Experts differ on how to prevent rolling blackouts



When the state electrical grid operator warned Thursday that Texas could be hit with blackouts next summer in part because its cushion of reserve energy is less than hoped, reaction was swift – but all over the map.

“I worry that if there isn’t more of an emphasis on sounding the alarm, it won’t get fixed,” said Diane Liebmann, an attorney with Haynes Boone in San Antonio who has represented power companies before the state’s energy regulatory agencies.

Others were more skeptical of claims that Texas will not have enough power to keep the lights on, including Clarence Johnson, a veteran energy consultant and former director with the Texas Office of Public Utility Counsel, which represents consumers.

The experience thus far, he said, is that new power plants have been built in time to meet increasing demand.

“Generation has always shown up,” he said. “There is no reason to believe it won’t.”

At issue are the incentives – or perceived lack of them – for power companies to build new plants to meet demand in this fast-growing state. While many are planned, it’s unclear how many will actually get built.

Some worry that the “energy-only” market in Texas, which pays plant operators only for the power they supply, doesn’t offer companies enough of a return to reliably recoup the multibillion-dollar cost of building a new plant.

Every other energy market in the world, except Australia, operates a “capacity market” that pays generators a flat amount on top of the cost of the power, ensuring the necessary incentive to build new plants.

Generators like the guaranteed additional payments under that system, but they are passed along to consumers.

When Texas deregulated its energy market a decade ago it had plenty of excess capacity and chose to create an energy-only market. Since then, however, reserves have continued to shrink.

In Texas and Australia, regulators have set price caps on what a generator may charge for wholesale power during periods of peak demand, but Australia’s cap is five times higher than the Lone Star State’s. Those occasionally sky-high prices create enough of an incentive for companies to build, Liebmann said.

“There’s no stomach in Texas” for raising price caps to Australian levels, she said, nor is the Public Utility Commission of Texas, which regulates the industry, interested in creating a capacity market.

The commission is concerned, however, that prices may not be high enough to encourage new power plant construction. It is and looking for less drastic ways to tweak the system.

“The Commission would like to have as gentle a touch on the market as possible,” said PUC spokesman Terry Hadley.

The PUC recently approved higher minimum prices for wholesale power. It is considering raising the price cap of $3,000 per megawatt hour, among other potential changes to the system.

Johnson thinks the PUC should proceed with caution.

He noted that ERCOT historically has forecast lower reserve margins in outlying years than the grid actually ends up with – not because they’re doing anything wrong, but because it is difficult to forecast new capacity.

Reserve margins aren’t intended to guarantee that there’s never a blackout, he said, but to provide a cushion to meet the range of most expected weather outcomes.

“It’s really premature to say we’re headed for a calamity,” Johnson said.

Houston Chronicle

6 Responses

  1. ntangle says:

    Seth wrote: …”for electrical suppliers to cease curtailing service to natural gas pipeline companies.”…
    Seth – Where’s your evidence that NG p/l’s compressor stations’ electrical supply was curtailed in TX last winter? Or that it was a significant factor in NG supply within TX? Their prime movers are generally NG turbines, not electric motors. So they don’t have as much incentive to opt for “interruptible” service. And even if major NG transmission lines exiting the state could be restrained by electrical cutoff, it would lead to gas shortages up North, but not in TX, since we’re the largest NG producer, by far.

  2. Seth Neff says:

    Perhaps it would help for Emergency market rules to direct Natural Gas Pipelines to quit curtailing service to electrical generation plants; and for electrical suppliers to cease curtailing service to natural gas pipeline companies.

    These curtailments are lawful, but stupid. The result amounts to the gas & electric industries standing on each others oxygen lines. It is a form of mutual market suicide.


    Instead of rushing natural gas to backup generating plants, the gas companies followed the rules to focus gas delivery to homes, hospitals and businesses while curtailing it to generating plants, said Sen. Troy Fraser, R-Horseshoe Bay . “The power plants are the first to get cut off” in an emergency, Fraser said Thursday.

    By Laylan Copelin, Marty Toohey and Kirk Ladendorf (Austin)
    Published: 9:20 p.m. Thursday, Feb. 3, 2011

  3. A guy says:

    LAMac, solar power ($0.22/kwh) is over twice the cost of coal ($0.10/kwh) and 4 times the cost of gas ($0.04/kwh) over the course of its lifetime. Putting them on widely distributed power poles will greatly increase maintenance costs and make the power cost skyrocket. That’s as bad an idea as the wind powered car

  4. LAMac says:

    This article shows the narrow focus of Texas’ energy companies on fossil fuels.

    Last year, I believe it was, New Jersey Power installed about 200,000 solar panels on it’s power poles. Such panels requires only a solar panel, a DC-to-AC converter block, a mounting bracket, wiring and an already paid for installer. With solar panels costing less this year then last, and with volume discounts, this seems like something even Texas’s energy companies could implement.

  5. David says:

    “There’s no stomach in Texas” for raising price caps to Australian levels, she said, nor is the Public Utility Commission of Texas, which regulates the industry, interested in creating a capacity market.

    It’s gotta be one or the other guys. Nobody invests billions of dollars in power plants unless they have a reasonable assurance that they’ll turn a profit over the life of the plant.

  6. ntangle says:

    If generators are strictly reward driven by variable energy costs, they’ll naturally focus on the areas with highest reward. For example, if they can occasionally get multiple thousands per MWh, wouldn’t they focus on building peaking plants that are run only for such times. Rather than building new baseload capacity primarily for lower prices (and obviating the need for so much peaking). The greater the price differential, the greater the incentive to focus on peaking. And the greater the incentive to game the system, even if it isn’t occurring now.

    In the short run, raising the price cap may avoid rolling blackouts or the need to purchase outside of ERCOT. But in the long run, the unintended consequence could be the delaying of new baseload capacity, with its cheaper fuel costs 24*7.