The Story of Ercot the Grid Operator, Power Market & Prices Under Texas Electric Deregulation
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THE GRID OPERATOR, POWER MARKET & PRICES UNDER TEXAS ELECTRIC DEREGULATION THE STORY OF ERCOT THE GRID OPERATOR, POWER MARKET & PRICES UNDER TEXAS ELECTRIC DEREGULATION FEBRUARY 2011 A SPECIAL RESEARCH PROJECT BY THE STEERING COMMITTEE OF CITIES SERVED BY ONCOR & THE TEXAS COALITION FOR AFFORDABLE POWER THE StORY OF ERCOT AMARILLO LUBBOCK PLANO FORT WORTH DALLAS ABILENE MIDLAND/ODESSA WACO ALPINE AUSTIN HOUSTON SAN ANTONIO CORPUS CHRISTI LAREDO THE ERCOT REGION THE GRID OPERATOR, POWER MARKET & PRICES UNDER TEXAS ELECTRIC DEREGULATION THE STORY OF ERCOT ABOUT THIS The Electric Reliability Council of Texas, also known as ERCOT, REPORT is the non-profit corporation that oversees the Texas power grid. The organization also has responsibility for settling transactions in the state’s wholesale spot market for electricity. But the term “ERCOT” also is used loosely in other ways. For instance, the term can describe the geographical footprint for retail electric deregulation in Texas. It is also sometimes used to describe the state’s wholesale energy market. This report touches upon policy questions relating to all these conceptualizations of ERCOT: as an organization, as an energy market, and as the area of Texas with competitive electric suppliers. To distinguish between these meanings, the term “ERCOT” will be used whenever practicable to refer to the organization, “the ERCOT region” will be used to refer to deregulated areas of the state, and “ERCOT market” will be used to describe the wholesale energy market within the ERCOT region. The reader should note that the Texas Public Utility Commission typically has responsibil- ity for setting the highest level ERCOT market policies, while the ERCOT organization oversees grid operations. T H E R E P O R T , » The Executive Summary, Major Findings, and Recommendations AT A GLANCE begin on page 7. » The Story of ERCOT is organized chronologically, with prelimi- nary sections describing the early history of the Texas electricity grid and later sections describing annual developments from 2000 through 2010. The chronology begins on page 17. » The Story of ERCOT includes a number of subsections that highlight key issues. These subsections are interspersed chron- ologically throughout the report. These subsections have green backgrounds. » The Story of ERCOT includes articles that focus on important concepts, such as transmission congestion management (page 41) and nodal markets (page 61). » The Story of ERCOT includes charts and graphs that describe ERCOT spending and electric prices in deregulated regions of the ERCOT market. Key charts can be found on pages 81, 84, 85 and 87. THE StORY OF ERCOT | 1 THE StORY OF ERCOT 2 THE GRID OPERATOR, POWER MARKET & PRICES UNDER TEXAS ELECTRIC DEREGULATION TABLE OF CONTENTS 4 ABOUT THE STEERING COMMITTEE OF CITIES SERVED BY ONCOR 5 ABOUT THE TEXAS COALITION FOR AFFORDABLE POWER 7 EXECUTIVE SUMMARY 8 Major Findings 11 Recommendations 13 WHAT IS ERCOT? 15 KEY ERCOT FACTS THE HISTORY OF ERCOT 17 The Early Years 21 The Transition Years 25 2000-2009 POLICY SPOTLIGHTS 28 ERCOT’s Transmission System and Deregulation 41 Relieving Transmission Congestion in the ERCOT market 51 Reform Efforts 61 Nodal 101 70 Is the ERCOT market sufficiently competitive? 89 APPENDIX I: ERCOT Responsibilities 92 APPENDIX II: Notable Milestones in ERCOT History TABLE OF CONTENTS | 3 THE StORY OF ERCOT THE STEERING COMMITTEE OF CITIES SERVED BY ONCOR The Steering Committee of Cities Served by Oncor (and its predecessor organization, the Steering Committee of Cities Served by TXU Electric) has been representing the inter- ests of electric consumers for more than two decades. Formed in 1989 to provide cities a united front at the Public Utility Commission, the Steering Committee over the years has helped save Texans more than $1 billion. The organization began its work with the representation of consumers during the PUC’s regulatory review of construction costs of the Comanche Peak Nuclear Plant. It later negotiated a sweeping deal with the North Texas electric utility relating to certain costs associated with electric deregulation, and has represented consumer interests in rate cases. The non-profit coalition also represents the interests of municipalities and their citizens at the Electric Reliability Council of Texas, which oversees the state’s power grid. THE 146 CITIES THAT COMPRISE THE STEERING COMMITTEE INCLUDE: Addison Collinsville Granger Mansfield Rowlett Allen Comanche Grapevine McKinney Sachse Alvarado Commerce Gunter Mesquite Saginaw Andrews Coppell Haltom City Midland Seagoville Anna Copperas Cove Harker Heights Midlothian Sherman Archer City Corinth Henrietta Murchison Snyder Argyle