ERCOT: A Central Planning Government Agency

“ERCOT: Texas Was 4 Minutes and 37 Seconds Away From a Blackout That Could Have Lasted Months” (news headline)

ERCOT centrally plans the electrical current of generation, transmission, and substations serving approximately 26 million Texans, 90 percent of the state’s load. (below)

Yesterday’s post documented why the Electric Reliability Council of Texas (ERCOT) is a government agency, not a private-sector institution. Nonprofit status and board “independence” cannot negate this de facto or de jure.

ERCOT centrally plans the electrical current of generation, transmission, and substations serving approximately 26 million Texans, 90 percent of the state’s load. In terms of size, this composes 81,000 MW of generation (680 units), 46,550 miles of transmission, and 5,000 substations, representing 85 percent of the Texas market.

ERCOT’s Role

Here is the information provided by ERCOT president & CEO Bill Magness on February 24, 2021, “Review of February 2021 Extreme Cold
Weather Event
,” subtitled “Urgent Board of Directors Meeting.”

• Fulfills four responsibilities required by law as the independent organization certified by the PUC (PURA Section 39.151):

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

• Manages the flow of electric power over the bulk power system to approximately 26 million Texas end-use customers.

‒ About 90% of the state’s electric load
‒ Over 680 generation units
‒ Over 46,500 miles of transmission lines

• Must, at all times (24/7/365), balance all consumer demand in the ERCOT region (load) and the power supplied by companies who generate electricity (generation) while maintaining system frequency of 60 Hz.

• Performs financial settlement for the competitive wholesale bulk power market and administers retail switching for nearly 8 million premises in competitive choice areas

[What ERCOT does not do–and what private companies, coops, and munies do]

• Own, operate or have any enforcement authority over any electric generation facilities or any electric transmission or distribution lines or substations.
• Sell or send bills for retail electricity to residences or businesses.
• Control or operate electric service to local areas, neighborhoods or individual premises.
• Establish pricing or rates for retail electric customers.
• Have any direct customer relationships with the public

Significant modifications include:

• Implemented the Seasonal Assessment of Resource Adequacy report that includes an analysis for extreme winter weather.
• Began a resource weatherization process that includes an annual workshop, review of resource weatherization plans and spot checks of facilities.
• Modified the Ancillary Services procurement to allow additional procurement in anticipation of severe weather.
• Established the Gas Electric Working Group and created a notification procedure for QSEs to notify ERCOT if there are anticipated fuel restrictions.
• Modified the survey sent to natural gas generators that collects fuel switching capability for some resources in preparation for each winter season.
• Changed the rules and processes for withdrawing approval of resource outages in anticipation of severe weather.

Planning, Planning

The above description confirms ERCOT as a planning agency within a highly regulated nexus. ERCOT does not set prices, but it follows rules that help plan the power market.

Determining the size of its control area is a planning function–a franchise monopoly of sorts.

Dispensing incentives for generation (reliability payments or not?) is a planning choice. Running a retail market is planning.

Integrating intermittent resources (a real no-no for electricity) is planning.

The Free Market, By Contrast

In a free market, private companies would determine what ERCOT is instructed to do or determines to do. With profit incentives, and without mandates, electric companies, integrated or not, internal or external (via contracts) would determine control areas. “Electricity majors,” would control ERCOT’s 90 percent share in to-be-determined fashion. These share might be across state lines.

“Planning” would be decentralized, and bypass within any territory would be legal so long as contractually permitted. “Wires on a pole” hardly necessitates a “natural monopoly,” and control areas do not constitute a “commons problem” beyond market entrepreneurship.

With ERCOT’s massive recent failure, the solution is not more regulation, more controls, which could overcorrect for today’s problems with captive users at risk. The choice can and should be regulatory repeal to promote innovation and market discovery.

In theory or practice, a classical liberal moment has arrived.

The post ERCOT: A Central Planning Government Agency appeared first on Master Resource.

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March 3, 2021 at 01:13AM

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