Michigan Jobs & Energy

U.S. Energy Information Administration critical of deregulation in Texas

Excerpted from Power Engineering, 6/24/2013

"According to EIA, the most recent economic forecasts for Texas show an increased demand for electricity that exceeds the capacity addition. The report notes the structure of ERCOT’s electricity markets has influenced the incentives available for building new capacity, since it is the only regional transmission organization that does not have a mechanism for paying for reserve supply. The administration notes that traditionally, utilities either built or contracted for reserve generating capacity, and the cost was covered through retail electricity rates.

“In ERCOT, where supply was also divested, generators rely solely on the sale of electricity as a revenue stream,” the EIA wrote in the report. “The theory is that tight supply will increase prices and spur investment. Extremely high prices are only reached in times of severe supply constraints and so far have not provided sufficient incentive to add enough capacity to reach NERC’s target reserve margins.”

The failure to reach reserve margins, however, could have consequences if peak demand is higher than expected, according to the EIA.

“With a reserve margin below target, extended periods of high temperatures (similar to the record-breaking summer of 2011) combined with unplanned outages of some generation or transmission capacity may push demand for electric power higher than the available supply, potentially leading to increased calls on emergency demand response programs or even rolling blackouts,” the EIA stated in the report."

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