ERCOT CEO Warns of Generation Shortage from EPA Cross-State Rule

"Texas could face a shortage of generation necessary to keep the lights on in Texas within a few years," if the U.S. EPA's Cross-State Rule is implemented as written, ERCOT CEO H.B. "Trip" Doggett said in a statement yesterday.

ERCOT is currently updating its May analysis of the impact of several pending federal environmental rules on ERCOT capacity, to reflect the final version of the Cross-State Rule, and has not yet completed the updated analysis.

However, Doggett said that initial implications are that the SO2 requirements for Texas added at the last stage of the Cross-State Rule's development will have a significant impact on coal generation, which provided 40 percent of the electricity consumed in ERCOT in 2010.

"Our concern is that the timing of the new requirements -- effective Jan. 1, 2012 -- is unreasonable because it does not allow enough time to implement operational responses to ensure reliability. We fear that many of the coal plants in ERCOT will be forced to limit or shut down operations in order to maintain compliance with the new rule, possibly leading to inadequate operating reserve margins with insufficient time to reliably retrofit existing generation or build new, replacement generation," Doggett said.

"In the state's deregulated electric market, the generation owner bears the risk of investment and decides when and where to build new generation, and whether to retire or mothball existing generation, based on market conditions. ERCOT's role in the competitive market is to provide an outlook for future peak demand and how much generation will be needed to maintain long-term reliability of the electric grid. At this time, it is not clear that ERCOT operations has adequate tools to maintain long-term reliability in the face of the possible loss of a large amount of existing baseload generation in such a short period of time," Doggett said.