Changing of the Guard in Texas as Surplus Electricity Capacity Dims the Future for Old Power Plants

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). A surplus of electricity capacity and lower prices are good news for Texas consumers but it maybe the end of an era for antiquated power plants in the state. There have been one hundred forty three new generating units, including thirty-eight new power plants that have started commercial operation since the end of 1998. During this period over 20,000 megawatts has been added to the grid boosting statewide capacity to roughly 85,000MW. Based on Electricity Reliability Council of Texas (ERCOT) estimates, this has created a reserve capacity of roughly 23 percent.

The majority of capacity that has been added in recent months comes from natural gas fired simple or combined cycle combustion turbine plants. These plants operate more efficiently than older plants and have pushed wholesale power prices lower. In many cases it is more cost effective for electricity providers to buy power from the modern plants rather than to operate antiquated stations. Just last week American Electric Power (NYSE:AEP) (Columbus, Ohio) announced that they have asked ERCOT to determine which of AEP's sixteen gas fired power plants may be required for "reliability must run" or "RMR" status. Plants deemed unnecessary for reliability are scheduled to be mothballed by the end of the year in order to improve AEP's financial performance. An "RMR" plant is one that is required to run to ensure the reliability of the electricity grid, even if electricity from that plant is not required to meet market needs. A mothballed plant is one that is kept in operational condition and can be returned to service if market conditions change. The sixteen plants identified as possible candidates to be idled represent 3,866MW of capacity and are operated by AEP's West Texas Utilities and Central Power & Light subsidiaries. The average length of service of the plants is over 40 years.

As the newly deregulated Texas market continues to evolve, other companies such as Reliant, TXU, and municipal utilities will be faced with the decision of continuing to operate older plants or buying power from other sources. In addition to the 16 AEP plants, Industrialinfo.com has identified 27 other power plants in Texas, as part of its North American Industrial Database, that have been in service for forty years or more that could be candidates for retirement or idling.