Rolling blackouts are Texas' future without reform, generators say

By Eileen O'Grady

HOUSTON, Jan 9 (Reuters) - Four of the largest power plant owners in Texas on Thursday warned of regular rolling blackouts across the state within a few years unless it overhauls its $29 billion wholesale electric market.

The prediction by NRG Energy, Calpine Corp, NextEra Energy Inc and Exelon Corp, under a new umbrella trade group called Texans for Reliable Power, appeared in a full-page newspaper ad Thursday to respond to opposition from big industrial users that have stymied efforts to reform the deregulated power market.

The ad appeared in the Austin American-Statesman, read by policy makers in the state capitol.

It shows a satellite view of lights across the United States at night, but Texas is shown in darkness.

"Is this our future?" the ad said.

Citing the close call for potential rolling outages experienced earlier this week amid sub-freezing temperatures, the ad says Texas could be on a course for "regular rolling blackouts in a just a few short years."

"We wanted something that would get people's attention," said David Knox, a spokesman for NRG Energy, the state's second largest power generator. "The bottom line is reliability: what does that mean to the state of Texas and the residents."

Texas, unlike many U.S. states, continues to see growing demand for electricity. Tight financial markets and low wholesale power prices have stalled construction of most new plants in the state's primary grid, overseen by the Electric Reliability Council of Texas (ERCOT).

ERCOT has warned that blackouts will be more likely as the amount of surplus electricity in the state dwindles.

The grid agency and the Public Utility Commission of Texas (PUC) have made a number of market changes and are studying more radical changes to encourage investment in new power plants.

The debate has simmered for more than two years. Regulators, lawmakers and market participants are now divided over the issue.

Most companies that own generation, like members of Texans for Reliable Power, along with Luminant, Texas' largest power producer, support creation of a so-called "capacity market" where generators and others are paid to be available in future years.

Large industrial power consumers oppose the additional cost that a capacity market may create.

The Texas Oil & Gas Association (TXOGA), whose members produce more than 90 percent of the crude and natural gas in Texas and operate major refineries, wants to keep the current market design.

"TXOGA does not believe that a centralized forward capacity market is the answer to whatever reliability issues the PUC believes remain," the group said in a filing last week. "When hanging a picture on your living room wall, you do not use a sledgehammer to pound in a nail," TXOGA said.

Generators warn that reform is needed.

"Exelon and other energy companies would very much like to increase their presence and participation in ERCOT," William Von Hoene Jr., an Exelon executive told an industry group last fall.

Companies are reluctant to invest "because the market is failing to provide a clear price signal," Von Hoene said.

Permits to construct more than 12,000 MW of new generation are in the works, but it is unclear whether any of the projects will advance.

Last month, Houston-based Calpine agreed to purchase a power plant near San Antonio, but said it would delay the previous owner's plan to build two "quick-start" power plants at the site until the debate over electric market reform is settled.