Experts Say Energy Sector Requires Growth, Diversity to Avoid Shortfalls

DALLAS - Energy experts at The Bond Buyer's 12th annual Texas Public Finance Conference said public utilities in Texas must rely on a mixture of electric generating technologies and fuels to avoid future supply constraints.

Those technologies involve some that are still on the horizon, as well as conventional, proven processes, and should include new nuclear facilities that are expensive to build but more efficient to operate than fossil-fuel facilities, officials said.

"The population and the economic output of Texas are going nowhere but up, and the demand for electricity is going nowhere but up as well," said Don Ballard, who was appointed head of the Office of Public Utility Counsel in January by Gov. Rick Perry.

Demand could exceed expected supply as early as 2017, Ballard said, dipping into the 12.5% safety margin set by the Electric Reliability Council of Texas, which operates the state's electric delivery system and manages the deregulated electrical energy market for 20 million people in 75% of the state.

"We must double the electric generating capacity in this state over the next 25 years," he said. "This will probably include a mixture of fuel resources and all types of generating technologies."

The Texas electric power delivery system is not connected to the national grid, Ballard said, which prevents the movement of surplus power to the state from other regions.

House Speaker Tom Craddick, R-Midland, has created a select committee to take a comprehensive look at the state's electrical generating capacity and the environmental effects of additional facilities over the next 50 years, Ballard said.

The committee was created as a result of public concern over last year's proposed $45 billion sale of energy company TXU Corp., which serves Dallas and much of northern Texas, and the efforts of the new owners to seek approval of the deal from environmental groups by cutting the number of proposed coal-fired plants in the state.

Almost half of the electricity supplied in Texas is generated at natural gas-fired facilities, with nuclear plants providing 13.4%, Ballard said. Four more reactors are on the drawing boards, he said, including expansions of the existing Comanche Peak and South Texas Project facilities, and new ones in South Texas near Victoria and in the Texas Panhandle near Amarillo.

Mark Widener, a director at Merrill Lynch & Co., said public utilities have several advantages over investor-owned utilities in the financing of large generating facilities.

"The most important edge is the ability of municipal utilities to finance 100% of projects with debt," Widener said. "Tax-exempt financing provides a benefit on average of 125 to 150 basis points."

Widener, who is a member of the advisory team assisting San Antonio's CPS Energy as it participates in a planned expansion of the South Texas Project, said the utility has agreed to a 40% share in the expansion. The utility is also a 40% partner in the existing facility.

City-owned Austin Energy, which has a 16% share in the South Texas Project, is considering taking a 16% share in the expansion. If it does not, Widener said, NRG Texas, which operates the facility, and CPS Energy would each get another 8% of the expansion. q

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER