Texas grid officials received repeated warnings last summer that their efforts to shore up the state’s increasingly strained electric grid risked driving up power prices, records show.
Concerns first arose just days after the state launched a new policy meant to keep more backup electricity supply in reserve in case of emergencies, known as the Ercot Contingency Reserve Service, or ECRS. Complaints about ECRS soon reached Governor Greg Abbott’s office. “Yo – you getting hit on ECRS stuff?” an employee for the grid manager texted a member of Abbott’s staff, according to documents obtained via open records requests. “Oh for sure,” the Abbott staffer responded.
Yet the Electric Reliability Council of Texas, or Ercot as the grid manager is known, pressed on. In September, just three months after ECRS was introduced, a Bloomberg investigation found that on one key day it had helped spike power prices to the highest levels since Winter Storm Uri three years ago. The grid’s main watchdog later estimated that ECRS had ballooned wholesale prices by $12 billion in less than six months — and had done little to bolster reliability.
While Ercot has disputed the watchdog’s estimate, the grid operator is now reviewing how it sources backup power. In a statement, Ercot said it’s working with a stakeholder group to “to mitigate the effect ECRS has on pricing during critical hours” without compromising reliability. The Texas Public Utility Commission, which oversees Ercot, said “ECRS played a key role” to ensure reliability when demand spiked over the summer and during a recent cold snap. The commission is working with Ercot, its independent market monitor and industry stakeholders “to evaluate ECRS and ensure it is serving its intended purpose of improving reliability and being procured in a manner that is cost-effective for Texas consumers.”
That the once-sleepy market for power reserves triggered such fallout underscores just how contentious managing the most closely watched grid in America has become. In many ways, Texas is a microcosm of a global conundrum: Electricity demand is surging at the same time that grids are becoming more reliant on intermittent renewable energy that fluctuates based on weather and time of day. The state has dramatically increased the amount of power reserves it procures each day to protect against this variability. But sometimes those policies come at a cost — one that regulators and politicians are now scrambling to reconcile.
Read more: Texas Moved to Protect its Fragile Grid. Then Prices Skyrocketed
Ercot introduced ECRS on June 10 as a vital way to keep the lights on. This was a new type of backup power that the Texas grid operator procured each day in the state’s “ancillary services” market, where power plants get paid to be on standby for times when supply and demand aren’t enough to ensure the grid stays stable.
ECRS was designed to be especially agile: These resources had to be able to turn on in 10 minutes, enabling Ercot to respond to situations when the grid suddenly looked precariously tight, like when the sun set and solar power dropped to zero but Texans were still guzzling electricity.
But Will McAdams, then a member of the PUC, saw a problem with the way Ercot was managing its backup supply. Because older (and typically more expensive) units weren’t nimble enough, they couldn’t participate. Instead, “the most efficient and flexible” resources were getting paid to be on standby, McAdams wrote in a June 14 memo. Yet when they were on standby, they weren’t generating power normally, and the more expensive units were being tapped to take their place.
Something similar happened on June 20, when power prices spiked to a cap of $5,000 per megawatt hour even though a key measure of grid health looked relatively fine. Traders and other market experts pointed to the same thing: ECRS was making it look like supply was tighter than it was.
Ten days later, PUC staffers got an email from Carrie Bivens, who led a team at Potomac Economics that served as Ercot’s independent market monitor. Attached was a memo that she planned to send to their bosses that day, outlining concerns with the state’s ancillary services market after the introduction of ECRS. But even with the market’s recent wild ride, PUC staffers seemed surprised.
“I was not expecting you sharing with the commissioners that quickly and giving us very short time to review,” said Harika Basaran, who also referenced a meeting with Gov. Abbott’s office and asked if that had expedited Bivens’ timeline. Representatives for Abbott didn’t respond to requests for comment for this story.