The Stakeholders' Golden Rule

The Future of ERCOT: Fish or Fowl?

by Raymond Giuliani

The great Texas storm in February exposed the identity crisis of ERCOT.  It was considered the gold standard for electric power reliability and deregulated market competition, but failed at both. What might we consider to be the root cause?  Perhaps ERCOT didn’t have a clear focus on what business it was in.

In the early days of ERCOT, “we keep the lights on” was their mantra.  It was a convenient sound bite used by many in the electric power industry and seemed to fit The Electric Reliability Council of Texas, Inc.  Without digging into the details of its operation, legislators and consumers bought into that mantra.  Why not?  It sounded pretty good.

The cornerstone for building the success of deregulation in Texas was ERCOT.  Working off of its assumed focus on reliability, ERCOT would create a second focus – a market operation to enable wholesale and retail competition. Legislators went so far as to break up vertically integrated utilities to enable independent and newly formed generation companies to compete with one another and to enable newly formed retail electric providers to compete to serve consumers with more than just a single regulated price for electricity.  This also sounded pretty good.

But in February, 2021, Texans found that ERCOT could neither be called fish or fowl.  Its reliability focus was not like that of the FAA that makes us comfortable flying in a metal container across country at 600 miles an hour.  Nor was ERCOT’s market operation focus as good as the market institutions that enable competitive markets for the food we depend on to survive.  Indeed, it became obvious that ERCOT wasn’t sure what business it was in.

Going forward, Texans need to know and understand this.  The Texas deregulated electric power market needs both.  If ERCOT is to be both an FAA and commodities exchange, much restructuring of its operations is needed.  Perhaps two separate entities would be better.  In any event, responsibility and accountability should not be a blur within the entity or entities of the future.

Raymond Giuliani, former Chief of Market Operations at ERCOT, has pulled back the curtain on the inner workings of ERCOT in his new book, The Stakeholders’ Golden Rule, available now at Barnes & Noble, Amazon, and Books A Million

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