ERCOT’s Roadmap to a California-style electricity market

(Originally published in the Austin Journal - August 14, 2021)

In the aftermath of February’s Great Texas Blackout, there has been much consternation and confusion. The lack of clarity has been evident in the proclamations and actions from politicians, regulators, and the energy industry.

There is one thing, however, that has become crystal clear in light of the blackout; nobody involved wants to take responsibility for the part they played. This is quite evident in ERCOT’s recently released Roadmap to Improving Grid Reliability.

Mismanagement by ERCOT, the quasi-governmental manager of the electricity grid that covers most of Texas, has been well documented. Perhaps the most infamous action it took was to shut off electricity to elements of the grid infrastructure that reduced generation from natural gas plants. 

What has been less well documented is ERCOT’s quiet acquiescence to policies favoring renewable energy pushed by the Texas Legislature and the Public Utility Commission of Texas (PUC). 

This problem came to light, though, during hearings by the Texas Senate the week after the freeze. When asked about the role played by wind and solar farms pushing reliable generation off the grid, former ERCOT CEO Bill Magness deferred to the PUC, saying merely that ERCOT “manage(s) the grid that is presented to us.”

It is almost unbelievable that the entity charged with ensuring the reliability of the grid--the R in ERCOT stands for reliability--would stand by and watch the electricity market collapse as it was overrun by renewables. But that is exactly what happened. 

No more, though. With its roadmap, ERCOT is taking action. Yet rather than focus on the harm caused by renewables, its own mismanagement, and policy directives from the PUC and Legislature, ERCOT is essentially blaming the market for the collapse and seeking to regulate it back to reliability.

ERCOT’s roadmap is a top down approach not unlike how the city of Austin has managed congestion with more unsynchronized lights, bike paths, trains, and red light cameras. Anything, it seems, to avoid dealing with the real problem. 

The vast majority of provisions in the roadmap involve more regulation, oversight, and bureaucracy. For example, ERCOT says it will: “propose a new market rule for generators …, require all market participants …, revise market protocols …, establish a new Vice President of Corporate Strategy …, perform unannounced testing to validate …, etc. 

This small sample of the 60 actions proposed by ERCOT, combined with recent calls by Lt. Gov Patrick, Gov. Abbott, and Rep. Chris Paddie for a “capacity market," indicates the focus of Texas politicians, regulators, and the energy industry is blaming the market. Which is interesting, especially considering the industry--along with consumers--is the market. But we have to watch for the nuance here; by blaming market “competition,” everyone responsible for the blackouts gets a pass.

Abbott gets a pass for his appointees raising prices so high that Texans paid more for electricity in one week than they had in the past three years combined. Patrick, Paddie, House Speaker Dade Phelan, and the rest of the Legislature get a pass for years of supporting or doing nothing about the growing harm caused by renewable energy subsidies.

While the politicians benefit by getting to stay in office, the biggest winners of the roadmap are the energy industry and their Wall Street bankers. Renewable energy participants will continue to receive over $2 billion a year in federal, state, and local subsidies. Traditional and renewable generators will continue to get paid billions through the PUC’s manipulation of market prices, be it through ancillary services, price adders, or a capacity market. 

The billions that taxpayers and consumers are paying the industry is being couched in the language of reliability. But market manipulation and subsidies never increase reliability; just ask your average Californian or New Yorker. 

Competition works. Markets work. Even electricity markets. Rather than more government and taxpayer-funded subsidies, the roadmap to an affordable and reliable electricity market in Texas is for the state to confront the anticompetitive nature of renewable energy subsidies and the PUC’s market manipulation.

Bill Peacock is the Policy Director of The Energy Alliance