Texas to Revisit Power-Reserve Policies After Grid Watchdog’s Concerns

(Bloomberg) -- Texas power regulators will participate in a review of methods used to obtain backup electricity supplies after an uncharacteristically sharp debate between the grid operator and its watchdog. 

The Texas Public Utility Commission will take part in a “true reevaluation” by the end of April of how the grid manager procures so-called ancillary services, PUC member Lori Cobos said in Austin on Tuesday. Her comments came six months after the Electric Reliability Council of Texas, or Ercot, launched its first new backup-services program in more than two decades. 

That service, called the Ercot Contingency Reserve Service, or ECRS, created “artificial scarcity” that drove up wholesale power prices, according to Potomac Economics, which serves as Ercot’s independent market monitor. 

After initially estimating the ECRS inflated prices by more than $8 billion in just three months, Potomac recently said that number had grown to more than $12 billion. Ercot, which is overseen by the PUC, operates the main Lone Star State grid serving more than 25 million people. 

Ercot introduced ECRS as a new pool of reserves that can respond quickly to cover shortfalls, particularly when solar supply drops at sunset. In September, Bloomberg reported that on one particularly dramatic day, ECRS caused 2,000 megawatts of cheap, otherwise-available power to sit on the sidelines, even as prices spiked.

Days after Potomac presented its recent analysis, Ercot published a post on its website saying cost estimates like those were “absolutely false.” The grid manager stressed that the majority of players in the wholesale market hedge their positions, insulating consumers from those costs. 

But Potomac clapped back, saying Ercot’s response was “very disappointing” and that it never said it was quantifying the consumer cost. Potomac also pointed out that forward prices for next summer rose 67% after the ECRS was introduced. “Therefore, consumers will see an increasing share of these market costs over time as supply contracts expire and are renewed,” Potomac said.

“We’re very much concerned about costs to the market, whatever they may be,” Cobos said. “I just want to make sure we’re taking a very concerted, deep look at what we’re doing in April to get ready for the summer.”

(Updates with origin of ECRS in fifth paragraph.)

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