Power company sues grid operator over demand, supply projections
The state’s power grid operator, five years ago, offered up “seriously flawed or rigged” data on projected power demand and supply to convince companies to build new electric power plants, which now struggle to turn a profit, according to lawsuit by Dallas-based Panda Power Funds.
Panda Power built three natural gas-fired plants in Texas that opened in recent years, drawn to do so by projections that the state would need much more power than it had, the suit says.
Today, the Lone Star State now has an abundance of new power generation – mostly from wind and gas – and the grid’s wholesale power market is depressed. Power plants typically capture much of their profits when electricity reserves are tight.
Panda sued the state’s grid manager, the Electric Reliability Council of Texas, to try to hold it liable for what it claims are “false and misleading market reports” that encouraged Panda to spend nearly $2.2 billion to build the now-struggling power plants – two in Temple and one in Sherman. The suit was filed last week in Grayson County and seeks unspecified financial damages.
The combination of low natural gas prices, abundant renewable wind power in Texas and relatively mild weather are keeping wholesale power prices low now and for the foreseeable future – unless coal plants start shutting down – because there is so much surplus power capacity, according to a Moody’s Investors Service report this week.
The current reality doesn’t match ERCOT’s projection five years ago that the Texas grid faced a potential power shortage well through 2016 during times of peak demand.
Panda’s lawsuit asserts ERCOT “knowingly or recklessly” used skewed data get power companies to initiate new construction.
The claims in Panda’s suit are based on a misunderstanding of ERCOT’s data and protocols, ERCOT spokeswoman Robbie Searcy said in an email response, adding that ERCOT will “vigorously defend its position” in upcoming court filings. A Panda spokesman on Friday said the company does not comment on active litigation.
In getting its power plants financed, Panda made guarantees to its bankers that Panda would be liable if profits came in below set levels.
Panda President Todd Carter bemoaned the financing struggles in a 2012 interview with the Chronicle.
“This is not the way to build future power projects,” Carter said. “Unless Texas does something, there’s going to be a train wreck.”
However, just last summer, Panda said it planned to expand its Sherman plant.
ERCOT first increased its target level for power reserves in 2010 and, in the summer of 2011, a record-breaking drought and heat wave put extreme pressure on the Texas grid. ERCOT then projected a long-term power shortage on the grid with the state’s electricity demand expected to keep growing rapidly.
As a result, some mothballed plants were put back into operation and lots of new power projects, including Panda’s plants, were announced. ERCOT didn’t immediately factor those changes into its projections, according to Public Utility Commission of Texas reports as recently as January 2013.
ERCOT painted a picture of a tight power market it “knew would lure investors to construct plants,” according to the lawsuit, and ERCOT continued to push such assertions well through 2012.
But the market began changing in 2013, and ERCOT tweaked its methodology and projections once several new power plants were under construction, according to the suit. The lawsuit questions whether ERCOT intentionally “suppressed” more accurate data until projects were well underway.
“What was once a market showing extreme scarcity of supply became a different market of extreme overcapacity,” the lawsuit says.