By Jeff Share - Utility Spotlight

Austin, TX – A key moment in the state's closely watched move toward deregulation of its power generation system is unfolding as the Electric Reliability Council of Texas (ERCOT) greatly increases its responsibilities in directing the transition to a competitive marketplace.

Beginning this week—following a month’s delay—ERCOT will now be in control of overseeing development and operation of 85% of the Texas electric industry's new competitive market. Originally assigned in 1970 to handle overall system reliability, ERCOT now must ensure equal access to transmission and distribution lines for all competitors. It will make any real-time power purchases necessary to keep supply and demand balanced and be the main scheduler of power production and delivery throughout the grid.

Under the 1999 electric restructuring law (SB 7), ERCOT must process information relating to customer choice for retail electric service and it will also be program administrator of the Renewable Energy Credits Program.

ERCOT, which now operates under the slogan "keeping the lights on so you won't be in the dark," recently opened new headquarters near Austin with a state-of-the-art control center and nearly 250 employees, more than quintupling its staff in one year. The control center receives continuous information on every generating plant and major transmission line in Texas and on the expected demands for those generating plants and transmission lines. It studies the balance of electricity supply and demand among all of the entities and directs energy flow.

“I think of them as the air traffic controller of the electric grid. They'll be responsible for monitoring power flows to avoid bottlenecks along critical transmission paths,” said Brett Perlman, chairman of the PUC which helped design ERCOT's expanded role. “Customers as well as providers need complete confidence in the system. The pilot program will earn that confidence without compromising Texas' electric system adequacy and reliability.”

Electric customers enrolled in the upcoming pilot project will be switched to new retail electric providers (REPs) gradually this summer. The state law, which requires investor-owned utilities to offer customer choice for up to 5% of their electrical load, was supposed to begin on June 1 but was delayed until July 6 after ERCOT decided it was not yet ready for the change. The full rollout of retail competition begins Jan. 1, 2002.

In preparation for the pilot, several new REPs have been marketing electricity at discounted prices to both residential and commercial customers and have signed up about 50,000 Texas households. ERCOT can handle about 21,000 switches a day in a process that takes about two weeks. In controlling the switching, ERCOT will oversee the merger of 10 operational control areas into the single control center needed for an efficient retail market. ERCOT, the eastern and western power grids comprise the three geographic zones in the nation through which power can move. ERCOT has been under increasing pressure to join the others in making a “seamless” grid.

“We're making progress every day,” Tom Noel, ERCOT president & CEO, told reporters. “We want to be fast, but we insist on getting it right. These are complex computer and communications systems, and we need to take some time to test and debug them.” ERCOT is a non-profit agency still overseen by the PUC and is funded by a 22-cents/ Mwh transmission fee paid by consumers. Its operating budget for 2001 is $45 million although capital expenses will add $72 million.

In cases where demand exceeds expectations, ERCOT will buy the necessary power after taking bids from suppliers and will then bill those costs back to the users. It will also be able to contract for future reserve generating capacity. Noel said ERCOT's purchases will probably amount to about 5% of the power used on the grid on any particular day.

Noel joined ERCOT a year ago. He had been an Assistant Energy Secretary under President Ford and developed the Strategic Petroleum Reserve. His second-in-command, Sam Jones, COO & executive vice president, joined ERCOT in 1996 after spending 35 years as an engineer helping take care of Austin's municipal electric utility.

Texas officials have dismissed allegations made in May by the North American Electric Reliability Council (NERC) that put Texas on its “monitoring list” of potential areas for summer electricity problems because of the changeover.

“Given the strength of our operating systems within ERCOT, it is highly unlikely that there would be blackouts,” Noel said. “We have more than adequate operating reserves of power and should absolutely not be considered in the same category as New England and New York City.

“We are proceeding according to our plan and we believe that, with this phased approach, we are decreasing our risk for the kinds of problems that have unfortunately plagued residents in California. In fact, ERCOT is overseeing one of the most robust market restructuring programs anywhere in the United States.”

Meanwhile, insiders tell Utility Spotlight that they would not be surprised if ERCOT decides to move ahead with wholesale aspects of deregulation while putting off retail for a while until certain kinks are fully resolved, saying that ERCOT seems to be more concerned with assuring the public that the lights will not go out.

“I don't think too many people participating in the market trials doubt ERCOT's ability to operate the grid. It's the retail and business sides that are not ready,” said one observer.