ERCOT: A Government Agency (‘sovereign immunity’ defense in play)

By Robert Bradley Jr. -- March 2, 2021

ERCOT is chartered by government, directed by government regulation, and governed by government entities. Its funding is from a tax on electric consumers on each monthly bill. The fact that its board is ‘independent’ is a fig leaf, as is its status as a 501c4 organization.

There has been discussion a free-market circles about whether the Electric Reliability Council of Texas (ERCOT) is a government agency.

The answer is provided by simple facts provided by ERCOT itself. That ERCOT is chartered as “a membership 501c(4) nonprofit corporation” should not put form over substance, certainly to political economists, not to mention analysts, media, and the general public. [1]

ERCOT is chartered by government, directed by government regulation, and governed by government entities. Its funding is from a surcharge (tax) on electric consumers’ monthly bill. The fact that its board is “independent” is a fig leaf, as is its status as a 501c(4) organization. [2]

If there was any doubt, the lawsuits piling up against ERCOT and its directors face the sovereign immunity obstacle. As noted by the Houston Chronicle (“Texas Supreme Court to decide if ERCOT is immune from storm lawsuits,” February 22, 2021):

Texans who lost loved ones and suffered property damage during last week’s winter storm have started to file lawsuits against the Electric Reliability Council of Texas, holding the grid operator responsible for failing to maintain power for days as outside temperatures plunged below freezing.

But seeking monetary damages may be in vain. ERCOT has sovereign immunity, a well-established legal principle that protects governmental agencies from lawsuits. ERCOT, a private nonprofit corporation overseen by the Texas Legislature and the Public Utility Commission, is the only grid manager in the country with such protections. [emphasis added]

Here is the information provided by ERCOT president & CEO Bill Magness on February 24, 2021, “Review of February 2021 Extreme Cold
Weather Event,” subtitled “Urgent Board of Directors Meeting.”

ERCOT Corporate Governance

• Founded in 1970

• Texas non-profit corporation with members from seven market segments:

Consumers (Commercial, Industrial, Residential) – Independent Retail Electric Providers – Cooperatives – Investor-Owned Utilities – Independent Generators – Municipals – Independent Power Marketers

• The Texas Legislature enacted laws which govern all activities of ERCOT – See Public Utility Regulatory Act (PURA) Section 39.151.

• The Public Utility Commission of Texas (PUC) has complete authority over ERCOT’s finances, budget and operations, with oversight by the Texas Legislature.

– Approves ERCOT Bylaws

• 16-member ERCOT Board composition is established by law ….

ERCOT’s Role

Fulfills four responsibilities required by law as the independent organization certified by the PUC (PURA Section 39.151):

‒ Maintain electric system reliability
‒ Facilitate a competitive wholesale market
‒ Ensure open access to transmission
‒ Facilitate a competitive retail market

ERCOT Budget & Funding

• Budget is approved by the Board and the PUC biennially.

• Funded by a System Administration Fee to cover its system costs.

– Current fee is 55.5 cents per megawatt hour (MWh).
– One megawatt of electricity can power about 200 Texas homes during periods of peak demand.
– Average cost of $7/year (50-60 cents/month) for residential households.

[1] Another fig leaf is the “antitrust admonition” for the legal monopoly (for approximately 90 percent of the Texas market or 26 million customers). It reads:

To avoid raising concerns about antitrust liability, participants in ERCOT activities should refrain from proposing any action or measure that would exceed ERCOT’s authority under federal or state law. For additional information, stakeholders should consult the Statement of Position on Antitrust Issues for Members of ERCOT Committees, Subcommittees, and Working Groups, which is posted on the ERCOT website.

[2] Half of ERCOT’s ‘independent’ directors have resigned to date. Another resignation involves one of the government agencies overseeing ERCOT.

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Part II (tomorrow) will explain why ERCOT is not only a government agency, it is a central-planning agency outside of the free market.