Crowley Hewitt Murphy Southlake Arlington Dallas Highland Park Nacogdoches Springtown Bedford Dalworthington Gardens Honey Grove New Chapel Hill Stephenville Bellmead DeLeon Howe North Richland Hills Sulphur Springs Belton De Soto Hurst Oak Leaf Sunnyvale Benbrook Denison Hutto Oak Point Sweetwater Beverly Hills Duncanville Iowa Park Odessa Temple Big Spring Early Irving O’Donnell Terrell Breckenridge Eastland Jolly Ovilla The Colony Bridgeport Edgecliff Village Josephine Palestine Tyler Brownwood Euless Justin Pantego University Park Buffalo Everman Kaufman Paris Venus Burkburnett Fairview Keller Plano Waco Burleson Farmers Branch Kerens Pottsboro Watauga Caddo Mills Fate Krum Prosper Waxahachie Cameron Flower Mound Lake Worth Ranger White Settlement Canton Forest Hill Lakeside Rhome Wichita Falls Carrollton Fort Worth Lamesa Richardson Willow Park Cedar Hill Frisco Lancaster Richland Hills Woodway Celina Frost Lewisville River Oaks Wylie Centerville Gainesville Lindale Roanoke Cleburne Garland Little Elm Robinson Coahoma Glenn Heights Little River Academy Rockwall Colleyville Grand Prairie Malakoff Rosser 4 | SCCSO THE GRID OPERATOR, POWER MARKET & PRICES UNDER TEXAS ELECTRIC DEREGULATION THE TEXAS COALITION FOR AFFORDABLE POWER The Texas Coalition for Affordable Power (“TCAP”), a political subdivision corpora- tion, enjoys a unique vantage point within the ERCOT market. Originally two separate non-profit corporations — the Cities Aggregation Power Project and the South Texas Aggregation Project — TCAP pools together the resources of its 158 member political subdivisions to purchase electricity in bulk for the needs of local government authorities. The price TCAP’s member cities pay for electricity impacts their ability to fund essen- tial services. TCAP members purchase in excess of 1.3 billion kilowatt-hours of power each year for street lighting, office buildings, water plants and other municipal needs. An increase of a single penny in the price can equate to the loss of millions of taxpayer dollars. Increases can also impact the welfare of city residents. TCAP wants what all Texans want: a fair system for delivering electricity. THE 158 POLITICAL SUBDIVISIONS THAT COMPRISE THE TEXAS COALITION FOR AFFORDABLE POWER INCLUDE: Abilene Comanche Hamilton Missouri City San Juan Addison Commerce Harker Heights Murphy Seadrfit Alamo Copperas Cove Harlingen Nacogdoches Sherman Alice Corinth Harlingen HA North Richland Hills Sinton Allen Corpus Christi Henrietta Oak Point Snyder Alton Corpus Christi HA Highland Park Odem South Padre Island Anna Corpus Christi RTA Howe Odessa South Texas WA Aquilla WSD Crockett Hurst Orange Grove Spring Valley Aransas County MUD De Soto Ingleside Palestine Springtown Aransas Pass Decatur Ingleside on the Bay Pantego Sugar Land Arlington Denison Johnson County SUD Paris Sunnyvale Austwell Dickinson Kaufman Pearland Sweetwater Beeville Dilley Kennedale Plano Taft Bellmead Dublin Kingsville Pleasanton Terrell Belton Duncanville La Feria Point Comfort Texas City Benbrook Eastland La Marque Port Aransas The Colony Benbrook Library District Edgecliff Village Laguna Vista Port Lavaca Trophy Club Benbrook WSA Edna Lake Jackson Portland University Park Bishop Euless Lancaster Premont Upper Leon River MWD Brownwood Everman Lewisville Prosper Vernon Burkburnett Falfurrias Lorena Red Oak Victoria Burleson Flower Mound Los Fresnos Refugio Watauga Calhoun Port Authority Forest Hill Lovelady Richland Hills Webster Carrizo Springs Fort Stockton Lyford Rio Grande City West Central Texas MWD Cedar Hill Frisco Mansfield Robinson White Settlement Celina Fulton McAllen Rockport Whitney Charlotte Gainesville McAllen HA Rockwall Wichita Falls Cisco George West Mercedes Rotan Woodsboro Cleburne Godley Merkel Rowlett Woodway Clyde Grand Prairie Midlothian Sachse Wylie Colleyville Grapevine Mission Saginaw Colorado City Haltom Mission HA San Angelo TCAP | 5 THE StORY OF ERCOT 6 THE GRID OPERATOR, POWER MARKET & PRICES UNDER TEXAS ELECTRIC DEREGULATION EXECUTIVE SUMMARY The Electric Reliability Council of Texas, or ERCOT, is the term used to describe the quasi-governmental organization that manages the state’s power grid. There are few institutions in Texas that are more important. If Texas suddenly lost the grid, homes and factories would go dark. Even the briefest of outages can put public safety at risk. But “ERCOT” also has a second very important meaning. As a term of art, it can describe the geographical footprint of electric deregulation in Texas. Efficiency in this market is abso- lutely vital for the state economy. This report, provided as a guide by the Texas Coalition for Affordable Power and the Steering Committee of Cities Served by Oncor, examines governance issues related to ERCOT as an organization as well as deregulation issues related to ERCOT as a region. No serious