Is Texas getting ready for
generation shortages?

A chat with Jeff Nottingham over at Cirro Energy Services
Some are looking at Texas' market expecting real troubles down the road.
        Two major price determinants may be getting ready for a big crash that could cause some major price spikes maybe as soon as 2009.
        ERCOT had forecast a 16.9% reserve margin over forecast peak load for this year as the springtime ended.
        That number grew from a forecast peak demand of 61,565 mw.
        Mother Nature surprised everyone in August when the peak was recorded at almost 1,500 mw or 2.4% above the forecast.
        That meant the actual reserve margin fell below 15%, the old planning number, for the first time since the state had deregulated as 2002 began.
        Texas has come a long way since the days when Gov George Bush and PUC Chairman Pat Wood were getting ready for competition by creating excess capacity.
        Meanwhile Texas is getting ready for its new, nodal wholesale markets and several cities are getting organized to block TXU's plans to build a new fleet of coal and nuclear generation capacity.
        The public outcry has been substantial with cities of Arlington, Cedar Hill, Coppell, Dallas, DeSoto, Duncanville, El Paso, Fort Worth, Frisco, Hillsboro, Houston, Irving, Lancaster, McKinney, Plano, Rockwall and Wylie joining as the North Texas Clean Air Steering Committee to force TXU to adopt "the cleanest technology available."
        Texas meanwhile is growing like topsy as is the demand for energy.
        A major market question is:
        Will Texas get new generation capacity in time for growing demand or will it go into the summer of 2009 with a reserve capacity of 3%, as one consultant has suggested.
        We asked Jeff Nottingham of Cirro Energy Services. Cirro advises large power buyers on power buying.
        He's seen the reports that predict a 20% reserve margin for 2009, based on several publicly announced units being operational by then.
        He has some doubts and is advising clients not to go into 2009 short.
        In fact he suggests contracting for generation now before the price spikes.
        He doesn't like his clients to risk the impact of mothballed units that would be returned to service.
        The projected 2009 reserve margin is 8.9% based on a peak load forecast of 65,950 mw.
        "If we use the same margin of error in their '09 forecast that we saw in '06, that would give us a 6.3% reserve margin in the very year ERCOT changes the wholesale market design to nodal," he observed.
        Absent those new plants, the period of 2008-2010 could be "ERCOT's California."
        And that's why "retail suppliers are cautious about offering fixed prices beyond '09 without contract outs wide enough to drive a truck through," he added.
        Originally published in Restructuring Today on September 19, 2006