Understanding ERCOT: Texas Power Grid & Deregulation Guide

The Electric Reliability Council of Texas (ERCOT) manages electricity flow to 26 million Texas customers—approximately 90% of the state's electric load.

ERCOT by the numbers:

What makes Texas different:
Unlike the Eastern and Western Interconnections that span multiple states and fall under federal regulation, the Texas grid operates almost entirely within state borders.

ERCOT's core responsibilities:
- Schedule power generation
- Manage transmission
- Ensure enough electricity flows to meet demand every moment of every day

This independence, dating back to decisions in the 1930s, allows Texas to avoid federal oversight while maintaining its own electricity market.

Texas chose grid independence primarily to avoid federal regulation by the Federal Energy Regulatory Commission (FERC).

The regulatory logic:

By keeping the Texas grid isolated, the state maintains complete control through the Public Utility Commission of Texas.

Historical timeline:
- 1930s: Texas utilities deliberately avoid connecting to neighboring states
- 2002: Deregulation under Senate Bill 7
- 2021: Winter Storm Uri exposes isolation risks

The tradeoff:
Texas cannot easily import power from other states during emergencies—a limitation critically apparent during Winter Storm Uri (February 2021).

Despite periodic calls for federal interconnection, Texas consistently chooses regulatory independence over resilience benefits.

ERCOT operates two electricity markets that determine what you pay.

The two markets:

ERCOT's forecasting considers:
- Weather conditions
- Time of day
- Day of week
- Special events (concerts, sports, holidays)

When demand approaches supply:
1. Conservation appeals - Ask Texans to reduce usage
2. Emergency alerts - Warning of potential shortages
3. Rotating outages - Last resort to prevent grid collapse

ERCOT maintains detailed visibility into generator output, transmission capacity, and demand across all regions in real-time.

Texas operates an energy-only market—generators only get paid for electricity they actually produce and sell.

Market comparison:

Pros of energy-only:
- Encourages efficiency
- Keeps prices competitive during normal conditions
- Lower baseline costs

Cons (the Winter Storm Uri debate):
- May undercompensate reserve capacity
- Can lead to underinvestment in backup plants
- Price spikes during shortages

How Texas incentivizes reliability:
ERCOT allows prices to spike dramatically during shortages (up to $9,000/MWh)—this incentivizes generators to stay online and new capacity to enter the market.

The February 2021 crisis intensified debate about whether Texas should adopt a capacity market.

Texas leads the nation in renewable energy, particularly wind power.

2025 Texas generation mix:

Key trends:
- Wind + solar combined: Over 30% of total generation
- Coal has declined dramatically from 30%+ → under 15%
- Battery storage helps balance intermittent renewables

Texas renewable energy leadership:
- #1 in wind capacity of all US states
- Rapidly growing solar installations
- Significant battery storage investments

This diverse mix keeps wholesale prices competitive, though extreme weather can still create price spikes when demand exceeds available supply.

While ERCOT manages wholesale electricity markets, Transmission and Distribution Utilities (TDUs) own and maintain the power lines that deliver electricity to your home.

Texas TDUs by territory:

Key facts about TDUs:
- Your TDU is determined by your address—you cannot choose or change it
- TDU delivery fees appear on your bill regardless of your provider
- These are regulated monopolies (no competition)

What TDUs do:
- Meter reading
- Outage restoration
- Power line maintenance

Why this matters for your bill:
TDU charges are fixed. Focus on the controllable portion—your energy supply rate from your chosen Retail Electric Provider.

Texas deregulated electricity in 2002 under Senate Bill 7, separating the old monopoly utilities into distinct functions.

The three-part structure:

What deregulation means for you:
- Choose your provider
- Choose your plan type (fixed, variable, green)
- Choose your contract length
- Choose renewable vs. traditional sources

Market breakdown:
- ~75% of ERCOT load served by competitive providers
- ~25% in cooperatives and municipal utilities (exempt from deregulation)

The result:
Competition has generally kept Texas electricity prices competitive with national averages, though results vary by year and region.

The Texas grid faces growing challenges from rising demand and extreme weather.

Demand growth drivers:
- Population growth
- Data centers
- Cryptocurrency mining
- Vehicle electrification

Peak demand projections:

Post-Winter Storm Uri reforms:
- Weatherization requirements for generators
- New reserve programs
- Improved forecasting

The renewable energy challenge:
Wind and solar reduce emissions but create intermittency challenges that require:
- Battery storage (14,000 MW and growing)
- Dispatchable backup generation

The central challenge:
Managing these competing pressures while keeping electricity affordable remains Texas energy policy's core balancing act.