28-01-02 While 29 new power plant projects have been announced in Texas, as electricity prices have declined and financing has dried up, more than one-third of them have been shelved or put on hold. With so many projects cancelled or delayed, for the first time there are worries about whether Texas will have enough power to meet its future needs.
A review found that at least 12 of the 29 projects that were to go on line within the next five years are not going forward. That number could easily grow until the Texas economy picks up. "Any plant that is not currently under construction, I don't think you will see built in Texas," said Steve Bergstrom, president of Dynegy.
There are no worries about the next two or three years, but there are serious concerns about the state's needs further out. The state could go from having too much power to not enough if too many new projects fall by the wayside.
"We just opened a project to look into this issue," said Brett Perlman, a PUC commissioner. "This is along-term issue we need to work on in Texas. We don't want to put Texas in the California position of having demand sort of sneak up on us."

With deregulation of the state's electricity markets on Jan. 1, the business of owning power plants in Texas changed forever. Under regulation, utilities earned a guaranteed profit for building enough capacity to serve their customers, even during the periods of highest demand.
Now a power plant will only be built if the builders expect the electricity it generates to sell for a high enough price to make it a profitable investment. The Public Utility Commission of Texas recently began to examine whether the profit motive will ensure Texas will have the generating capacity it needs in reserve to deal with peak demand periods, like the summer air-conditioning season.
California showed the downside of short supplies. In a free market, prices surged on peak days, and sometimes the shortages forced curtailments. The law that opened the state to customer choice and supplier competition on Jan. 1 assumed there would be so many plants that Texans would never have to worry about power supplies or prices. But that cushion is getting thinner with each cancelled project, said Janee Briesemeister, senior policy analyst for Consumers Union in Austin.
"The PUC will be looking at establishing a reserve margin and the sooner the better," Briesemeister said. "We can't rely on the market to meet consumers' needs with the pullback in the announced plants."

Demand is forecast to grow about 3.5 % per year, meaning the state needs to add a minimum of 2,000 MW per year to keep up, according to estimates compiled by the PUC. The numbers indicate that Texas won't be hurting for power, even with shelved projects. Peak demand load in the area covered by ERCOT, which stands for the Electric Reliability Council of Texas, was 57,000 MW in 2000. In 2001 the peak power use was 55,000 MW, and the forecast for this year is 61,352 MW.
The current generating capacity is 68,242 MW. There are about 6,800 MW under construction, due to come on line in 2002 and an additional 3,800 slated to come on line in 2003 and 2004. Since wholesale competition for electricity suppliers began in Texas in 1995, 39 new power plants have come on line, with 13,000 MW of capacity. A 500-MW power plant typically takes about two years to build once it has received all of its permits.

About 20 projects are in development; an additional 29 projects have been announced. Almost all of these are gas-fired. But the business of raising the billions needed to build all these plants has been changed by the fall of Enron. Since the energy giant imploded, the market has suddenly become more critical of these so called "merchant companies" that have depended on money raised from securities sales to build power plants.
Now, faced with the threat of bond rating downgrades, they are scrambling to shore up their balance sheets by selling properties and cutting their budgets. A total of 84,976 MW of power in the continental United States was postponed or cancelled in 2001, more than triple the 26,878 MW in 2000, according to Platts, a division of McGraw-Hill.
A planned $ 1.75 bn plant to be built by a partnership of Sabine Power I and the Port of Port Arthur is on hold indefinitely because the project developers have not been able to raise money by selling stock, said John Crew with Sabine Power I in Dallas. "We have no existing timeline for when construction might begin," Crew said. "It would be fair to say we have had trouble raising equity financing."

American National Power has postponed construction of a 550-MW power plant in Edinburgh in South Texas, as well as a 1,650-MW power plant in Houston, said Marion Stewart, director of project development at the company. The Houston plant was scheduled to begin construction this month and the Edinburgh plant had not been assigned a construction or in-service date, according to the PUC.
"We want to check on the market," Stewart said. "The Edinburgh project will not proceed any earlier than June of this year and the other project is probably postponed indefinitely."
Even though many merchant plants are being postponed, Steag Power, a subsidiary of the German company Steag, plans to go ahead with a 954-MW power plant in Nacogdoches County in East Texas, said Frank Schoenfeldt, US director of asset management for Steag. It plans to break ground later this year and expects it to be in service in about two years.
"A lot of people are cancelling projects or putting them on hold, but we have found a unique location and we are well advanced in the development process," Schoenfeldt said. "This project is designed as a merchant facility, but we will see if there is some opportunity for a reasonable and lucrative contract by 2004."

Projects that are being developed for one or more big users appear to have a better chance of being built these days that those competing to supply the state's transmission and distribution system, or grid. Cinergy and BP are proceeding with a 550-MW power plant in Texas City that will generate power mainly for BP. Excess power there will be sold into the grid, said Hugh Depland, BP spokesman.
Reliant Energy only has one small project on the state's list of announced projects, a plant to generate power from landfill gases in Humble. That project, which will only have a capacity of 32 MW, is on schedule, said Richard Wheatley, company spokesman.
Getting a site for a new plant in Texas is relatively easy. But transporting that power can be tougher because the plants must face the constraints of the state's aging power and distribution system. This is a problem not just for Texas but nationwide. The North American Electric Reliability Council, an industry group funded by power utilities, has forecast that power grid congestion will get worse over the next 10 years as very little new transmission will be added.

Another factor that could contribute to tight power supplies is plant shutdowns. A lot of the older plants in Texas, built in the 1970s and earlier, will likely be decommissioned as newer and more efficient plants begin operating. About 36 % of the plants in ERCOT are more than 30 years old. For summer 2001, reserve margins in ERCOT were 30 % and capacity margins were 23 %. Projections for summer 2005 include reserve margins of 35 % and capacity margins of 26 %.
The rule of thumb for years when the state power supply came from monopoly utilities for power reserves was at least 15 %, but that too appears to have changed on Jan. 1 when the state was opened to competition. "That (15 %) was traditionally a regulatory number but as we move to a competitive market, that number has less relevance," Perlman said.
The commission is looking at ways to provide market incentives to ensure companies maintain enough generation to provide a power reserve. "It's kind of like Southwest Airlines; they overbook all of their flights because there is no benefit from having empty seats," Perlman said. "It's the same way with generation, no player benefits individually from overcapacity, but the market as a whole does."