percent of the state’s power demand, said reserves will drop to 10.9 percent in the summer of 2014.

“The projected reserve margin for summer 2013 has dropped slightly since May, but we are seeing healthier reserve margins in future years,” ERCOT Chief Executive Officer Trip Doggett said in an e-mailed statement. The grid operator used a more conservative economic report than in its May forecast as growth has slowed recently, ERCOT said.

New power plants under construction may push reserves to 13.6 percent, slightly below the target if they come online by August 2014, ERCOT said. In 2015, generation reserves are forecast at 10.5 percent.

Texas regulators are considering changes to the power market to spur construction of additional power plants including adding so-called capacity payments, in which generators are paid to make sure their units are available to meet peak demand. In October, the Public Utility Commission of Texas voted to increase the price cap for wholesale electricity through 2015.

Fuels Debate

The report is positive for NRG Energy Inc. (NRG) and Calpine Corp. (CPN) as the projected reserve shortfall fuels debate about capacity payments, Julien Dumoulin-Smith, a New York-based analyst for UBS Securities LLC, wrote in a research note today.

NRG, the second-largest generation owner in Texas, rose 1.4 percent to $22.18 at the close in New York. Calpine, the third-largest generation owner, rose 0.6 percent to $17.49.

“One of the potential repercussions to look for will be whether or not the report stimulates a policy change regarding market design at the PUC,” Paul Patterson, a New York-based utility analyst for Glenrock Associates LLC, said in an interview.

Closely held Energy Future Holdings Corp. is the largest generation owner in Texas.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this story: Tina Davis at tinadavis@bloomberg.net

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