Report: Correcting for Load Forecast Errors "Debunks" Myth ERCOT Facing Resource Adequacy Shortage

"A more accurate assessment of the [peak load] data ... has debunked the notion that Texas needs to adopt a capacity market with subsidies to generators as high as $4 billion a year," the Texas Public Policy Foundation said in a report examining persistent over-forecasting of load in the ERCOT CDR reports, which translates into reserve margins which appear to decline below the target.

Comparing past data to actual demand, TPPF cited an, "inherent bias toward overestimating load" in the ERCOT CDR.

According to TPPF, actual demand, versus CDR forecasts, was as follows from 2008 to 2013:

Forecast   --------------Delivery Year----------------
         2008    2009    2010    2011    2012    2013
2007   65,135  66,508  67,955  69,456  70,733  72,160
2008           65,222  66,283  67,654  68,932  70,408
2009                   64,056  65,494  67,394  69,399
2010                           65,206  66,658  68,265
2011                                   66,195  67,168
2012                                           67,998

Actual 
Peak   62,171  63,400  65,776  68,305  66,548  67,180

On average, TPPF said that, three years out, the CDR misses the load forecast by 2%, and 4% five years out.

According to TPPF, "79 percent of the CDR forecasts for 2008-13 overestimated the load."

"The bias toward overestimation showed up particularly in the May 2013 CDR that made a very aggressive load forecast based on projections that nonfarm employment growth in Texas would increase each year by over 400,000; a level that was not reached even during the boom years of the middle of last decade," TPPF said.

TPPF said that the reserve margin forecast adjusted for the overestimation of load is as follows:

Reserve Margin (%)
          2014   2015   2016   2017   2018   2019
CDR       13.8   11.6   10.4   10.5    9.4    7.4
Adjusted  14.02  12.64  12.85  13.81  13.99  12.14

"Part of this trend of overestimating load can be attributed to human nature. Regulators are far more concerned about the possibility of rolling blackouts due to underestimating load than they are to the higher costs consumers might have to bear because of overestimating load; the higher costs are hidden, but the power outages are noticeable to everyone," TPPF said.

However, "[i]t appears that something else is going on, though, besides a bias towards overestimating long-term demand. Even the moderate December 2012 CDR overestimated 2013's peak demand, a few short months away. There appears to be quicker than anticipated progress being made in demand management within the market, both at the residential and commercial/industrial levels. Commissioner [Kenneth] Anderson has questioned whether the cause of this is price-responsive demand response that is currently being underestimated in the near-term," TPPF noted.

"Whether or not the data from 2011 are included, reserve margins stay strong through 2019 -- within striking distance or above the 13.75 percent reserve margin target. It shows very little of the downward trend of the last four CDR's that was the catalyst for the push for a capacity market," TPPF said.

These reserve margins would be even higher by adding in potential resources not included in the ERCOT report, i.e., mothballed units and the remaining 50 percent of the non-synchronous ties, TPPF said. Including such resources would increase available resources, on average, by 2,400 MW through 2018, TPPF said. This would lead to a reserve margin in excess of 14.29% through 2018.

"Behind all the debate over the reserve margin, however, is a much more important question that is not getting the attention it deserves: why should the state of Texas be in the business of determining the level of reliability and resource adequacy in the electricity market," TPPF asked.

"In truth, this question has already been answered by Texas policymakers. When Texas adopted its current energy-only market, it made market participants the primary arbiters of long-run reliability and resource adequacy. Now the PUC is considering reversing the decisions of its predecessors and abandon[ing] the market-based system in favor of one where the government determines how much capacity ERCOT should have, what level of reliability is best for consumers and how much they should pay for it," TPPF said.

"At a time the nation is debating the implementation of ObamaCare, Texas policymakers should stop to consider the wisdom of the PUC's current direction toward imposing Washington, DC-style government control of an entire industry," TPPF said.

Link to TPPF Report