What exactly is ERCOT?


ERCOT stands for The Electric Reliability Council of Texas, Inc. It is the first American Independent System Operator (ISO) and operates the Texas Interconnection and Texas’s electrical grid which represents 90 percent of the state’s electric load, by supplying power to more than 25 million Texas customers.

It works with the Texas Reliability Entity (TRE), a regional entity within the North American Electric Reliability Corporation (NERC) that coordinates to improve the reliability of the bulk power grid. 

How was ERCOT Formed?

How was ERCOT Formed

In 1965, the U.S. witnessed one of the worst power outages in the country’s history. Resultantly, the Federal Energy Regulatory Commission released new requirements aimed at the formation of an organization that ensures electric reliability. These power outages did not affect Texas, but the new rules and requirements led to the formation of ERCOT in 1970. 

What are the Functions of ERCOT?

The key responsibility of ERCOT is to manage and schedule how the electricity will flow through the network, on daily basis. This process is subject to the operating constraints of individual power lines and generation systems. 

  • If a system exceeds its capacity, the resulting fault can potentially cause a massive blackout.
  • Summers are the most challenging time of the year for the Texans, and mostly, grid demand reaches its peak, because of the air conditioning loads. 

To visualize the technical complexity of the process of Power Dispatch, assume that all the consumers of the power grid need 1 million kWh per day. 

  • Producing 1 million kWh for the grid is not enough for a smooth process of reliable supply. Energy needs to be provided where it is needed, and at a suitable time of the day. 
  • The process must be carried out following the physical limitations of transformers, power lines, and other grid equipment. 
  • Many situations demand a quick response from ERCOT. For example, when during summers, many large buildings activate their air conditioning at once. 

Take a look at our guide to buying electricity in Texas

Other Responsibilities of ERCOT

ERCOT also plans new power plant additions and ensures that the combination of generation technologies is suitable for Texas because it is crucial for effective power dispatch. For example, solar farms can’t provide you electricity at night, and on a day with calmer weather, a city can’t also be powered with wind turbines.

Hydroelectric units and natural gas turbines are normally used to tackle the need for huge power in a short time since both systems are capable of producing a very fast response. Recently, batteries have been used to manage sudden changes in generation and demand. 

Manages the Wholesale Electricity Market and Customer Choice

ERCOT operates the electricity market in Texas, performing crucial financial settlements for buyers and sellers. It is impossible to track each kilowatt-hour injected into the grid system, but total outputs and inputs can be measured and balanced. This complicated process can be summarized as follows. 

Electricity Consumption = Electricity Supplied – Total Losses in the Power Network

ERCOT also manages the process when someone wants to switch electricity providers in Texas, ensuring the correct delivery of data to their new company, after switching the procedure. As it would be impractical for every retailer to have a separate power network, that’s why this switching process is carried out digitally and not physically. This only became possible because of the smart meters that have been installed throughout Texas.

Find out more about Plano, Texas

How Does The Texas Power Grid Work?

How Does The Texas Power Grid Work

Roughly 85 percent of the electricity market in Texas is uncontrolled. This means that businesses and individuals can decide which energy company will supply them with electricity. The theory behind this deregulation is that growing competition between energy companies will lead to low electricity rates and better plan options. 

In Texas, customers can choose their provider but not their utility company. The provider supplies the electricity but the utility company, which is determined based on where an individual is located, delivers that energy to businesses and homes through power lines. During a power outage, the utility company maintains power lines and restores electricity. The five utilities that are responsible for transmission and distributing electricity in Texas are as follows. 

  • AEP Texas North
  • Oncor
  • AEP Texas Central
  • Texas New Mexico Power (TNMP)
  • CenterPoint

Power Outages in Texas in 2021 – History and Implications

Power Outages in Texas in 2021 – History and Implications

In February 2021, because of several systematic issues and an extreme winter storm causing immediate weather and power plant failures, Texas faced massive energy infrastructure failure, leading to a shortage of food, water, and heat. It took the life of at least 246 people across different Texas counties, directly or indirectly, and also caused a power outage in more than 4.5 million homes and businesses for several days. 

Actual Causes 

Initially, the outages were blamed on solar panels and wind turbines. However, data showed that most power sources were not winterized, which caused the grid failure. As the two major national grids have been separated from Texas’s power grid to avoid federal oversight, the state faced a lot of difficulties in importing electricity from other states during the crisis.

In the 1990s, deregulation of the electricity market of Texas increased the competition in wholesale electricity prices but also resulted in cost cutting for contingency preparation. 


The crisis drew attention to the state’s lack of preparation for unforeseen situations, such as storms.

i. As the most expensive disaster in the state’s history, damages from these outages were estimated to be at least $195 billion. According to the Electric Reliability Council of Texas (ERCOT), when partial grid shutdowns were implemented, the power grid of Texas was seconds or minutes away from a complete failure. 

ii. Some energy firms made billions and gained from the crisis, while others went bankrupt. This is because some of the firms were able to pass extremely high wholesale electricity prices (typically $50/MWh) on to consumers, while others could not.  

How did these Power Outages Affect ERCOT?

A few days after the crisis, Governor Greg Abbott declared that ERCOT reform is crucial for the state legislature, and also asked for an investigation of power outages, to construct long-term solutions. In March 2021, Congress demanded documents related to winter weather preparedness from ERCOT and Texas electric grid manager.

After a massive investigation, five autonomous members of ERCOT who lived out of state resigned due to the power outages. Resultantly, the ERCOT board of directors voted out the CEO of ERCOT, Bill Magness, who also turned down his $800,000 severance package. The company admitted that there might be a blackout in winter 2022 and that there was only an ‘enough’ generation for ‘normal’ winter weather. 

The Ever-Changing Reliability of ERTOC!

Although ERTOC is known to manage the reliability of Texas’s power grid, oversee the competitive wholesale market, and ensure open access to transmission, the organization has faced some challenges in the last few years. Because of the frequent power outages, Texans have lost trust in the organization, and it seems like they’ve to consistently light the winters, to gain that trust back!

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