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The Non-ERCOT utilities of El Paso Electric Company (EPE), Entergy Gulf States (EGSI), Southwestern Electric Power Company (SWEPCO), Southwestern Public Service Company (SPS) and the East Texas Cooperatives (ETC) provided information concerning their lon
2006
Report to the 80th
Texas Legislature
Need for Transmission and
Generation Capacity in
Texas;
Renewable Energy
Implementation and
Costs
Public Utility Commission of Texas
December 2006 PUBLIC UTILITY COMMISSION OF TEXAS REPORT CONCERNING NEED
FOR TRANSMISSION AND GENERATION CAPACITY IN TEXAS AND
RENEWABLE ENERGY IMPLEMENTATION AND COSTS

ELECTRIC TRANSMISSION AND GENERATION NEEDS FOR THE ERCOT
REGION ............................................................................................................................ 2
Near-term Generation Projections.................................................................................... 3
Near-term Transmission Projections................................................................................ 4
Long-term Generation and Transmission Projections...................................................... 4
Conclusions ................................................................................................................... 6
Methodology for Long-term Study................................................................................ 7
Projected Generation and Transmission ........................................................................ 8
ELECTRIC TRANSMISSION AND GENERATION NEEDS FOR THE NON-
ERCOT REGION ........................................................................................................... 10
RENEWABLE ENERGY .............................................................................................. 12
Competitive Renewable Energy Zones .......................................................................... 14
The Cost and Benefit of Integrating New Renewable Facilities.................................... 15


1
PUBLIC UTILITY COMMISSION OF TEXAS REPORT CONCERNING NEED
FOR TRANSMISSION AND GENERATION CAPACITY IN TEXAS AND
RENEWABLE ENERGY IMPLEMENTATION AND COSTS

The Legislature amended the Public Utility Regulatory Act (PURA) during 2005 to
require the Public Utility Commission to provide biennial reports on its implementation
of new legislation that directs it to establish Competitive Renewable Energy Zones
(CREZ) and related issues concerning renewable energy and on the need for increased
transmission and generation facilities in Texas.
1
This report addresses the Commissions
progress in designating CREZs and other renewable energy issues and the need for
transmission and generation facilities. Separate sections deal with transmission and
generation needs within the Electric Reliability Council of Texas (ERCOT) region and
outside of the ERCOT region.
ELECTRIC TRANSMISSION AND GENERATION NEEDS FOR THE ERCOT
REGION
The decision to plan, site, and construct new generation facilities within the Electric
Reliability Council of Texas (ERCOT) is, for the most part, a competitive matter for
generating companies. Power generation companies assess the level of demand for
electricity, current and projected wholesale prices, the existing fleet of generators that
supply electricity, available generation technologies, costs of fuel, and other factors in
deciding whether to develop a new generation project, the technology to use, and where
to site a plant or plants. Municipal utilities and electric cooperatives consider these
matters and also assess the needs of their customers and the sources of power available in
the market, in making decisions about whether to build new generation facilities or buy
power from others in the market, if additional supply is needed for their customers.
Transmission, on the other hand, is regulated by the Commission. The Commission has
directed ERCOT to plan improvements to the bulk transmission system and coordinate
the planning efforts of the utilities in the region. Utilities plans to develop new
transmission facilities are subject to Commission review, with certain exceptions, if they
involve the construction of transmission lines on new rights of way. One of the
challenges that the industry has faced with the introduction of competition is coordinating
the development of generation and transmission.
Power generation companies (PGCs) that plan to build new generation facilities or
discontinue the operation of facilities in ERCOT must notify ERCOT of their decision.
This notification permits ERCOT to assess whether the electrical system can operate
reliably without a facility that is planned for retirement or whether the system can reliably
accommodate a new facility of the kind and at the location identified by the PGC.
ERCOT publishes information concerning the retirement or mothballing of generation
facilities and about plans to build new facilities. As a part of its transmission planning,
ERCOT makes projections of the growth in demand in the region. It uses the load
information and the information provided by PGCs in various reports, including reports
on the expected level of generation and load and the resulting expected reserve margins.

1
The reports are required by PURA §39.904(j) and (k), which were enacted as a part of Senate Bill 20.

2 Generation and Transmission Needs and Renewable Energy Implementation and Costs

Near-term Generation Projections
ERCOT has projected that load will grow in the region at about 2.3% per year for the
period 2007-2011. ERCOTs official forecast indicates that the region will have
sufficient generation facilities in 2007 to meet the required 12.5% reserve margin.
2
Its
official forecast for 2008 indicates that the reserve margin will fall slightly below the
12.5% level, but an unofficial or snapshot forecast prepared late in 2006 indicates that the
reserve margin in 2008 will exceed 12.5%.
3
Planned additions of generation, other than
wind projects, are modest in 2007 and 2008. Maintaining an adequate reserve margin in
2008 depends on whether mothballed generating units are available for service during the
years and on the development of additional load reduction programs that can be used
when supplies are tight. Demand-reduction programs are under development, and PGCs
have indicated that some generating plants that have been mothballed are returning to
service for 2007 and 2008. Based on the return of mothballed generation to service,
ERCOTs unofficial projection, as of December 2006, is that reserve margins will be
above the minimum requirement in 2008. The adequacy of generation in 2009 and
beyond is dependent upon the plans for the construction of new coal-fired generation
facilities that several PGCs have announced.
While there is a significant level of new wind generation that has been announced for
completion in 2007 and 2008, wind generation contributes only fractionally to the
adequacy of service when measured by the standard measure of resource adequacy.
Resource adequacy is assessed as the capability of generation and demand resources to
meet peak demand. In Texas, peak demand is associated with the high air conditioning
demand that occurs in summer. Historically, wind generation has on average supplied
only 2.6% of its rated capacity during summer peaks. The wind additions will, therefore,
have minimal impact on the adequacy of generation sources to meet peak demand. The
table below summarizes ERCOTs official 2006 assessment of loads, resources, and
reserve margins. As is noted above, recent changes to capacity, including the expected
return to service of approximately 1,900 MW of mothballed generation, are expected to
raise the projected 2008 reserve margin slightly above the 12.5% target level.
ERCOT Reserve Margin Projection, 2007 - 2011

2007 2008 2009 2010 2011
Firm
Load
(MW)
62,110 63,206 64,838 66,436 67,922
Capacity Resources (MW)
71,577 70,693 70,632 71,208 71,245
Projected Reserve Margin
15.2%
11.8%
8.9%
7.2%
4.9%
Reserve Margin with Publicly
Announced Thermal Units
15.4% 12.0% 20.0% 24.9% 23.9%

Source: ERCOT Capacity, Demand, Reserve Report (June 2006)

The table below summarizes the generation projects that have notified ERCOT of plans
for operating in the region, where the related transmission studies have been completed

2
ERCOT 2006 Report on Capacity, Demand and Reserves, available at
http://www.ercot.com/news/presentations/2006/ERCOT06CDR06192006.xls.
3
ERCOT CDR Update 11152006, Email from Ken Donohoo, Nov. 16, 2006.


3 Generation and Transmission Needs and Renewable Energy Implementation and Costs

and agreements to interconnect the projects to the transmission system have been signed.
The resource totals in the table below also include other generation projects that are under