Heads roll at ERCOT. Don’t fall for it.

Five members of the ERCOT board who aren’t Texas residents have resigned in response to outrage over last week’s disaster.

I will concede, it is extremely unbecoming of ERCOT to resort to out-of-staters to fill its board. This is a state of 30 million and the historic energy capital of America. Are there really not enough qualified candidates in that pool?

Our state leaders are peddling these resignations as a meaningful response to last week’s crisis. They are hoping that the crisis will be interpreted by voters as simply the result of absentee leaders being asleep at the wheel.

Don’t fall for it.

First, ERCOT does not have meaningful regulatory power. It’s the Public Utility Commission, whose board is appointed by the governor, that calls the shots. Here’s what one longtime energy insider tells me:

“Essentially the PUC gives (ERCOT) the ability to write rules. However if the rules are controversial then they can be appealed by anyone to the PUC. So practically that means they mostly write technical rules or small ball rules. Big policy items are at the PUC.”

ERCOT’s job is to prevent the grid from collapsing. Last week, it did its job. It does not have the ability to force utilities to generate or store power in anticipation of the type of major surge in demand that took place last week. When Texas deregulated its electricity market 20 years ago, it placed its faith in the market addressing that issue. Last week the market failed, and it will fail again unless significant changes to the system are made.

In many other states, utilities are paid to have additional energy capacity that may not be useful 99% of the time. In other words, when customers pay their electrical bills, they are not just paying for the energy they are using, but for the investments the utility has made in preparation for an emergency. In Texas, power generators aren’t required to prepare for major demand surges, but they are incentivized to do so; when demand skyrockets they are able to sell their power for a fortune to power distributors.

Texas’s system is supposed to result in lower prices most of the time. In practice, it may have resulted in lower prices for large commercial customers but it has not resulted in lower utility bills for your average residential customer. From today’s Wall Street Journal:

Texas’s deregulated electricity market, which was supposed to provide reliable power at a lower price, left millions in the dark last week. For two decades, its customers have paid more for electricity than state residents who are served by traditional utilities, a Wall Street Journal analysis has found…

…Those deregulated Texas residential consumers paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state’s traditional utilities, according to the Journal’s analysis of data from the federal Energy Information Administration.

Robert Cullick, who oversaw communications at Austin Energy from 2014-19 and had a similar role at the Lower Colorado River Authority from 1991-2001, described the state’s system thus:

“Power is generally cheap, except when it’s extraordinarily expensive. Power is generally reliable, except when it’s off for four days.”

The good news for Austinites is that not only are Austin Energy rates codified by city ordinance, but because AE is both a generator and a distributor, it both sold and purchased power at last week’s exorbitant rates, meaning that it did not suffer the crippling financial losses that some purely distributor utilities are now passing onto customers. (In other words, AE generates power, which it sells into the ERCOT grid at whatever the market rate is and then it buys the energy back to distribute to its customers. Yes, it’s confusing)

The bad news is that we will likely face power outages again –– just like we did in 2011 –– unless the state imposes new requirements on utilities that it is willing to enforce. For instance, it could mandate that power generators make certain investments to protect their plants from cold weather. But those requirements need to be accompanied by accountability, either in the way of inspections or major penalties in the event that a generator goes offline.

None of these changes will occur by changing who is on the board of ERCOT.

“This is going to take a thoughtful discussion about how much risk I am willing to take in exchange for the few dollars (a month in savings),” says Cullick. Scapegoating ERCOT or renewable power is a distraction from that necessary discussion, he adds.

So far Abbott is not talking about making the type of switch to that type of “capacity” system.

He is, however, talking about requiring winterization — and even providing state funding for it. Having the state pay, rather than utility customers, is a more progressive cost structure. But is this going to be a long-term commitment from the state or just a one-time injection of assistance whose usefulness will wane over time as facilities age?

Cullick’s concluding remark: “I for one am going to Lowe’s to buy a generator.”

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