ERCOT’s Pricing Structure Must Be Reformed – Here’s Why

By Bill Oakey – March 25, 2021

During the winter storm, we were all told why the price of electricity sold through ERCOT was increased to the maximum rate. We were told that it’s a demand-based system. The high prices were designed to incentivize energy producers to build more capacity and supply more power to the grid.

Well, Texas utilities did their part. They paid the outlandish price of $9,000 per megawatt-hour, which is 250 to 300 times the normal rate of $30 to $35 per megawatt-hour. These astronomical prices continued for 32 hours after the storm ended. The Washington Post reported that nearly $50 billion in electricity sales were generated during the week of the storm. To put that $50 billion figure in perspective, it’s over 3 times the entire annual budgets of Austin, San Antonio, Dallas and Houston, combined! Check the numbers and sources below for this fiscal year’s budgets:

Austin: $4.2 billion
San Antonio: $2.9 billion
Dallas: $3.8 billion
Houston: $5.1 billion
Grand Total: $16 billion, times 3 equals $48 billion

A wave of bankruptcies and lawsuits are unraveling by the day. Many Texas consumers will see higher electric bills, stretching far into the future, as pass-through power supply adjustment charges are recalculated several months from now. San Antonio’s electric utility is considering spreading these charges over an entire decade, to make the rate jolt less onerous. Close your eyes and contemplate what would happen if ERCOT sees no reforms, and we get another severe winter storm in the next year or two.

So, here is the one big question that begs to be answered:

How Many New Weatherized Power Plants, and How Much New Capacity Will Texans Get, After Paying All Those Tens Of Billions Of Dollars?

We have a right to expect a precise answer to that simple question from the likes of ERCOT, the Public Utility Commission, and the folks at the State Capitol who gave us an independent power grid with these pricing policies. Otherwise, how could they possibly justify keeping ERCOT’s current pricing model in place? Exelon Corp., which lost close to $1 billion, told the Washington Post that it may consider leaving Texas unless its market system is reformed.

So far, we haven’t heard a word from the folks who walked away with windfall profits about building us the new generating capacity that we were promised. And they are not required to do so under the weak Texas laws. As soon as this blog receives the list of power plants and their capacities, we will publish it here in detail.

If You Would Like to Wade Into the Weeds of the Data

Here is a bucketful from the U.S. Energy Information Administration. You won’t find anything close to ERCOT’s $9,000 per megawatt-hour peak prices.

Musical Accompaniment for This Blog Piece

1. “Such An Easy Question” – Elvis Presley
2. “A Lover’s Question” – Clyde McPhatter
3. “What a Price” – Fats Domino
4. “96 Tears” – ? and the Mysterians
5. “What Did I Promise Her Last Night?”– Mel Tillis
6. “Promises Promises” – Lynn Anderson
7. “When” – The Kalin Twins
8. “The Twelfth of Never” – Johnny Mathis

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