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ERCOT now forecasts slower growth in electricity demand in Texas

By: Jim Fuquay |

A new forecast of Texas electricity use by the state’s largest power grid says demand could grow considerably more slowly than previously forecast.

The proposed change in the outlook by the Electric Reliability Council of Texas could impact the current debate over whether Texas will generate enough electricity to meet future demand. That concern has prompted regulatory changes aimed at giving generators more financial incentive to boost power supplies.

ERCOT’s revised method of estimating future demand, which still must be approved by its board, makes a significant cut in its 10-year forecast, according to a preliminary report released Thursday. Under the new forecasting model, the annual growth rate in peak electricity use is expected to average 1.3 percent a year in the next decade, compared to previous forecasts that were as high as 2.5 percent a year.

Peak demand is important because electricity supply must be able to meet the peak, particularly during summer heat waves, to avoid blackouts. The new forecast also cuts estimated total demand growth for electricity to 1.8 percent a year from previously estimates that were as high as 2.4 percent a year.

While the changes look small, the new estimate reduces the 2016 peak demand forecast by about 4,100 megawatts compared to ERCOT’s most recent outlook. That’s roughly twice the capacity of the Comanche Peak nuclear plant in Glen Rose.

ERCOT said the change reflects the fact that “the relationship between economic growth and electric demand has changed in recent years,” with peak demand growing slower than the Texas economy. The new forecast addresses this “decoupling,” according to a description of the changes posted on ERCOT’s web site.

ERCOT spokeswoman Robbie Searcy said the changes are being reviewed by various stakeholders. The other important part of ERCOT’s outlook, its updated forecast of the supply of power generation, could be released in late February, she said.

The Public Utility Commission, in an effort to provide more financial incentive to generators to add new capacity, has already boosted the maximum price that generators may receive. Another proposal under consideration would include a so-called “capacity market,” which makes guaranteed payments to generators for the same purpose.

PUC Commissioner Ken Anderson said ERCOT’s new estimates are only the latest evidence against Texas adopting a capacity market, a move he has opposed. The two other PUC members, Chairwoman Donna Nelson and Commissioner Brandy Marty, have indicated support for the measure.

“It’s hard to justify a total overhaul of our market design when it ain’t broke, according to the data,” Anderson said in an interview Thursday. “My own take is, we don’t have a problem” meeting future demand, he said.

John Fainter, who heads the Association of Electric Companies of Texas, an industry group, said ERCOT’s past forecasts have been “higher than what we actually observed” and needed updating. But, he said, that doesn’t settle the issue.

“It might provide more breathing room,” he said, but “it does not resolve the resources adequacy issue.” Resource adequacy refers to maintaining enough capacity to meet expected demand, plus a margin of surplus power available to accommodate events, such as the generation plant outages seen earlier this month and in 2011.

ERCOT’s target for a reserve margin is 13.75 percent. Under its latest forecast in May 2013, that margin would barely be met this summer, drop below it in 2015 and steadily decline into single digits by 2018 and beyond.

Anderson said that substituting ERCOT’s new demand estimate into that same forecast produces a reserve margin of 16.7 percent this year and the next. The margin wouldn’t fall below ERCOT’S target until 2019, by which time additional generation not currently scheduled will likely be built, he said.

Separately, Bloomberg News reported Thursday that a draft report for the PUC shows that the state would need a reserve margin of 15 percent in order to limit the chance of a power interruption under extreme conditions to a 1 percent probability. The unreleased report by Brattle Group, which has done studies for Texas regulators previously, also says 11.5 percent is the economically optimal reserve margin – the ideal level of system reliability versus cost.