Texas is not only rich in natural resources needed to produce energy, but it is also the only U.S. state to have its own electric grid. In 1935, the Federal Power Act was passed and gave the federal government the authority to regulate interstate transactions of electricity. As a result, the Texas Interconnection, Texas’ very own energy grid, was eventually established to avoid selling or purchasing electricity from other states and to establish freedom from federal oversight.[1] To ensure the proper management of energy in Texas, the Electric Reliability Council of Texas (ERCOT) was created in 1970 and is responsible for overseeing the reliable transmission of electricity to the power grid that serves more than 26 million Texans.[2]
ERCOT is an independent, membership-based nonprofit corporation governed by a board of directors who take policy direction from the Public Utility Commission of Texas (PUC) and the Texas Legislature. ERCOT’s 12-member board comprises eight directors with no fiduciary duty or assets in the ERCOT electricity market and who are appointed by Texas’ ERCOT Board Selection Committee, the CEO of ERCOT, the chair of the PUC, the public counsel of the Office of Public Utility Counsel and a PUC commissioner designated by the PUC chair.[3]
As an Independent System Operator, ERCOT is primarily responsible for maintaining system reliability, facilitating competitive wholesale and retail marketspaces, and ensuring open access to transmission. ERCOT does not own or operate any assets on the Texas power grid.
Grid Transmission and Capacity
The United States is covered by three main, mostly separate electric grid regions[4] :
Western Interconnection, serving areas west of the Rocky Mountains to the Pacific coast.
Eastern Interconnection, serving areas from the Great Plains to the Atlantic coast and including part of the Texas Panhandle region.
Texas Interconnection, serving most of Texas.
The three main grids are a network for local electric grids across the U.S. to connect into, allowing multiple avenues for power flow and minimizing loss of service when possible. Currently, a shortage of electrical transformers in the U.S. has led to grid expansion and modernization projects being delayed or cancelled. While the federal government is working quickly to increase production capabilities and address supply shortages, current wait times for transformers have lengthened to more than a year in some cases as prices continue to skyrocket.[5]
The Texas Interconnection supplies electricity to Texas consumers with a generation capacity of more than 145,000 megawatts and more than 52,700 miles of high voltage transmission lines and substations.
ERCOT, through the Texas Interconnection, manages electricity across 214 of the state’s 254 counties (Exhibit 1). Select areas including El Paso, parts of the Texas Panhandle and the counties bordering Arkansas, Louisiana and Oklahoma in East Texas are served by neighboring grids instead.
The most recent addition to the ERCOT grid is Lubbock Power & Light. In 2015, Lubbock city officials made the decision to leave Southwest Public Service Company (Xcel Energy) and join ERCOT instead.[6] This decision stemmed from the city of Lubbock wanting its customers and residents to have more options when choosing their electricity provider.[7] A large Texas electric utility, Oncor, constructed miles of new transmission lines that will allow the connection of Lubbock to the grid. In June 2021, 70 percent of Lubbock Power & Light customers successfully joined the ERCOT electrical grid, and implementation for the remaining 30 percent is expected in late 2023.[8]
Exhibit 1 Texas Counties Served by ERCOT
Source: ERCOT
Fuel Sources
The daily conditions of the grid are trackable on the ERCOT website and show what fuel sources are contributing at a given time. Currently, the grid is powered by sources like solar, wind, hydro, power storage, natural gas, nuclear, coal and lignite. Power storage includes power discharged from energy storage resources, such as batteries, while “other” energy source includes smaller sources that do not fit into an existing category, such as biomass.[9] The largest contributor of energy is natural gas, which has a maximum capacity of 57,792 megawatts. This is significantly higher than any other energy source.[10] While the percentage of the total generation varies daily, the maximum capacity each utility source can produce stays relatively the same (Exhibit 2).[11]
Exhibit 2
ERCOT Energy Sources, Aug. 4, 2023
Energy Source
Maximum Capacity Megawatts (MW)
Current Capacity Generation (MW)
Current Capacity Generation Percentage
Natural Gas
69,890
31,618
47.7
Solar
20,809
10,793
16.3
Coal and Lignite
14,321
8,144
12.3
Wind
38,695
10,602
16.0
Nuclear
5,448
4,955
7.5
Power Storage
4,695
10
0.0
Hydro
600
121
0.2
Other
113
74
0.1
Total
154,571
66,317
100
Note: Capacity generation changes throughout the day. Data current as of Sept. 11, 2023, 2:54 PM CDT.
Source: ERCOT
Recent Legislation
In 2023, the 88th Texas Legislature saw 257 bills filed related to energy, ERCOT and the PUC. While not all bills were passed, bills such as Senate Bill (SB) 2627, Senate Joint Resolution (SJR) 93 and House Bill (HB) 1500 were signed into law.
SB 2627 establishes the Texas Energy Fund to disperse $7.2 billion in low interest loans and completion bonus grants for new dispatchable energy resources.
SJR 93 created the recently passed constitutional amendment that establishes the Texas Energy Fund to support the construction, maintenance, modernization and operation of electric generating facilities. The constitutional amendment, known as Proposition 7was passed by the voters on the Nov. 7, 2023, ballot.
“Sunset bill” HB 1500 authorized the continuation of the PUC and the Office of Public Utility Counsel through 2029 and addressed other ERCOT related issues. Changes made through this sunset legislation include the following:[12]
The addition of a second commissioner to the ERCOT Board of Directors to act as an ex-officio member.
Authorization of the ERCOT Board of Directors to call an executive session for discussion of risk management and other subjects allowed under the Texas Open Meetings Act.
Requirement that the PUC will direct ERCOT official actions when an ERCOT action will create or increase a cost or fee.
Requirement of a majority vote by the PUC for any modifications to the contract of the Independent Market Monitor.
Performance Credit Mechanism Guardrails to “cap the net cost of the ERCOT market to $1 billion (minus the cost of bridges) and includes penalties for generators that do not meet performance obligations and will require rollbacks of bridge solutions.”
Requirement of an uncertainty ancillary service by ERCOT.
Cap on the interconnection costs allowed to be transferred to consumers.
The abolishment of the mandatory Renewable Energy Credit Program to be made optional instead.
Performance requirements (or the firming of existing requirements) for generation resources signing interconnection agreements after Jan. 1, 2027.
Outlook
ERCOT has a long history of managing the Texas Interconnection to ensure that Texans across the state have access to electricity at an affordable rate. In January 2024, ERCOT experienced an all-time winter peak record of 78,138 MW used.[13] To keep up with the increasing energy demand, ERCOT has prioritized planning to maintain the grid by recommending projects for transmission improvements. As of October 2023, the estimated cost for transmission projects was $13 billion.
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