What does ERCOT’s Failed Procurement Mean?

In early October, ERCOT told us there was a one-in-seven chance of rolling outages in December. Not great.

ERCOT’s response: Try to buy 3,000 megawatts of additional capacity in time for January and February, principally from retired coal and gas plants. 

It was an audacious and bizarre move. CPS Energy CEO Rudy Garza said publicly what many others said privately: there was no way to get that much additional power online so quickly, especially from plants that had been shuttered for years. A majority of Public Utility Commission (PUC) members worried it wasn't even legal: ERCOT based its authority to spend an unspecified and unlimited amount of money on its own protocols, not statute or PUC rule. 

But as ERCOT saw it, desperate times justified desperate measures. The agency issued a Request For Proposals (RFP) asking for two different forms of capacity: decommissioned power plants, and 6-hour duration demand response. It was clear from the beginning that neither of these categories was likely to deliver much capacity. Decommissioned power plants, in many cases, lacked critical parts and components to operate (at least 30% on a capacity basis hadn’t operated since 2018). And while demand response can play a critical role filling gaps for a few hours at a time, six hours is unrealistic.

So when ERCOT announced on Friday afternoon that they’d canceled the RFP, very few energy observers were surprised.

What was mildly surprising: ERCOT’s press release stating the agency didn't expect any problems this winter. Everything is fine, nothing to see here — forget about last month, when ERCOT told us things were so bad that the agency needed to go way, way outside the bounds of normal procedure and spend as much as $1 billion to procure capacity. (This is not the first time ERCOT sent mixed messages.)

Which is it? Are there major problems that call for extraordinary measures? Or is everything fine? It can't be both. 

In fact, on Nov. 1, ERCOT said there is a one-in-six chance of outages in January, and a one-in-five chance of emergency conditions, worse than what the agency previously projected. Worse still, those probabilities are based on last December’s Winter Storm Elliott, not conditions during Winter Storm Uri in 2021. If we do see another Winter Storm Uri next year, the likelihood of at least some rolling outages is probably close to 100%…