Isolation of Texas Power Grid Questioned: Proposal to Connect With Neighboring Regions Jolts State Officials

Isolation of Texas Power Grid Questioned: Proposal to Connect With Neighboring Regions Jolts State Officials

Mar 26 - The Dallas Morning News

Texas' isolated power grid has been a source of pride and envy for decades.

The state enjoys its independence as the only electricity grid in the continental U.S. largely free from federal oversight. Outsiders joke about the Republic of Texas and its immunity from electricity crises such as California's soaring power prices rippling through the Western grid and the cascading blackout in the Eastern grid.

But that go-it-alone attitude came under fire this month as Rep. Joe Barton, R-Ennis, raised the prospect of ending Texas' status as an independent grid.

TXU Corp.'s decision to cancel plans for eight of 11 new coal-fired power plants -- a move intended to win support for its $45 billion buyout by private equity firms -- drew worries that Texas might not have enough new generation capacity.

Connecting the Texas grid with neighboring regions, Mr. Barton said, might allow power to be delivered from outside plants and help push wholesale power prices back down.

"We had among the lowest energy prices in the country," Mr. Barton said. "Now we have among the highest. What was a benefit for many years might now be a detriment."

Many federal officials have long maintained that Texas' electricity network should connect with the nation's two other grids. That would place it under oversight of the Federal Energy Regulatory Commission in Washington, stripping some powers from the state Public Utility Commission in Austin.

The suggestion has generally fallen flat on Capitol Hill. The state's utilities preferred to deal with state regulators, and a powerful Texas congressional delegation in Washington ensured that nobody outside the state would make changes without Texans' consent.

That's why Mr. Barton's questioning jolted some Texas energy officials. As the top Republican on the House Energy and Commerce Committee, he holds major sway over federal electricity policy. In a letter to the head of the Texas PUC, Mr. Barton said the Electric Reliability Council of Texas can be made subject to FERC regulation with "a few small changes in federal law."

Sen. John Cornyn, R-Texas, said he hasn't reached a conclusion on the issue, but he called the idea "really intriguing."

"In Texas, our first instinct isn't to want to tie ourselves to federal regulation or a national grid," Mr. Cornyn said. "It's to do what we think we do as well or better than anybody else -- and to tell the federal government to leave us alone."

Sen. Kay Bailey Hutchison, R-Texas, said she's open to hearing arguments for opening up the grid but preferred to maintain the existing arrangement.

"I would rather deal with our problems and provide for our energy needs and depend on ourselves," she said. "I would not want to have a requirement that we would send energy out of our state. ... My first inclination is that state regulation and state independence has been a good provider."

Independent grid

Most of Texas has avoided federal electricity regulation for the last century because power didn't cross state lines and qualify as interstate commerce.

State regulators oversee the primary Texas power grid, which covers about three-fourths of the state's geographic area. ERCOT, the nonprofit grid operator, ensures reliability by coordinating power plants on the grid and directing the flow of power over transmission lines.

Deregulation of the state's wholesale electricity market in 1995, seven years before retail competition started, led developers to build a wave of power plants fired by natural gas, at the time a cheap and abundant fuel.

When gas prices started spiking at the start of this decade, electricity prices shot up and some power plants shut down. What was once a huge surplus of power-generation capacity in the state is now approaching minimum levels needed to operate the grid reliably.

Connecting Texas with other states could put pressure on prices on each side whenever a surplus existed.

"A lower-cost producer outside ... could cause generators inside to be more efficient," said Michelle Michot Foss, head of the University of Texas' Center for Energy Economics. "It would make the market that much more competitive."

Though Texas might need to import now, it's becoming a gateway for liquefied natural gas supplies from abroad that could then go through Texas power plants and help make electricity an export for the state, she said.

Engineering challenge

Experts agree that connecting the grids would be a significant engineering undertaking requiring a large investment.

Today, Texas has several small transmission ties with its neighbors. The 220-megawatt Vernon transmission line near the Oklahoma border allows power to flow in a single direction under the guidance of its operator. A 600-megawatt line in East Texas connects the ERCOT grid with a part of the Eastern grid that juts into Texas. The Mexico border now has a single 36-megawatt tie at Eagle Pass, with two more totaling 250 megawatts under construction near Laredo and McAllen.

FERC approved those connections and sets transmission rates over the lines. The agency this month approved two more lines, one with Oklahoma and another in southeast Texas, that would allow power exchanges between grids without requiring the state to cede its regulatory authority.

The existing direct-current ties are "totally different technology" from the free-flowing lines required for an interconnected grid, said Sam Jones, ERCOT's president and chief executive.

A study by a committee of Texas experts presented to the Texas Legislature in 1999 found that fully connecting Texas' grid with its neighbors would require new transmission circuits to be installed at six sites along the east, north and west ends of the Texas grid.

The cost for these lines and related facilities was estimated to be at least $600 million in 1997 dollars.

Launching a project today would require a new study to consider the engineering needs and the potential gains from the interconnection, Mr. Jones said.

"You have to ask the question: Is there sufficient extra generation around there that ERCOT would gain from?" he said. "I'm sure they have capacity issues on the other side, too."

Few Texas utilities and state officials are interested in joining the rest of the nation. They say that doing so would require lengthy studies, long negotiations over who would pay for the new infrastructure and new rules for which the current system was not designed.

"We've got a lot of issues that we've got to deal with here," said John Fainter, president and chief executive of the Association of Electric Companies of Texas, which represents large investor-owned utilities including TXU. "We better get our issues resolved rather than try to add that to the plate."

Difficulty of changing

Julie Parsley, a commissioner on the three-member Public Utility Commission of Texas, said she doesn't see a benefit to changing the existing system.

"We have built our markets based on the simplicity, frankly, of our system in ERCOT," she said. "Were that to change fundamentally, it would create a great number of difficulties."

Texas is unlikely to benefit from neighboring power plants, at least in the short term, she said. Cheaper coal generation is already spoken for by the integrated utilities in those areas; any excess would be sold into Texas at natural gas prices anyway, she said.

The state PUC partially regulates the small areas of Texas that are outside the ERCOT grid and part of neighboring grids. It's responsible for consumer rates in those areas but must defer to FERC for decisions on new transmission lines.

Coordinating with FERC to connect the rest of main Texas grid would create numerous complications in planning new lines and assessing those costs, Ms. Parsley said.

"It's such a different world that it's hard to conceive," she said.

FERC does not have a position on the question of integrating the Texas grid. "If Congress changes the law, then the commission will act accordingly," spokesman Bryan Lee said.

Mr. Barton said he hasn't made a decision yet about opening up the Texas grid. It's one of many points he's raised in questioning the TXU buyout offer and its implications for consumers. If opening up the Texas system would lower prices, Mr. Barton said, the change could be done this year.

"We don't deserve to be paying among the highest prices in the country," he said.

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Distributed by McClatchy-Tribune Business News.