Building a 21st Century Grid for Texas

by Bill Flores, Independent Board Member & Vice Chairman, Electric Reliability Council of Texas

Whenever we flip a light switch, adjust a thermostat, or turn on a device in our homes, businesses, and classrooms, it demonstrates the foundation of why the Waco region and the state of Texas continue to grow and prosper.

We are fortunate to be served by an electric grid that provides reliable, resilient, affordable, abundant, clean, and safe electricity. Since Texas leaders decided in 1935 to maintain control of most of the Texas grid as a separate unit, we have had one of the most reliable electric grids in the nation. That said, Texans experienced a huge wake-up call during Winter Storm Uri in 2021 where we learned that our grid and substantial energy system infrastructure had vulnerabilities that needed to be addressed.

Fortunately, leaders in Texas, including our Governor, State Legislature, Public Utility Commission of Texas (PUCT), energy industry personnel, and ERCOT’s new Board of Directors stepped up and addressed the most pressing issues related to our dynamic energy industry. The improvements and changes that have been implemented since then, many in record time, have worked! During the cold snaps of the winter of early 2022, the record-breaking heat of the summer of 2022, the prolonged and intense cold of Winter Storm Elliott in late December 2022, and the extended cold and icing spell of late January/early February of 2023, the Texas grid quietly did its job of providing reliable power to millions of Texans. This performance was due to the changes made by Texans who leaned in and worked together to fix our shortcomings, along with the thousands of Texans who work in the electric power and energy industries of Texas. This turnaround was particularly noticeable when the performance of the Texas grid during Winter Storm Elliott was compared to other grids around the country that struggled to keep power flowing to their customers. Even though it might feel like a good time for everyone to pat themselves on the back for a job well done, it is too early for that. There is still a lot of work to be done to continue building a grid to power Texas’ exciting 21st century.

What is ERCOT?

Before we dive into what has been done and the work that remains, it makes sense to know more about the Texas grid and the Electric Reliability Council of Texas (ERCOT) which manages it. Many Texans think of the grid and ERCOT interchangeably; thus, it is important to dig into this subject. The United States has nine power pools, three of which have footprints in

Texas – the portion managed by the Southwest Power Pool (SPP), which covers parts of the western and northern Panhandle, far west Texas, and the northeast corner of Texas; the portion managed by the Midcontinent Independent System Operator (MISO) which covers southeast Texas; and the remaining 90% of the state’s power load which is managed by ERCOT. The portion of the state grid managed by ERCOT has over 26 million Texans who rely on a robust power system powered by over 1,100 generation units (including Private Use Networks), connected by almost 53,000 miles of transmission lines which feed dozens of local distribution systems to power homes and businesses.

It is also important to cover more about what ERCOT does and what it doesn’t do. ERCOT does not own or operate any generation, transmission, or distribution assets. Rather, it operates like an air traffic controller to make sure that, every second of every day, on a 24/7 basis, sufficient electricity is generated and transmitted to meet the needs of millions of hardworking Texans. As the independent system operator (ISO) for the region, ERCOT schedules power generation and transmission resources. It also performs financial settlement for the competitive wholesale bulkpower market, and administers retail switching for 8 million premises in competitive choice areas. As ISO for the geographic region it covers, ERCOT has four primary responsibilities –maintain system reliability, facilitate a competitive wholesale market, facilitate a competitive retail market, and ensure open access to transmission. It is a 501(c)(4) nonprofit corporation, governed by a board of directors and subject to oversight by the Public Utility Commission of Texas and the Texas Legislature.

Over the past 20 years, ERCOT has been a global leader in electric grid operations. After legislative changes in the late 1990s, Texas developed the healthiest, most competitive electric market in the world. A decade later, it successfully led the nation in integrating renewable energy into the electric grid with one of the largest modern electric transmission buildouts in the nation. During this period, many other states were struggling to do a fraction of what we accomplished. The portion of the Texas grid managed by ERCOT is now the third largest grid in the nation (measured by demand) and has the highest penetration of renewable power generation of any ISO.

