ERCOT: Growth in Texas Energy Demand Slows

Texas' rapid growth will put less strain on its electric grid than previously thought, the state’s grid operator said Friday.

In its much-anticipated 10-year outlook, the Electric Reliability Council of Texas said peak power demand — which typically corresponds to hot summer days — is growing more slowly than previous forecasts showed, alleviating concerns that rolling blackouts are right around the corner. 

The report comes as state regulators are backing off controversial plans to overhaul the state’s energy market in hopes of improving reliability. At issue in that debate, which pits electric generators and against industrial energy users and consumer advocates, is whether Texas should shift its current “energy only” market to a “capacity” market, which would pay power plants to maintain excess capacity.

As low natural gas prices, a more efficient generating fleet and a boom in wind power have combined to shrink power plants’ investment returns, those companies say they need incentives to build new plants.

The new report, however, shows that regulators may have some time to address the issue. 

In May 2013, ERCOT forecasted that Texas’ reserve margin — the threshold between generating capacity and peak demand — would stay above its target level of 13.75 percent in 2014, but fall below it by 2015.

The latest report, however, predicts the cushion to hover above the target until 2017. By August 2014, when four new natural gas plants come online, ERCOT says the reserve margin will hit 16 percent before gradually declining. 

ERCOT attributed most of that disparity to its revamped forecasting methodology. In the past, projections relied primarily on economic and employment growth figures, which had long closely tracked energy demand. But changing weather patterns and consumer behavior prompted ERCOT to account for more factors in its forecasts. 

Energy experts say consumers have played a major role in slowing the growth in energy demand. For instance, homes are more efficient, and many have switched to more efficient light bulbs or appliances. Household energy use has declined nationally for two decades, according to the U.S. Energy Information Administration.

“Although population and the economy continue to grow in the ERCOT region, the relationship between economic growth and peak electric demand has changed in the past several years,” Warren Lasher, director of system planning at ERCOT, said in a news release. “We believe recent improvements to our load forecasting methodology are providing a more realistic view of the future electric demand we need to be prepared to serve.” 

Opponents of a capacity market said the report bolstered their position.

“The energy-only electricity market is working and will continue to deliver reliable and competitively-priced power for all Texans,” Tony Bennett, president of the Texas Association of Manufacturers, said in a news release. He added that the numbers strongly indicate that the PUC made the right decision to redirect its efforts away from "a mandated forward capacity market, which would create subsidies and increased costs for Texas consumers." 

Though two of Texas’ three utility commissioners had previously voiced support for moving toward a capacity market, they have backed off in recent weeks, following the release of an independent report, commissioned by the PUC, which found that Texas’ current market will support a long-term reserve margin higher than what’s “economically optimal.”

“Our energy market seems to be healthy,” Commissioner Brandy Marty said last week at a commission meeting.

At that meeting, the commissioners agreed to consider whether to lower the standard used to calculate the target reserve margin.

Capacity market proponents caution that Texas still has looming grid troubles — even if they might arrive later than originally expected. 

“The one thing this does is let everyone take a breath, and that’s good,” said Colin Meehan, director of regulatory and market strategy at the energy management firm Comverge and a board member for the group Texans for Reliable Power. “But I don’t think you can take a look at this and not say we have a problem.”

Grid operators still expect Texas’ reserve margin to fall below its target by 2017, Meehan notes, and that would increase the risk of rolling blackouts. 

Disclosure: At the time of publication, Texans for Reliable Power was a corporate sponsor of The Texas Tribune. (You can also review the full list of Tribune donors and sponsors below $1,000.)