U.S. Electricity Grid Watchdog to ERCOT: You Aren't Doing Enough to Keep Lights on in Texas

Gerry Cauley, the chief executive of the North American Electric Reliability Council, the national, industry-funded grid-integrity watchdog, is pretty worried about Texas. Power-reserve margins here have slipped below the levels recommended to meet peak demand, and future projections show it will only get worse. What's more, he says in a January letter, it isn't entirely clear just what Electric Reliability Council of Texas (ERCOT) plans to do about it.

Cauley wants a report outlining a strategy by the end of April.

To be sure, coal-fired power plants across the nation are expected to shutter mostly because of low electricity prices and yet-to-be-enacted rules that will eventually slash the tons of mercury and arsenic emitted from their smokestacks every year. But only in Texas is this predicted to raise the specter of rolling blackouts. The Public Utility Commission of Texas has tried to deal with this by raising the ceiling on wholesale electricity prices and paying larger industrial customers not to use power during peak demand. Yet that hasn't been enough to span the widening gap between power generation and the demands of a growing state.

And it certainly hasn't convinced prospective financiers to pony up for new power plants. Unique among the nation's electricity grids, Texas has a deregulated system in which power generators recoup their investments only through the sale of electricity. And lately, the going price has been cheap, largely thanks to the low price of natural gas, which often sets electricity rates. During boom times, a deregulated market can be lucrative for generators. These days, though, it sometimes doesn't pay to even run a coal-fired plant.

Since deregulation, Texas has gone from boasting robust power-reserve margins to being singled out by NERC for having the worst.

Greg Platt, vice president of Cobisa Corp., which wants to build a 1,750-megawatt gas-fired plant in Greenville to service Dallas, says the smart money isn't coming to Texas. "What we hear from the lenders and investors who are experienced in financing these type of power facilities is that raising the price cap is not enough," he writes in an email to Unfair Park. "What raising the price cap does do is make existing plants worth more. The financing community needs some assurance (note: not 'guarantee') that their investment will be repaid over time and the current ERCOT wholesale market does not provide that."

A capacity market -- where ratepayers pay generators a monthly fee to build plants and ensure ample reserve margins -- is one way to do it, he says.

"The financiers are happy to invest in other domestic and foreign markets until the ERCOT market changes."

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