Aftermath of Winter Storm Uri

Now that we know more about ERCOT and what it does, we need to look at the recent performance of the Texas grid and what Texas needs to grow and prosper. Let’s start by talking about Winter Storm Uri in February 2021. Virtually everyone in the nation knows that our power and energy systems in the southeast U.S. were strained and failed to deliver adequate power during a weather event that included record cold and freezing precipitation. During the event, almost half of the generation into the Texas grid failed due to cold weather or lack of fuel. These failures affected all of our sources of electricity –wind, solar, coal, natural gas, and nuclear. Scores of people died, and billions of dollars of property were damaged during the storm due to the lack of power, energy, water, and related factors. The bottom line is that we all learned that the lack of reliability and resilience has a cost and that it can be a huge cost in lives and dollars.

Immediately following the storm, it was “all hands on deck” to determine what happened, make sure that these failures never happened again, and develop plans for longer-term growth in the Texas population and economy. In particular, the State Legislature passed and the Governor signed meaningful legislation to improve power and energy systems reliability and resilience – both for near-term and long-term horizons. At the same time, new leadership at ERCOT developed a comprehensive 60-point plan to improve grid reliability. New PUCT Commissioners also acted boldly and made major changes to improve Texas grid resilience and reliability. In addition, ERCOT’s new Board of Directors and new CEO worked with stakeholders to identify important initiatives to be implemented quickly to better serve the families and businesses of Texas. This list of initiatives is thoughtful, robust, and comprehensive. Now it is up to market participants and ERCOT to implement these changes, integrate them into the electric market, and ensure there is enough reliable power every day – regardless of the weather.

Recent Near-Term Improvements

The near-term changes to the Texas grid include:

• Weatherization of Generation and Transmission Facilities

• Aggressive Grid Management

• Implementation of Firm Fuel Supply Service (FFSS)

• Scheduled Maintenance Period Improvements

• Fast Frequency Response Service

• Expansion of Non-Spinning Reserve Service

• Development of a Critical Supply Chain and Critical Infrastructure Map

• Improved Communication Protocols

More information regarding these changes is available at www.ERCOT.com.

As noted earlier in this article, the implementation of these near-term initiatives led to a marked improvement in grid reliability and resilience during the multiple winter and summer season strains on the grid during 2022 and early 2023. During this time, the Texas grid consistently met the electricity needs of Texas families and businesses. While there were some power disruptions to certain areas during the recent cold weather event in late January-early February 2023, it is important to recognize these outages were caused by the effect of icing conditions on distribution infrastructure outside of ERCOT’s oversight.

Looking to the Future

The Lone Star State is an exciting, dynamic, and fast-growing enterprise, with thousands of new families and businesses deciding to call Texas “home” every day. As a result of this growth, Texas will need substantial increases in power resources – both in the near term and in the long term. In addition, Texas’ fleet of legacy dispatchable generation assets, consisting primarily of nuclear, natural gas, and coal-fueled generators is aging. Moreover, the addition of significant renewable generation infrastructure has made the Texas grid harder to manage due to the variability of output from these resources.

Additionally, the recent federal government enactment of the “Inflation Reduction Act” (IRA) adds increased strains due to the tens of billions of federal taxpayer dollars that are now available to subsidize significant additions of variable and non-dispatchable generation resources to the U.S. and Texas grids. Renewable power has a mixed impact on grids (including Texas’); on one hand, it produces no emissions while operating and it generates cheap power due to free fuel and significant federal taxpayer-paid subsidies; while on the other hand, it is highly variable and hard to dispatch when power is needed. For example, during a peak summer demand period on July 11, 2022, wind power was producing at only 3% of its aggregate nameplate capacity. Another more recent example occurred during the recent winter event from January 30 through February 2, 2023; during this period, over a third of wind generation capacity was offline due to icing and solar generation was minimal due to heavy cloud cover. Fortunately, dispatchable generation assets –nuclear, coal, natural gas, and significant additions of grid-scale battery storage were available to step up and meet load needs during each of those periods. It should also be recognized that Texans responded and reduced their power needs by taking conservation actions during these events.

