Texas Grid Says Efficiency Slowing Peak Demand Growth

Electricity demand growth is slowing in Texas even as the population and economy expand, the state’s main grid operator said today in a new 10-year outlook that may fuel opposition to a mandatory power reserve proposal.

Greater consumer use of energy-efficient light bulbs and appliances and other factors are keeping generation ahead of demand, the Electric Reliability Council of Texas Inc. said in the report. The planning reserve margin, or power available in excess of peak demand based on normal weather patterns, will be 13 percent as of June 1 and 16 percent by Aug. 1 as 2,100 megawatts of gas-fired plants come online, Ercot said.

“Although population and the economy continue to grow in the Ercot region, the relationship between economic growth and peak electric demand has changed in the past several years,” Warren Lasher, Austin-based Ercot’s director of system planning, said in the grid’s statement.

The figures may affect a proposal before the Texas Public Utility Commission that would implement a mandatory reserve margin, which could lead to capacity payments to generators for keeping spare power available.

The proposal’s supporters have said a mandatory margin is needed to ensure reliability. Opponents such as the Texas Association of Manufacturers argue it will increase costs without improving reliability. State lawmakers have told the PUC that only the legislature has the authority to implement such a market change.

PUC Chairman

PUC Chairman Donna Nelson, who previously spoke in support of the proposal, said Feb. 25 at a conference in Austin that the commission should “step aside” and let the legislature make the decision if it wants to. The commission hasn’t said whether it will take a formal vote.

“The state’s reserve levels are more than adequate to reliably and economically serve customers’ needs into the foreseeable future,” Tony Bennett, president of the Texas Association of Manufacturers, said in a statement after the release.

The outlook isn’t binding like those published by other grid operators because Ercot isn’t a capacity market, according to Paul Patterson, a New York-based analyst at Glenrock Associates LLC. PJM Interconnection LLC, which manages the 13-state grid from Washington to Chicago, uses the reserve margin to contract supply to meet future demand. The outlook may help derail efforts to create a capacity market in Ercot, Patterson said.

‘Useful Benchmark’

“If taken at face value, it would indicate that there is more margin or reliability than it has been previously estimated by Ercot,” Patterson said. “It’s a useful benchmark to look at, but fundamentally what actually happens will be determined by market forces more than these projections.”

In a note to clients today, BMO Capital Markets analyst Michael S. Worms in New York said he doesn’t believe Texas is in a “crisis situation” in terms of power reliability, absent an abnormally hot summer. “We therefore believe that the prior urgency around the creation of a capacity market has dwindled and we expect no action in 2014,” he wrote.

The outlook relies on 12-year average weather patterns and a load-forecasting methodology that focuses on growth in customer premises, instead of general economic and employment growth figures, Ercot said.

More Generation

Generation plants opening this year are also adding to the reserve margin. Calpine Corp. will expand its Deer Park Energy center by 165 megawatts. The Lower Colorado River Authority is bringing online the 510-megawatt Ferguson plant near Austin. Panda Power Funds LP, a Dallas-based private-equity firm, will start up a 720-megawatt plant in Sherman and a 717-megawatt plant in Temple.

“If there is a slowdown in growth, we certainly don’t see it,” said Todd Carter, president and senior partner of Panda Power Funds. “You can’t have 1,000 people a day moving to Texas without great demands being put on our electric system.”

Ercot also said it’s analyzing whether the grid can rely on more power from commercial wind farms during peak demand than the 8.7 percent of installed capacity included in the current outlook.

Before it's here, it's on the Bloomberg Terminal.