As Texans drove power demand to a wintertime record high during last month’s deep freeze, power companies paid $90 million in wholesale costs the grid operator’s independent monitor says could have been avoided — and that eventually could be passed along to their customers.
The Electric Reliability Council of Texas’ controversial reserve program, which caused price spikes totaling $12.5 billion last summer, jacked up pricing again during the Jan. 15-17 cold snap, according to a new report from Potomac Economics, the independent monitor.
The program is meant to keep more backup electricity supply in reserve during periods of peak demand for use in case of emergencies. By removing supply from the market, though, it also drives up wholesale prices and costs to utilities.
“Addressing these issues remains critical,” Potomac said in a presentation Monday to an ERCOT committee. “Discussion with ERCOT has begun.”
The state grid operator declined Wednesday to elaborate on the status or focus of those talks.
The “all-in” costs of electricity were up 88% in 2023 from the year before despite natural gas prices being 65% lower, grid expert Doug Lewin wrote in response to Potomac’s report.
That’s in part because last summer’s extreme heat drove up demand, he said in a post in his Texas Energy and Power Newsletter, but also because ERCOT is likely procuring more reserves through the program than needed.
‘Excessive’ Reserves
Known as the ERCOT Contingency Reserve Service, the program was created to prevent blackouts like those that occurred during Winter Storm Uri in early 2021. But ERCOT’s independent market monitor began sounding the alarm last year, saying the reserve service is taking more power than necessary off the marketplace when demand rises.
ERCOT has denied that, but also says the program will be improved with planned systems improvements. With its current systems, the reserve and regular markets don’t communicate and can’t adjust pricing for each other in real time. That means prices on the regular market are driven up when demand moves supply to the reserve market — where it’s not always needed.
“Excessively held (reserves) inflated prices during the storm,” the Potomac presentation says of last month’s situation. “We estimate efficient energy prices would have lowered whole energy costs by more than $90 million.”
Such spikes immediately impact the power companies and power brokers buying and selling energy on ERCOT’s marketplace.
Eventually, the added costs could also be passed down to utility customers. A lawsuit alleging that has already started happening was filed two weeks ago against ERCOT’s oversight body, the Public Utility Commission of Texas. The lawsuit alleges the PUC approved illegal rules changes that caused “market chaos” without seeking public feedback.
ERCOT CEO Pablo Vegas has pushed back on Potomac’s wholesale cost assessments, calling the eye-popping multibillion-dollar figures misleading. The grid operator said it spent $608 million last year to secure the power it put in the energy reserve program.
Steady Supply
Power supply was adequate during the January storm, the independent monitor’s report says, with gas-fired power plants and wind power playing key roles. In San Antonio, the low temperature Jan. 15 was 20 degrees. It fell to 19 on Jan. 16 and 18 on Jan. 17.
The tightest conditions came on the evening of Jan. 16, when wind power dropped and battery storage sites were needed to help with power ramp-up in the morning and evening when the state’s cushion from solar energy drops.
ERCOT “managed the system reliably” during the storm, the monitor said of its ability to keep the power flowing. But, despite power reserve levels never falling to emergency levels, prices still rocketed to $1,200 per megawatt hour Jan. 16 from between $200 and $400 the day before.
ERCOT has contended the costs of the reserve program outweigh the risk of not having enough power on hand.
During a presentation to board members Tuesday, Vegas detailed the grid’s activity during the January freeze, which brought on some of the state’s lowest winter temperatures on record. ERCOT recorded five all-time winter demand records over the three-day storm. Between 7 a.m. and 8 a.m. Jan. 16, Texans’ power demand hit the highest winter level ever at 78,314 megawatts.
Renewables Step Up
Vegas said conservation efforts curbed demand in a meaningful way and that ERCOT will continue to explore demand-response programs, which encourage customers to curb power use when demand is highest.
Experts and consumer advocates have consistently pushed Texas utility companies and ERCOT, which manages the flow of power for 90% of the state, to pay regular customers for cutting back on power use during critical times — not just big businesses.
“I think that conservation is becoming a really visible and important part during these extreme weather events,” Vegas said.
He also pointed to strong solar power output in January, with the state using more solar power than ever before at one time in recent weeks.
Batteries provided about 1.5% of total energy needs during the three biggest demand peaks over the three-day freeze.
“That’s going to continue to be a growing component of the resource mix during these times of need,” Vegas said. “So, that’s it’s great to see the capacity that’s available when we need them and the execution at that time.”