ERCOT and the Future of Electric Reliability in Texas

We begin with a discussion of the evolution of the Texas electrical grid, culminating in the formation of ERCOT and the creation of a competitive wholesale and retail marketplace. [...] 4 ERCOT’s Evolution: Independent Oversight, Reform, and Competition The evolution of ERCOT helps explain its structure and why it has minimal interconnection with the rest of the continental United States.6 As indicated in Figure 2, the path to the creation of ERCOT began in the first half of the 20th century, when the Publi. [...] Similarly, if a private firm could build transmission capacity without needing to take account of its impact on the rest of the system, the arbitrage opportunity reflected in the price differential between A and B is the potential revenue source that could pay for the cost of the transmission investment.25 If the constraint is only present periodically, storage can be sited at B to take advantage. [...] The LMP of increasing net demand at the sink should increase by the value of the multiplier on that link times a “shift factor.” The latter reflects how increased net demand at the sink changes flow across the constrained link.27 Conversely, the LMP of increasing net supply at the source should decrease by the value of the multiplier on the constrained link times a different shift factor. [...] For it to be worthwhile to incur the up-front costs of increasing the capacity of a transmission link, the cost of doing so needs to be less than the expected discounted value of the Lagrange multipliers (or value of the transmission link) over the life of the investment.