September 25, 2006

Wall Street Journal
Texas-Size Hunger For Power Worries State's Grid Boss

REBECCA SMITH

Texas electricity customers are living large, and it is beginning to worry the state's grid operator.

By next spring, the state's electricity reserves are expected to dip below safe levels, at times. Grid officials are seeking state permission to devise an emergency program that would prevent possible disruptions by offering customers incentives to cut electricity use quickly.

Texas is among several places in the U.S. faced with the prospect of declining power reserves amid increased electricity use by consumers. Backup power nationwide, while currently adequate, has been in decline after disruptions in energy markets that caused many companies to cancel new power-plant projects in recent years. The two factors have increased concerns that the electricity system in some parts of the U.S. is becoming more frail. The problem is especially acute in Texas because the state has almost no ability to import power from neighboring states.

The Texas grid operator has concluded it is cheaper and quicker to cut use than to build "peaker" generating plants -- small, simple plants that run when needs are greatest. Likely users are retail chains, factories and municipalities that are capable of trimming use by predictable amounts with a 10-minute warning. The plan would roughly double the amount of emergency reductions available to the grid operator at times of special stress.

State and federal grid-safety rules require Texas to keep a cushion of electricity on hand from in-state generators that is equivalent to at least 12.5% of the amount of power being consumed at any given time. On Aug. 17, when the state set a record for peak electricity use, reserves slipped below 10%, far less than the 16.3% minimum reserve that had been projected for this summer.

"We're looking at lean reserves the next couple of years and might need emergency assistance at any time," said Paul Wattles, spokesman for the grid operator, formally called the Electric Reliability Council of Texas.

Currently, the grid operator has customers it can call on to reduce demand by 1,150 megawatts, equivalent to the output of two large power plants. The latest proposal it has made to the Public Utilities Commission of Texas would add another 1,000 megawatts. Power generators have objected to such programs, in the past, even though Texas had more than 3,200 megawatts of customer load participating in similar programs prior to 2002, when rules changed as the state deregulated its retail electricity market.

After passage of the 1999 law, generators went on a building spree, constructing 26,000 megawatts of plants, a record for any state. But rising demand and retirement of older plants have thinned reserves that exceeded 30% just four years ago.

Since 1980, the average Texas household has doubled its use of electricity, and the number of households has grown. Not only are new houses bigger, most have central air conditioning, and 60% have ceilings that are at least nine feet high, factors that also push up consumption, according to grid officials.

Californians have held electricity use flat since the 1980s on a per-capita basis through investments in energy-efficiency and conservation programs. In 2003, California ranked first among all states for lowest per-capita electricity use, at 6,732 kilowatt hours annually. Texas ranked No. 35 with average annual use that was more than twice as great, at 14,602 kilowatt hours per person.