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How many electricity blackouts can we tolerate?

By: Elizabeth Souder |

Here’s the issue the Texas electricity regulators face: People won’t tolerate rolling blackouts, but it’s impossible to guarantee the lights will always stay on.

So should regulators maintain an efficient, competitive market, and the volatile prices and occasional outages that go with it? Of should regulators set a target for reliability, and spend the money and effort to reach it, even though no amount of money will deter a wild Texas weather event from shutting things down?

“The problem is, because we have unique weather in Texas, in any given year, if the [reliability] cap were very, very high, you could have what I consider to be a disaster scenario,” said Public Utility Commission commissioner Ken Anderson at a Gulf Coast Power Association conference in Austin on Tuesday.

That is, spending “billions and billions of dollars” in ratepayer money to guarantee the lights stay on, but weather shuts things down like it did in 2011.

“That would be a political problem of a monumental nature that could undo the market entirely,” he said.

Texas is facing this question because of low natural gas prices. Cheap natural gas causes Texas wholesale electricity prices to drop, because the state relies on natural gas plants to meet the daily rise and fall in demand for electricity.

So, with low wholesale power prices, and little prospect of profit, power plants developers haven’t built enough capacity to keep up with growing demand.

Anderson and other utility regulators are considering whether to let the free market sort this out, and just bear any outages that might happen before prices finally rise and people build new plants. Or, should they make substantial, possibly expensive, changes to the market so that Texans don’t have to face the ugly side of deregulated, free markets?

The decision could determine how often Texans must face rolling outages. Those are different from power line outages, when a storm knocks out distribution lines to homes, causing a neighborhood to go down. Rolling outages happen when there simply isn’t enough electricity to go around, and grid operators must shut neighborhoods down one at a time, in a “rolling” fashion, so that the entire grid doesn’t go down.

Currently, the Electric Reliability Council of Texas, which operates the grid, has a target of one rolling outage every decade. To achieve that target, the council calculates Texas needs at least 13.75 percent excess power generation capacity.

(Readers may recall Texas has already exceeded that target, with two rolling outages in the past ten years, both due to unexpected, extreme weather. The most recent, in February 2011, took placed when a deep freeze and high winds knocked out dozens of power plants.)

Texas currently meets that 13.75 percent capacity margin target, but ERCOT expects the state’s margin will contract well below the target in the next few years.

And that’s exactly what Sam Newell, a principal with the Brattle Group, would expect to happen. He lead a resource adequacy study for ERCOT that showed the current, free-market system results in average capacity margin of about 8 percent. And that translates into rolling outages, on average, each year, though instead of happening annually, he said, they would more likely clump together.

Newell’s study offered ERCOT five options for addressing the problem, ranging from just dealing with the downside of the free market to big market design changes requiring that Texas keep excess generation capacity.

At the conference on Tuesday, Marianne Carroll, a partner with Brown McCarroll, kicked off a separate panel discussion by reading the first few verses of Genesis, the part about God saying let there be light, and there was light.

She said: “Ladies and Gentlemen, I propose option six.”