Week Ending March 5, 2021

ERCOT CEO Ousted by Board; Glick Aims for Report on Storm by End of Summer

This Article Appears as Published in Foster Report No 3339

The fallout at the Electric Reliability Council of Texas (ERCOT) continued March 3 with an emergency meeting of the board of directors resulting in the termination of President and CEO Bill Magness.

The ERCOT board is much smaller in size due to resignations of several members in the wake of power outages, legislative hearings on the winter storm that killed dozens in Texas and prompted rolling blackouts in the Southwest Power Pool and Midcontinent Independent System Operator.

Shortly after the events that began on February 14, FERC and the North American Electric Reliability Corp. (NERC) announced a joint inquiry on the winter storm and grid reliability issues. FERC subsequently announced an examination of possible market manipulation in energy markets where it has jurisdiction.

In a March 4 address at CERAWeek by IHS Markit, FERC Chairman Richard Glick said he hopes for a report on the events to be completed by the end of summer. His goal is for any report from FERC and NERC to not sit on a shelf and be ignored like the previous joint inquiry report following the use of rolling blackouts and gas-fired generation outages in February of 2011.

“It’s disturbing” that recommendations in the previous report did not result in actions taken by generators or others, Glick said. “I don’t want to prejudge the matter” for the ongoing inquiry, he said.

Although ERCOT is operated within Texas and the market design is not subject to FERC oversight, the Commission has authority for bulk power system reliability and that is what will be examined in the joint inquiry with NERC, Glick said.

Others at the CERAWeek panels questioned whether an upcoming report would simply alter the date and include the same recommendations as the 2011 report.

Some minimum reliability rules or generation performance standards should probably be set, with Texas agencies in charge of letting the markets figure out how to meet those standards, said Michael Webber, chief science and technology officer at ENGIE Inc. Any planning for weather events needs to be forward-looking and account for extreme events in the future, and not the backward-looking paradigm that exists today, Webber said on a March 4 CERAWeek panel.

The 2011 report from FERC and NERC was thorough and set clear targets for entities to achieve, but there was no implementation and Texas paid the price, said Lawrence Makovich, author and power industry expert who previously had a role at IHS Markit.

Much of the focus in Texas has been on ERCOT, and the March 3 board vote to get rid of Magness was the latest development, coming a few days after the head of the Public Utility Commission of Texas resigned and a week or so after numerous members of the ERCOT board stepped down. Governor Greg Abbott named commissioner Arthur D’Andrea chairman of the PUC following the resignation of DeAnn Walker.

Because the ERCOT board had fewer board members present for the vote, the board vote was six to one on the motion to terminate Magness, with two abstentions. The board met in executive session in private to discuss Magness’s role, without him, and the vote was taken after that. Magness and Lori Cobos, head of the Office of Public Utility Counsel in Texas, abstained from voting on the motion. Cobos said she would have preferred more time to examine the issues before the vote.

The motion provides a 60-day termination notice to Magness, calls for a transition plan and the engagement of an executive search firm to find a replacement CEO. Magness was terminated without cause, under the terms of his employment contract, a spokeswoman for ERCOT said following the vote. That allows Magness to receive a severance package equal to his annual salary, which is more than $800,000. Magness informed the board that he will not seek or accept severance pay, the ERCOT spokeswoman said March 4.

The independent market monitor for ERCOT, Potomac Economics Ltd., on March 4 sent a letter to the PUC informing the agency that ERCOT left real-time pricing in place too long, which cost market participants $16 billion. The PUC on February 15 mandated real-time pricing to reflect power scarcity that could not match demand, with prices at the ERCOT cap of $9,000/MWh. However, ERCOT ordered outages that reduced firm load on the grid for several days, but the real-time pricing continued for an additional 32 hours through the morning of February 19.

That decision resulted in $16 billion in added costs to the ERCOT market, of which $1.5 billion was uplifted to utilities and retail providers “to provide make-whole payments to generators for energy that was not needed or produced,” Potomac Economics told the PUC. The make-whole payments are particularly harmful because they cannot be hedged and will likely result in substantial economic effects, including higher levels of defaults, the market monitor said.

The letter asks the PUC to direct ERCOT to correct the real-time pricing for about 31 hours spanning February 18 and 19 “to remove the inappropriate pricing intervention that occurred during that time period.” Potomac Economics recognized that “revising the prices retroactively is not ideal,” but because the prices were inconsistent with ERCOT protocol and the provisions of the PUC order, “allowing them to remain will result in substantial and unjustified economic harm.”

By Tom Tiernan ttiernan@fosterreport.com

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