Texas Electric Grid Faces More Uncertainty in 2012

Will the lights stay on in 2012? Texas electricity experts cannot say for certain.

The state’s electric grid operators are coming off of a tumultuous year, one they are not eager to repeat. In February, a deep freeze knocked numerous power plants out of commission as equipment broke, causing rolling blackouts across the state. Then, the hottest summer on record spurred repeated conservation warnings, as grid managers worked — successfully — to avoid more blackouts.

What happens next year will largely depend on the weather. While a piping-hot summer could spur blackouts, as electricity use spikes because of air-conditioning loads, winter shortfalls are looking less likely.

“We’re not real nervous going into the winter,” said Trip Doggett, chief executive of the Electric Reliability Council of Texas, which operates the state grid. But come summer, “if the weather patterns remain the same,” Doggett said, “it’s likely to be warmer than normal.”

While experts do what they can to check the skies and the temperature, grid operators are facing a tougher line of questioning about their ability to keep power flowing smoothly. A report last month by the North American Electric Reliability Corporation cited “significant concerns” about whether Texas would have enough power plants in the near future.

A December report by the Texas grid operator said that power reserve margins — the safety buffer the state uses when there is a shortage — are expected to drop slightly next summer, bringing the likely number of blackouts, Doggett has said, to 2 in 10 years.

Regulators, eager to avoid blackouts at all costs, want to encourage construction of more power plants to meet the needs of a growing state. But consumer advocates fear this could mean higher electricity prices. Environmentalists are instead lobbying for more focus on energy savings.

Texas, meanwhile, faces a unique risk. Among the nation’s contiguous states, it is the only one that has its own electric grid, and this relative isolation means less outside help is available in emergencies.

Donna L. Nelson, the chairwoman of the state’s Public Utility Commission, which oversees the grid operator, said the state is struggling to get enough power capacity for several reasons, starting with a new federal Environmental Protection Agency regulation. The cross-state air pollution rule, which takes effect Jan. 1 unless a federal court orders a stay, aims to reduce sulfur dioxide and nitrogen oxide emissions from power plants.

Luminant, a giant power generation company, plans to take two units of its 1970s-era Monticello coal plant in Northeast Texas offline in January because of the rule. (A third unit will keep operating but use cleaner coal.) Texas state regulators, citing blackout risks, have protested the timing of the EPA rule. But environmentalists argue that Luminant should have anticipated the regulations. Another EPA rule, announced this week and aimed at reducing mercury and other air toxins emitted from power plants, will not take full effect until 2016.

Another challenge is the drought, which remains troublesome despite recent rains. The plants that produce coal, gas or nuclear power need lots of water for cooling. This year one coal plant already had problems, and ERCOT says some 3,000 megawatts — about 4 percent of last summer’s peak demand — could be at risk by May if severe drought persists.

Looking beyond immediate cooling needs, Doggett said, water constraints could hinder planning of new gas or coal plants. A decision this year by the Lower Colorado River Authority, a Central Texas utility, not to sell water to a large proposed coal plant called White Stallion in southeast Texas was something of a wake-up call, he said.

“We normally think of a plant as being a fairly sure bet once they get their air permit and their interconnection agreement with the transmission company,” he said. “But we’re beginning to rethink that, and believe that we probably need to add their water availability to that list.”

A third difficulty, from the standpoint of regulators and electricity generators, is that profit-driven energy companies are not motivated to build new plants when power prices are low. Through September, power prices in Texas were down 2 percent from the same period last year, according to federal data, and they are down more than 15 percent from highs three years ago, largely because of falling natural gas prices associated with the shale boom.

Wind power — 8.4 percent of Texas’ electricity so far this year — also helps drive down electric prices in Texas, experts say, largely because its fuel is free.

“In order to respond to the demand, you’re going to have to make a profit off that investment,” said John Fainter, president of the Association of Electric Companies of Texas.

Among the changes that the Public Utility Commission may consider next year is lifting a cap on wholesale power prices.

That would allow electric companies to make more money when the grid is strained, because wholesale prices soar toward the cap when blackouts threaten.

In October, the three-member commission created a price floor for some types of backup power. In a memo earlier this month, one of the commissioners, Kenneth W. Anderson Jr., wrote that raising the cap is “probably necessary,” though nothing has been decided.

Tim Morstad, associate state director for AARP Texas, said that only three or four years ago the industry was making huge profits at a time of high electricity prices, and “anyone who showed concern with that was told that this was exactly how the market works.” Now, he said, Texas is “changing the rules of the game” and preparing to send power prices higher, and that these increases will ultimately reach Texas residents.

Doggett said he knew of no large power plants scheduled to come online next year, though some “mothballed” plants could restart operations. "Very little" new wind will come online in 2012, he said.

Environmentalists argue that the strains on the grid should spur Texas to work on energy-saving strategies. In particular, they are pushing a program called demand response, in which businesses and consumers get paid to reduce power at times of high demand, like late summer afternoons. Colin Meehan, a clean energy analyst with the Environmental Defense Fund in Texas, said in an email that Texas has “so far only taken very small steps” on demand response.

Nelson said the utility commission is looking at expanding Texas demand-response capabilities next year, helped by the continuing roll-out of smart meters. By the end of next year, she said, Oncor and CenterPoint Energy — major utilities that cover about 80 percent of the market in Texas — should have smart meters installed for all their customers.

Robert King, president of the Austin consulting firm Good Company Associates, said two of his energy clients plan on beginning demand-response programs in Texas next year for the first time.

The commission is also considering regulatory changes that should make storing electricity in batteries easier, Nelson said. Electricity storage is important for a state with large amounts of power from the fickle wind. Duke Energy is building a 36-megawatt battery facility beside its wind power project near Notrees in West Texas; the company expects it to be finished by the end of 2012.