THE DECLINE AND FALL OF RELIABILITY, AFFORDABILITY, AND COMPETITION IN ERCOT

Bill Peacock

Key Points

• For two straight years the grid has struggled to keep the lights on, despite promises that “everything that needed to be done was done to fix the power grid in Texas” after the 2021 blackouts.

• The greatest danger that the Texas grid faces now is the political establishment’s continued unwillingness to challenge the environmental left’s and energy industry’s push for subsidies.

• There is a path forward for restoring reliability, affordability, and competition to the Texas electric market.

  • Eliminate All State and Local Renewable Energy Subsidies

  • Maintain ERCOT’s Energy-Only Market by Rejecting All Efforts to Establish a Minimum Reserve Requirement

  • Require Renewable Generators to Pay for the Costs They Impose on the Grid Because of Intermittency and Federal Subsidies

  • Eliminate the ORDC, the RUC Mechanism, and Other Ancillary Services That Hinder the Formation of Market Prices while Returning the Wholesale Price Cap to $9,000

  • Incorporate Marginal Transmission System Losses into Pricing

  • Eliminate the PUC’s Excessive Authority to Intervene in Market Activity

Executive Summary

Problems with generation adequacy and reliability in the Texas grid were once rare occurrences. That does not appear to be the case anymore. For two straight years the grid has struggled to keep the lights on, despite promises that “everything that needed to be done was done to fix the power grid in Texas” after the 2021 blackouts. The foundation for the reduction of reliability in the Electric Reliability Council of Texas (ERCOT) is the politicization of the Texas electricity market—particularly the push for renewable energy—and the resulting collapse of competition in the market.

In response to Texas’ blackouts, regulators at the Public Utility Commission of Texas (PUC), under the direction of the Texas Legislature and Gov. Greg Abbott, have undertaken a restructuring of the Texas electricity market. Actions taken by the Texas Legislature, the PUC, and ERCOT point to the end of Texas’ world-class energy-only market and the onset of a de facto capacity market in Texas, an outcome that a number of parties have been promoting for over a decade.

Though regulators at the PUC, grid managers at ERCOT, and advocates for renewable energy must share some of the blame for what has happened to the Texas grid over the years, the ultimate responsibility for the collapse of the grid in ERCOT rests with Texas’ Legislature, governor, lieutenant governor, and House speaker. For years they have supported giving billions of taxpayer and consumer money to corporations with multi-billion market caps while being unwilling to take on renewable energy. 

The greatest danger that the Texas grid faces now is the political establishment’s continued unwillingness to challenge the environmental left’s and energy industry’s push for subsidies. If this continues, Texas will lose what is left of its competitive energy-only market. Yet the possibility of restoring reliability, affordability, and competition to ERCOT remains. All Texas has to do is let the market work.