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Chairman Donna L. NelsonCommissioner Brandy D. Marty
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Commissioner Kenneth W. Anderson, Jr. 1c
February 5, 2014
Project No. 40000 --
Commission Proceeding to Ensure Resource Adequacy in
Originally, this memorandum was going to list further issues that I thought needed to beconsidered by the additional study requested by the Chairman in her memorandum of January22, 2014 (Chairman's Memorandum).' However, since the Chairman's Memorandum was filed,
we have received both the revised load forecast data produced by ERCOT 2 and the report Estimating the Economically Optimal Reserve Margin in ERCOT (January 2014 Brattle
Study)3 prepared by The Brattle Group. The combination of the information contained in both
reports has caused me to rethink how we should proceed going forward.
The revised load forecast produced by ERCOT on January 22, 2014, shows a significant
reduction in the overall forecasted peak load growth in ERCOT through 2023. I've included it asan attachment to this memorandum.
When applied to the ERCOT May 2013, Capacity Demand
and Reserves report, the new revised peak load estimates produce the revised forecasted reserve
margins set out in Table 1 below. The new reserve margins show that ERCOT will not dropbelow the current target reserve margin of 13.75% until 2019 (and then by only 0.15%), and
even then it will still be far above the economically optimal reserve margin of 10.2%4
determined by Brattle in the January 2014 Brattle Study. The equilibrium reserve margin of11.5%5 determined by Brattle will not be reached until 2021 (if then), and the economically
optimal reserve margin of 10.2% not until 2022.Accordingly, nothing before us today shows there is any problem with the reserve margin
in ERCOT's energy-only market. This leads me to conclude that analyzing various alternativemarket structures or their respective costs is premature, because the market that we currentlyhave is functioning reasonably well. By 2019 our energy market will be twenty years old, and
still operating at a reserve capacity above the Brattle predicted natural equilibrium of 11.5% or
the economically optimal reserve margin of 10.2%, and only slightly below ERCOT's current
Memorandum of Chairman Donna Nelson, Project No. 40000 (January 22, 2014).
ERCOT Preliminary Load Forecast 012014 (available at http://www.ercot.com/calendar/2014/01/20140127-
Samuel A. Newell, et al.,
Estimating the Economically Optimal Reserve Margin in EReYUT
at v. (January 31,