Texas Was Warned of $12 Billion Cost of Grid Reliability Policy

Officials in Texas were repeatedly warned that the new Electric Reliability Council of Texas (ERCOT) rules about backup power capacity from last summer would be expensive and could drive up electricity prices, a Bloomberg investigation of documents obtained via open records requests showed.  

Ahead of the summer peak demand in 2023, ERCOT launched the Ercot Contingency Reserve Service (ECRS) policy to ensure grid stability. 

However, reserve capacity from cheap natural gas-fired power plants sat idle due to the policy, while the grid used more expensive resources.  

Staffers at ERCOT and the Texas Public Utility Commission, which oversees ERCOT, have been repeatedly warned of the costs since the new policy was introduced in June 2023, according to the records Bloomberg has reviewed.

Potomac Economics, which is ERCOT’s independent market monitor, has found that the new reserve pool policy has created $12 billion additional costs, Bloomberg reported in December.  

ERCOT officials responded to that estimate that the $12 billion was not direct cost. Instead, it was an estimate of potential savings if the grid operator had not booked additional reserve power capacity. 

Yet, ERCOT is now reviewing how it sources reserve power generating capacity, the Texas grid operator told Bloomberg on Wednesday. ERCOT is currently working with a stakeholder group “to mitigate the effect ECRS has on pricing during critical hours” without compromising reliability, the operator told Bloomberg in a statement.

In recent years, ERCOT and Texas have faced issues with power sourcing and keeping the grid reliable at times of peak demand.

After a tense few weeks with warnings of potential power shortages, Texas for the first time in 2023 narrowly avoided actual blackouts in early September.

In July 2023, the U.S. Energy Information Administration (EIA) said that Texas needs upgrades to its electricity transmission grid to accommodate a soaring share of renewable energy generation, otherwise the state risks surging shares of curtailments of wind and solar power generation by 2035. 

By Charles Kennedy for OIlprice.com

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