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ERCOT’s Reserve Plan May Cause Price Hikes

Electric Power Station
Electric Power Station | Image by style_TTT/Shutterstock

A newly released analysis estimated that the Electric Reliability Council of Texas’ latest initiative may have spiked wholesale prices for power by $8 billion by creating an artificial scarcity of supply.

Potomac Economics, a third-party firm tasked by the state to monitor Texas’ energy market, is behind the study published Friday. It predicted that costs will continue to rise.

The Electric Reliability Council of Texas (ERCOT) has been under pressure to keep the electricity grid stable. The extreme heat across the state this summer caused demand to surge.

For instance, as recently as September 6, the organization issued an emergency alert to consumers after a drop in the grid’s energy reserves and frequency made conservation critical to maintaining the grid, as previously reported by The Dallas Express.

Concerns continue as winter lies ahead. ERCOT was granted immunity from the Texas Supreme Court a few months ago for the rolling blackouts seen during the winter storm of 2021, which was believed to be responsible for 246 weather-related deaths, as covered by The Dallas Express.

Amid scrutiny from lawmakers, the public, and the media, ERCOT launched its “Contingency Reserve Service” (ECRS) in June, which is supposed to bring extra power to the grid quickly in times of need.

Still, Potomac Economics’ investigation of ECRS concluded that shortage pricing hikes have been caused by ERCOT requiring nearly double the amount of online reserves to be on standby, according to the Houston Chronicle.

Carrie Bivens, director of the independent market monitor, said that when ERCOT turns to ancillary services to shore up reserves, it affects market prices.

“These effects have never been more apparent after ERCOT’s implementation of [ECRS],” Bivens wrote, according to the Houston Chronicle.

A separate analysis by Bloomberg yielded similar results, suggesting that ECRS essentially created artificial shortages.

For instance, it claimed that on June 20, ERCOT paid power generators like Lamar, a gas-fired station northeast of Dallas, to hold back 2,000 megawatts of power. As a result, real-time electricity prices jumped to over $4,500 per megawatt-hour.

Moreover, generators are paid by ERCOT to put reserves on standby in ECRS, with a total of $608 million paid out through August, according to Bloomberg.

Although such costs and price jumps are not typically felt by consumers when they first occur, experts claim that they soon will be.

“These things definitely ultimately funnel to customers,” said Jaden Crawford, head of regulatory affairs at David Energy, according to Bloomberg.

A statement from ERCOT sent to Bloomberg in response to a request for comment said that ECRS “has been key in ensuring reliability this summer through extreme heat and multiple instances of record-setting demand.”

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