In recognition of these challenges, the PUCT has promulgated the following market and grid reforms which ERCOT is implementing and/or planning to implement in the near future:

• Real-time Co-optimization (RTC)

• Aggregated Distributed Energy Resource Pilot (ADER) program

• Firm Fuel Supply Service – Phase 2

• Improved integration of large, flexible loads (e.g., Bitcoin mines) into the ERCOT grid

• ERCOT Contingency Reserve Service (ECRS)

While these changes will improve grid operations and reliability at minimal expense to consumers, a full discussion of them is beyond the length constraints of this article.

The Heavy Lift that Remains in Front of Us

While there will be numerous additional changes and reforms to the grid in the future, the real challenge is re-designing our electricity market to encourage the substantial investment in and deployment of dispatchable generation resources in Texas, while retaining our “Energy Only” market features. For purposes of this discussion, dispatchable resources can be thought of as generation resources and flexible loads that have an “on/off” switch. In other words, ERCOT and grid participants can add resources and/or reduce load on a discretionary basis as compared to hoping that the wind is blowing or the sun is shining. Current examples of dispatchable resources are natural gas-fueled generation facilities, gridscale battery storage infrastructure, large flexible loads like bitcoin mining operations that respond quickly to ERCOT dispatch instructions, and nextgeneration nuclear generation. Of course, future technologies will be developed which will be part of this resource mix. The most important thing to note regarding this part of our discussion is the Texas electricity market needs to be designed so that it encourages tens of billions of dollars of future investment in these types of energy resources. Of course, this will have a cost to consumers, but it has the benefit of substantially improving reliability. On the other hand, as we learned during Winter Storm Uri, the lack of reliability has a substantial cost. It seems obvious that Texans would prefer to pay for reliability vs. paying for the aftermath that comes with a lack of reliability.

In this regard, the PUCT has stepped up to the plate in a big way by designing the next phase of electricity market reform. In mid-January, the PUCT forwarded a recommendation to the Texas Legislature to fulfill the requirement of SB3 to address reliability during times of low nondispatchable (renewable) power production. By unanimous vote, the PUC has recommended the implementation of the Performance Credit Mechanism (PCM). PCM is a performance-based methodology for Load Serving Entities to contract for energy, ancillary services, and reserves needed in the ERCOT market. Along with implementation of the PCM program, the recommendation provides for the establishment of a firm and quantifiable reliability standard for overall grid operations as well as the participants in the Texas market. The bottom line is that the outcome of PCM implementation will be substantial new investment in reliable, dispatchable generation so Texas has the power it needs when it needs it. Unfortunately, the PCM recommendation has caused “political bullets” to start flying in Austin during the current legislative session. This politicization of the grid reduces the certainty that Texas needs to ensure a stable electricity market to encourage substantial future investment in reliable, dispatchable generation. Hopefully, this rhetoric will be replaced by rational and realistic dialogue to thoughtfully address our future challenges.

The PCM recommendation is just what Texas needs to deliver long-term reliable, resilient, affordable, abundant, and clean energy to our growing economy and an ever-increasing number of hardworking Texas families.

Looking forward, all of ERCOT’s Board, management, and team members, working alongside the thousands of persons who work on 24/7 on the Texas grid are committed to maintaining a bright future for Texas by working hard every day to keep it energized! n

Bill Flores is an Independent Board Member & Vice Chairman of the Electric Reliability Council of Texas. He is the former United States Congressman for the 17th Congressional District of Texas during 2011-2021. Bill is also an entrepreneur, business leader, volunteer, energy nerd, husband, father, grandfather, Certified Public Accountant (CPA), instrument-rated pilot, ninth-generation Texan, and proud Texas Aggie. The views expressed in this article are his and do not necessarily reflect the opinions of Texas Policymakers, the PUCT, or ERCOT.