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855-475-8315If you live in Texas, you’ve probably heard about the Electric Reliability Council of Texas (ERCOT) in any news about the electricity industry. But because the state has a complex energy sector, the organization’s role may not have been clear.
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Though it isn’t a producer, provider, or price-setter, ERCOT and Texas electricity go hand in hand because the organization is responsible for making electricity reliably available when you need it. Read on to learn more about EPCOT and its role in the Texas electricity industry.
What Is ERCOT?
ERCOT is an independent electric system operator that manages around 90% of the electric load in Texas, including over 1,030 power generation units and more than 52,700 miles of transmission lines. It developed from the Texas Interconnected System (TIS), an alliance between Texan utility companies that formed during the Second World War, aiming to redirect excess power to help out military manufacturers on the Gulf Coast.
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ERCOT’s main responsibility is scheduling and managing power dispatch, which is the way electricity flows through its network. To maintain reliable access to power, it must be prepared for situations that require a fast response — like when many large buildings turn on their air conditioning systems at the same time on a hot summer day.
The organization is also responsible for planning new additions to power plants and making sure that Texas has a suitable mix of generation technologies to maintain effective power dispatch. For example, solely relying on solar farms would cause power issues at night, whereas wind turbines can’t power a city on a calm day. So, ERCOT has to ensure that Texas generates enough power through other energy resources, such as natural gas and water.
ERCOT also operates the Texan electricity market, requiring buyers and sellers to approach the council for financial settlements on all purchases within the market.
How ERCOT Differs From FERC
To clarify ERCOT vs. FERC, the Federal Energy Regulatory Commission (FERC) is an independent agency that regulates the interstate transmission of electricity, oil, and natural gas. This means that FERC is similar to ERCOT except that it only has jurisdiction over transmission between states.
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Texas has its own power grid that doesn’t connect to the rest of the US, which means that ERCOT lies outside of FERC’s scope. As a result, Texas must produce all of its energy on its own but doesn’t have to comply with federal power regulations. This includes restrictions on which companies can sell electricity and how much they can charge.
Why Texas Has Its Own Power Grid
When the government started imposing regulations on electricity in the US, Texas found them restrictive because they set market rules that determined which companies could enter and what prices they were allowed to offer. To avoid the oversight and open the market, the state’s leaders opted out, instead choosing to combine some of the bigger power companies to provide energy to the whole state — without relying on FERC.
Though Texas wasn’t the only state to attempt this, it’s the only one that was able to do it successfully. This is due to two main reasons: the deregulation of energy, which created an open electricity market, and the abundance of energy resources across the state.
Deregulation of Energy
Texas is the only state with a deregulated power grid, meaning that an independent body is responsible for the electricity market, rather than the state. This avoids a lot of red tape that could prevent new, smaller electric providers from entering the market. The result is a competitive energy market that fosters innovation as providers try to entice customers with lower prices and higher energy efficiency.
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Consumers can therefore compare hundreds of electricity plans and pick the one that best suits them. This drives prices down, though some companies may still overcharge you by including hidden fees and gimmicks in the fine print of their contracts. Power Wizard can help you find a plan that’s right for you without these hidden traps, so you can access the full savings that deregulation offers.
Abundance of Energy Resources
In most states, an independent power grid would be unviable because they don’t have enough energy resources on their own, so they need help from other states. Texas, on the other hand, has abundant energy resources — like coal, natural gas, and wind — that help it maintain its own electric power grid.
In fact, Texas is the largest energy producer in the US, responsible for over 23% of energy production in the country. It’s also the country’s leading producer of both natural gas and wind energy.
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The sheer size of Texas helps it maintain its own power grid as well. Because the state stretches across two time zones, peak electric energy demands for different parts of the state are staggered by an hour, reducing the strain on production that smaller states felt when they tried to deregulate electricity as well.
The Purpose of ERCOT
ERCOT is responsible for ensuring everyone in Texas has electricity when they need it. But this isn’t a simple task. That’s why ERCOT’s core functions are divided into the following three categories.
Provide Texans Electricity From Producers
As previously mentioned, managing power dispatch every day is the main function of ERCOT. Texas’s power grid requires electricity to reach different places at different times to reliably satisfy everyone’s needs, making this coordination a tricky task. ERCOT also needs to accommodate physical limitations, like power lines, transformers, and other grid equipment.
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In addition, ERCOT is responsible for approving the construction and modification of power plants in the state. This function helps make electricity more accessible to undersupplied areas.
Enable a Competitive Wholesale Market and Retail Market
Like a stock exchange, ERCOT ensures that energy market transactions between buyers and sellers are accurate and efficient. It administers the wholesale and retail electricity markets, centrally coordinating transactions between wholesale power buyers and sellers in the market.
It also manages the energy market financially by collecting money from companies that use power and paying for the resources to produce power.
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It doesn’t set energy market prices — the buyers and sellers can negotiate a price for a bilateral forward transaction — but the trade must be presented to ERCOT for settlement to cover some or all of the wholesale energy obligation for the customer.
The retail provider that purchased the wholesale energy then distributes it to consumers, setting prices according to their energy costs. This isn’t always the case, however, as some companies include conditions in the fine print that end up overcharging you. To ensure that your plan doesn’t do this to you, Power Wizard can help you find the plans that only charge you for what you use.
Maintain Open Energy Access to Transmission Lines
Open energy access is the ability of consumers to receive their supply of electricity from any provider. This means that if you’re not happy with your current plan, ERCOT makes sure that you can switch to another available plan, even if it comes from a different provider.
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