The Electric Reliability Council of Texas (ERCOT), which runs about 85% of Texas' electric transmission system, said recently that the state is projected to have enough power through 2013. Starting in 2014, based on current projections, the state could dip below a minimum 12.5% "reserve margin," or the amount of extra power the state requires in excess of projected demand as a safety net. Currently, the 2014 reserve margin is forecast at 12.3%.
The reason for the drop is the delay of a new power plant that was originally scheduled to come online in 2013, but has been pushed back due to economic considerations. Specifically, the Cobisa Greenville Project, a 1,792-megawatt natural gas-fired plant, won't go into service in 2013 as originally planned.
One of the main reasons for the delay in new power plants is the low energy prices currently being enjoyed by Texas electric customers. While the economic recession and competition among electric companies have pushed rates below 10 cents in most areas, the recession has also stalled many power projects as developers wait until Texas power prices rise with the economic recovery before moving forward with their projects.
However, while the reserve margin is projected to dip below the minimum level needed for reliability after 2013, there is no cause for great alarm, because there is sufficient time for power developers to respond to market signals and build new generation in time to meet reliability needs.
In fact, it is typical for power projections five years out to show capacity below the minimum reserve margin. For example, in 2007, ERCOT projected that for 2010, reserve margins would be only 8.3%, well below the minimum of 12.5%. However, as 2010 grew closer, generation developers responded to market signals and built new generation to meet the projected demand.
Here is a look at how the forecast reserves for 2010 increased over time, as new power plants were built in response to the forecast demand.
Date of Forecast Projected 2010 Reserve Margin
May 2007 8.3%
Dec 2007 14.0%
May 2008 17.3%
Dec 2008 21.2%
May 2009 20.1%
Dec 2009 21.8%
As can be seen, while 2010 supplies were projected to be below the reserve margin three years ago, new projects came online to meet, and exceed, the forecast demand. This market response is one of the many benefits of the competitive Texas electric market, as customers no longer pay for extra power that isn't needed.
Under the traditional monopoly system, power plants were planned years in advance, based on forecasts of demand, which, like any forecast, were simply educated guesses. That often meant more power plants were built than were actually needed. But customers still had to pay to build those power plants because monopoly utilities were guaranteed a regulated rate of return. Another problem often encountered was known as the "gold plating" of the electric system -- or building many more power plants than needed to serve customers to increase a utility's regulated rate base, on which it made profits. With competition, generation developers do not earn a guaranteed rate of return, which means customers only pay for plants that are actually used, saving them millions of dollars annually.