ERCOT Forecasts 2012 Reserve Margin at 12%

ERCOT released its December capacity, demand and reserves report indicating that capacity is expected to fall below the target reserve margin beginning next summer.

The 2012 reserve margin is projected at 12.1%. This reflects a summer load forecast, under normal weather, of 64,618 MW, and capacity of 72,444.

The target reserve margin in 13.75%.

The 2013 reserve margin is also projected at 12.1%, falling to 7.6% in 2014.

The December update of the capacity, demand and reserves report indicates a decrease in available resources by more than 2,600 MW for the summer of 2012 relative to the amount expected in June 2011 for 2012, primarily due to additional announcements to mothball some generation units and several delays in planned generation, as well as a higher load forecast.

"We are very concerned about the significant drop in the reserve margin," said ERCOT CEO Trip Doggett. "If we stay in the current cycle of hot and dry summers, we will be very tight on capacity next summer and have a repeat of this year’s emergency procedures and conservation appeals."

ERCOT is investigating several initiatives to address the capacity shortage for the short-term, Doggett said.

"We are working with the Public Utility Commission on several rule changes, including expansion of our emergency demand response program to allow greater participation."

Additional protocol changes that will help in the longer term include improvements in generation owners' outage scheduling and reporting requirements, raising the offer floors for non-spinning reserves, and resolution of pricing issues related to reliability deployments.

In addition, ERCOT is working closely with transmission operators to verify the accuracy of in-service dates for generation under development and for potential projects that are currently in the final phase of the interconnection study process, Doggett said.

"Due to our concerns about generation adequacy during the record-setting summer temperatures, concerns about the future impact from the drought, and retirements related to new environmental rules, we asked transmission operators to perform a comprehensive review of the current status of each of their assigned generation interconnection projects," Doggett said. "Given the current economic uncertainties and the uncertainty from proposed environmental regulations, we wanted to ensure that proposed in-service dates were as accurate as possible, based on the currently available information."

Separately, ERCOT also released a winter 2011/2012 assessment today, the first of a new report created to provide a more complete picture of near-term risks.

"Our assessment indicates a concern if we experience a simultaneous occurrence of extreme weather and worst-case generation outages, much like February of this year," said Doggett.

"Under normal weather conditions, the winter peak demand should be around 53,600 megawatts (MW). Available resources, based on normal generation outage rates, are approximately 64,000 MW," Doggett said.

"However, under extreme weather conditions, the winter peak demand could be approximately 60,000 MW. Available resources, based on above normal generation outage rates, could dip to approximately 57,000 MW," Doggett said. "We believe the risk is very low of these simultaneous conditions, but the purpose of this report is to highlight such risks."

The seasonal assessments are tentatively scheduled to be issued quarterly.