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What is ERCOT?

ERCOT operates the electric grid that covers most of Texas. With its headquarters in Austin, it manages the electric load and power flow throughout the state. It oversees the more than 700 power generation locations in Texas, which connect to end-users with more than 46,500 miles of transmission lines. ERCOT is a nonprofit corporation that is overseen by the Public Utility Commission (PUC) of Texas and ultimately the Texas State Legislature.

About the Electric Reliability Council of Texas

ERCOT is the Electric Reliability Council of Texas, and it is one of three major electric grids in the United States. The other two energy grids are interstate systems, so they are subject to federal oversight. The organization, however, is not subject to federal regulations since it operates strictly within Texas.

Formed in 1970, ERCOT is a membership-based organization, and its members include the electricity generators, utilities (both those owned by investors and those owned by municipalities), retail electric providers, cooperatives, and power marketers.

Prior to ERCOT’s formation, Texas operated as an interconnection of several independent electric utilities. These utilities had long understood that an interconnected electricity system greatly increased how reliable the system as a whole was. The council was initially created to comply with the energy regulations of the North American Electric Reliability Council (NERC). Today, it supplies power to more than 25 million consumers in Texas, 90% of the state’s total electric load.

ERCOT’s ultimate mission is to ensure reliable electric generation and transmission throughout the grid.

Energy Consultants near Texas

How the power grid works

The Texas legislature has assigned ERCOT four major roles:

  • Maintain electric system reliability
  • Facilitate a competitive wholesale market
  • Ensure open access to transmission
  • Facilitate a competitive retail market

System reliability

To maintain a reliable grid, ERCOT monitors the generation of Texas power in real-time to make certain that there is enough power at any time for all the customers who need power. When electricity supply is low, Texas is at risk of rolling blackouts or even widespread power outages. To prevent this, ERCOT increases or decreases electricity generation as needed at different points through the power grid.

ERCOT may also work with utilities and energy providers to create incentives to reduce the load on the power grid during high-usage times. Many electricity providers in the state also extend these incentives to customers, often in the form of discounts during peak energy use times.

Transmission projects

As the population of Texas has grown over the years, Texas has had to make numerous changes to the electricity transmission system. When growth makes it necessary to expand the grid in new areas, ERCOT will work with the utilities in the creation of new power projects. These projects outline the plans for new power lines and poles so that emerging communities have the electricity they need.

ERCOT resources
ERCOT capacity plan 2019-2023

Deregulation and electric competition

Although ERCOT doesn’t take part in the buying and selling of electricity, it does oversee how the different pieces work together to provide reliable energy for the state. On both the wholesale level and the retail level, ERCOT’s job is to make sure the system allows for a competitive energy market. Prior to energy deregulation, electricity was both generated and consumed on a local level, but this often led to shortages of power generation capacity. By separating the electricity generation from the retail end, Texas hoped to counteract this power supply shortage.

At the same time, the legislature dropped the limits on electricity rate increases, allowing the individual companies to set their own energy rates. Although this has been beneficial for commercial customers, residential electricity rates have increased significantly.

Energy-only wholesale market

One of the key differences between Texas and other grids is that ERCOT only pays electric generators for the energy that is provided to the grid. In other competitive markets, the generators are typically paid for the total capacity of their system. This means that the generators are paid for what they do provide rather than for what they can provide.

Retail electricity switching

With nearly 8 million premises in the Texas competitive energy market, ERCOT is the body that administers the switching of services for users. When you change service from one provider to another, ERCOT is the entity that oversees the transition.

Financial transactions through ERCOT

In addition to its management of the electrical grid, ERCOT also serves as an intermediary, collecting money from the end-users to pay the electricity generators. It also provides financial and accounting services to the various entities in the wholesale market. This helps make the financial end of the system more effective and efficient.

Criticisms

In 2011, a major winter storm caused power outages for 3.2 million users across the state. ERCOT, along with the PUC, was blamed for having failed to develop an appropriate electricity infrastructure for such a storm. Texas was outraged at the news that proper winterization of the system, as recommended by the Federal Energy Regulatory Commission and the NERC, could have prevented the extreme devastation and power outages throughout the state. A 357-page report was issued, outlining changes that needed to be made to the grid to prevent something like this from happening again. Unfortunately, 10 years later, Texans found out this report was largely ignored.

In 2019, the NERC issued a report that determined ERCOT would have the lowest reserve electricity margins of any grid in the country. Within the content of the report was information that showed Texas was the country’s only energy market without sufficient electricity generation to meet summertime energy demand.

In February 2021, another winter storm caused widespread power outages for approximately 4 million consumers across the state. 10 years after a similar incident, ERCOT was once again blamed for having failed to anticipate such an occurrence. This time, however, the electricity generation shortage caused energy market prices to jump to over 300 times their pre-storm level. In the aftermath, news outlets reported retail providers filing bankruptcy and consumers facing energy bills for several thousand dollars. Tragically, over 100 people died from this storm, and ERCOT remains the focus of numerous lawsuits for their failure to warn the public with information they had prior to the storm.

In the aftermath of this storm, Governor Greg Abbott announced an investigation into the outages. He also declared that one of the legislature’s top priorities would be ERCOT reform, with the focus being long-term solutions.

FAQ

Is ERCOT a private power company?

ERCOT is an independent system operator (ISO), the first of what are now nine in North America. They are not energy suppliers or retail providers, but rather, they maintain and oversee the Texas electrical grid.

Is ERCOT a government agency?

Although ERCOT works directly with the Public Utility Commission (PUC) and the Texas state legislature, it is not a government agency. ERCOT is a non-profit corporation governed by a board of directors.

Who funds ERCOT?

ERCOT is funded by Texas consumers in the form of a fee on the electricity bill. The fee is 55.5 cents per MWh, which translates to about 50-60 cents per month for the average household.

Who runs ERCOT?

ERCOT is governed by an 11-member Board of Directors, eight of which are unaffiliated with any entity within the electricity market. Among other tasks, the board chooses the council’s Chief Executive Officer, establishes goals and policy direction, gives oversight to operations and approves its budget. It also falls under the jurisdiction of the Public Utility Commission and ultimately the Texas legislature.

In the wake of the 2021 ice storm, five board members resigned due to public outcry when it was revealed that they did not, themselves, live in Texas.