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ERCOT CEO Says Discussion About Connecting to Other Grids Often Leaves Out Economics

When it comes to discussions around the idea of further interconnecting the ERCOT grid to other grids outside of ERCOT, “a lot of times economics are not included in the core elements of the conversation,” said Pablo Vegas, President and CEO of the Electric Reliability Council of Texas, on Feb. 27.

“They really are an important part of it,” he said at an ERCOT Board of Directors meeting. “It’s not just the reliability question. It’s really a question as to whether it would be the most economic way to improve reliability and resiliency by interconnecting the grid to other grids or would the dollars spent be better served and give us better reliability if we were to invest inside of Texas in additional transmission and other resources to help with reliability and resiliency,” he said.

“That’s really the fundamental question,” Vegas said.

“We’re not debating that there could be reliability or resiliency benefits by having interconnections. The question is it the best way to spend the dollars to get them,” he said.

There are “a few things that I think are important to consider when we have this conversation. First off, the actual cost of the transmission cost. In addition to the cost of actually building DC ties if we’re talking about a DC tie connection, there’s significant additional transmission infrastructure that would have to be developed on both sides of those DC ties in order to be able to fully leverage and import the energy across them,” he said.

Vegas said that there is a need to think about the economic cost overall “and the economic cost of having those ties and what it means to pricing between ERCOT and the other regions that it’s connected to.”

He said that during periods of time when “pricing is high in ERCOT and lower in the areas outside” of ERCOT, “there is the potential that you could see benefit and lowering the cost to residents inside of ERCOT in that circumstance. The flip is also true. When there are periods of time when pricing is higher outside but lower inside of ERCOT,” there could be a “raising of the pricing inside of ERCOT as the price arbitrage is normalized through these DC ties.”

Vegas said that “when you think about that, you really need to model the economic impacts of how that would happen between regions when it’s interconnected in order to really fully understand the cost-benefit or the cost impact on the ERCOT market. Those models don’t exist today. Those models have to be developed. They’re very complex. They’re based on many varieties of economic and operational behaviors and those would have to be developed and really assessed to understand the true economic impact inside of ERCOT and outside of ERCOT.”  

He went on to say that with respect to reliability, “there’s no doubt that if there was an opportunity where there was ample supply outside of ERCOT at a time when ERCOT needed it, that it could provide a reliability benefit. But the reality is that when these DC ties are needed the most,” oftentimes, peak weather events “are affecting areas adjacent to Texas as well. When we have storms in the summer, when we have storms in the winter, oftentimes the regions around the Texas region – the ERCOT market – are experiencing similar weather conditions.  Those are generally the periods of time when we talk about the reliability benefit of having more interconnections. So while there may be times when there could be an opportunity to transfer power in during those peak periods, those periods are likely the periods of time when there would be less available supply to move across those lines because of concurrent happenstance of weather events that are going on in both regions,” he said.

“That has to effect the economic model because if it’s not available during those periods of time – is the investment worth it for the limited or the amount of time that it actually is available to transfer power,” he said.

There are also market implications of further interconnecting the ERCOT system, Vegas said. He said that DC ties “could have the effect of chilling new generation investment inside of the ERCOT region because with more power available to come in during regular periods of time throughout the course of a year, the economic impact inside of ERCOT could have an effect of making it less economically advantageous to build power plants inside of ERCOT. You could see scenarios where it would make more economic sense to build them right outside of ERCOT, potentially benefiting from some of the capacity market revenues that would be available in the SPP market or in the MISO market and then selling that power back into ERCOT when ERCOT pricing is high.” 

Vegas noted that the Texas Public Utilities Commission has initiated proceedings to consider issues that are related interconnections into other regions and outside of ERCOT “and we are participating in those proceedings.”

Recent Federal Legislation

In February 2024, U.S. Rep. Greg Casar (D-Texas) unveiled legislation, The Connect the Grid Act, which would require ERCOT to connect to the nation’s major electric grids.

More recently, on March 6, - Today, U.S. Rep. Randy Weber (R-TX) introduced a resolution “to condemn any effort by the federal government” to connect ERCOT to other major electric grids, a news release from his office said.

The resolution states that “counter to narratives that have been promulgated in Congress, the Electric Reliability Council of Texas currently has direct current connections with neighboring grids, and the Federal Energy Regulatory Commission and the Public Utility Commission of Texas have approved the Southern Spirit Transmission project that would be capable of transmitting up to 2,000 megawatts of power from the Southeastern United States.”

The Southern Spirit Transmission project, which is being developed by Pattern Energy, will begin in Louisiana at the Texas border and extend into Mississippi. It will connect to Texas by way of the Rusk to Panola Transmission Project in partnership with Texas public power utility Garland Power & Light. 

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