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Texas electric supply questioned by national reliability group

The North American Electric Reliability Corp. has jumped into the debate about whether Texas has enough electricity capacity to meet rising demand. The issue has already prompted a move by the Public Utility Commission to raise wholesale power price caps to encourage generators to add capacity and thus increase the "reserve margin," or excess of supply over estimated demand. NERC, an industry group that sets reliability standards in the U.S., told the Electric Reliability Council of Texas in a Jan. 7 letter that it's worried about risks to the state's largest power grid. In the letter, addressed to ERCOT CEO Trip Doggett, NERC President Gerry Cauley says his organization's estimates for Texas "imply higher reliability risks" and asks that ERCOT tell NERC by April 30 what it's doing "to address the declining reserve margin and projected capacity shortfall."

Doggett issued a statement today that said, in part: "We take this issue very seriously, and the staff and board of ERCOT consider electric reliability and future resource adequacy our top priorities. ERCOT and the Public Utility Commission of Texas (PUC) recognize our critical role in ensuring the lights stay on in a variety of conditions." 

Unstated by either organization is the debate over whether Texas should pay generators for providing enough capacity to ensure a reasonable reserve margin, currently set by ERCOT at 13.75 percent. In Texas' deregulated market, generators earn revenue only when they sell power, a model called an "energy-only" market; a policy of paying generators to maintain more capacity is called a "capacity market." Some think capacity payments would assure a certain reserve margin, while others see them as a subsidy to generators, who have struggled to make money in Texas, where wholesale electricity prices have been very low in recent years.

In a blog post today on the topic, Colin Meehan of the Texas office of the Environmental Defense Fund whote that: "No one could accuse ERCOT or the PUC of sitting idly by or pretending this risk isn't real. However, they have yet to send a strong enough signal to the market to spur investors in demand response or any other resources to develop new projects." Paul Ring, who operates the Energy Choice Matters website and is an outspoken critic of capacity markets, said in his own post today that "these 'reliability' concerns are simply manufactured." He points out that NERC doesn't have the authority to tell ERCOT how to run the Texas grid. "NERC is inserting itself in a policy debate about resource adequacy -- one clearly outside of its intended mission as well as its specifically enumerated powers," Ring says.

-- Jim Fuquay


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Mr. Ring is wrong to say that resource adequacy is outside of NERC's mission and powers: since resource adequacy directly affects ERCOT's ability to maintain reliable supply of electricity, it falls well within NERC's mission and oversight powers. As I discuss in my blog (ow.ly/gNsEs) NERC was given authority under former President Bush's Energy policy Act of 2005 "to create and enforce compliance with Reliability Standards."

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