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THE STORY OF ERCOT: The Grid Operator, Power Market & Prices Under Texas Electric Deregulation

Posted by Content Coordinator on Friday, February 18th, 2011

TEXAS COALITION FOR AFFORDABLE POWER

Executive Summary

The Electric Reliability Council of Texas, or ERCOT, is the term used to describe the quasi-governmental organization that manages the state’s power grid.  There are few institutions in Texas that are more important. If Texas suddenly lost the grid, homes and factories would go dark. Even the briefest of outages can put public safety at risk. But “ERCOT” also has a second very important meaning. As a term of art, it can describe the geographical footprint of electric deregulation in Texas. Efficiency in this market is absolutely vital for the state economy.

This report, provided as a guide by the Texas Coalition for Affordable Power and the Steering Committee of Cities Served by Oncor, examines governance issues related to ERCOT as an organization as well as deregulation issues related to ERCOT as a region. No serious examination of electric policy in Texas would be complete without both.

KEY FINDINGS INCLUDE:

  • The ERCOT organization has a history of mismanaging major projects. A management scandal in 2004 led to several convictions.
  • Some wholesale generators operating within the ERCOT region can engage in activities that likely would be considered anti-competitive in other markets. Where anti-competitive behavior has been alleged, minimal penalties have been assessed with no restitution to harmed parties.
  • Consistently high electricity prices in Texas under deregulation have led to a massive drain to the consumer economy.

KEY QUESTIONS RAISED IN THE STORY OF ERCOT INCLUDE:

  • Should ERCOT, as an organization, overhaul its management practices?
  • Should there be adjustments to the makeup of the organization’s board?
  • Is the deregulated market in the ERCOT region sufficiently competitive?
  • What steps can be taken to enhance competition, reliability and oversight?
  • Is Texas justified in maintaining an island relationship to the rest of the United States transmission grid?

The Story of ERCOT includes a short description of the grid’s early history, sections that describe ERCOT-related developments from 1995 to the present, and an appendix that lists important milestones. There are sections that explain key concepts, such as nodal pricing and congestion management, and sections that raise questions about electricity prices and market efficiency under deregulation.

The ERCOT RegionDownload full report (PDF): The Story of ERCOT

About the Texas Coalition for Affordable Power
tcaptx.com
“The Texas Coalition for Affordable Power (“TCAP”), a political subdivision corporation, enjoys a unique vantage point within the ERCOT market. Originally two separate non-profit corporations — the Cities Aggregation Power Project and the South Texas Aggregation Project — TCAP pools together the resources of its 158 member political subdivisions to purchase electricity in bulk for the needs of local government authorities.”

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