The Electric Reliability Council of Texas (ERCOT), the grid operator that oversees 85% of Texas’ electric load, should consider additional potential solutions to address its worrisome resource adequacy and provide a plan outlining measures it will take to increase woefully low reserve margins, the North American Electric Reliability Corp. (NERC) said in a strongly worded letter last week.

ERCOT in December projected a reserve margin of 13.2% for summer 2013—slightly below ERCOT’s 2010-selected target reserve margin of 13.75%—but it said Texas could see tight power supplies after that. Reserve margins are expected to drop to 10.9% in 2014 and decrease in future years, plunging to 2.8% by 2022.

NERC, an electric reliability organization certified by the Federal Energy Regulatory Commission (FERC) to ensure reliability for North America’s bulk power system, expressed concern about ERCOT’s diminishing reserve margin levels in its November-released 2012 Long-Term Reliability Assessment. NERC President and CEO Gerry Cauley told ERCOT CEO Trip Doggett in a letter last week that the region’s reserve margin levels "imply higher reliability risks especially the potential for firm load shed, and ERCOT will need more resources as early as summer 2013 in order to maintain a sufficient reserve margin."

Cauley recognized that ERCOT is seeking to address resource adequacy challenges with the Public Utility Commission of Texas (PUCT). Several improvements had been made, but "solutions have not yet sufficiently materialized to address NERC’s reserve margin concern." In November, the PUCT voted to double the wholesale price cap for electricity prices by the summer of 2015, raising the cap from $4,500/MWh to $9,000/MWh by June 2015. Interim increases call for the cap to be raised to $5,000/MWh in the summer of 2013 and to $7,000/MWh by the summer of 2014. The PUCT is meanwhile evaluating whether it should modify ERCOT’s existing "energy-only" market to include more programs that give customers financial incentives to curb power use when supplies are strained, or to create a "capacity market" that pays generators to build new power plants (from fees collected from retail electric companies).

Cauley asked Doggett to present to NERC no later than April 30, 2013, a plan to address the declining reserve margin and projected capacity shortfall. The plan should include a discussion of the risks to reliability if new resources are not built or acquired in the short term.

ERCOT was forced to cut power to large industrial users in the summer of 2011 to avoid rolling blackouts as the state grappled with surging power demand during a long heat wave and a devastating drought. Power demand in ERCOT’s operational region hit three consecutive records in one week, reaching 68,294 MW on Aug. 3, 2011. ERCOT had previously come under regulatory scrutiny in February 2011, when an unusually bitter cold snap crippled several power plants and forced the grid operator to implement rolling blackouts.

Sources: POWERnews, NERC, ERCOT

—Sonal Patel, Senior Writer (@POWERmagazine)