Tuesday, March 2, 2021

Electricity supply and electricity politics in Texas--an interview with Peter Cramton

 The veteran market designer Peter Cramton was among the members of the Board of Directors of the Electric Reliability Council of Texas (ERCOT) who live outside of Texas and were asked to resign last week, following the winter storm that left many Texans without power, or with unexpected, very high electricity bills. ERCOT is the independent system operator, charged with running the network minute to minute.  

He's interviewed by Texas Public Radio:

Former ERCOT Board Member Says ‘Toxic Politics’ Spurred Resignations After Texas Grid Failure  Texas Public Radio | By Dominic Anthony Walsh

"Peter Cramton is an economics professor at the University of Cologne and the University of Maryland. He has expertise and experience in complex market designs, including electricity and radio spectrum markets. He served as an “independent director” on the board of the Electric Reliability Council of Texas (ERCOT) from 2015 until last week.

"At his final board meeting, he said, “ERCOT was flying a 747. It had not one, but two engines experience catastrophic failure. (ERCOT) then flew the damaged plane for 103 hours before safely landing in the Hudson. In my mind, the men and women in the ERCOT control room are heroes.”

Here are some bits of the interview:

Dominic Walsh: Could you help me understand your role as an “independent director?” And does it make sense for some of the independent directors to live out of state? There's a lot of controversy around that.

Peter Cramton: What’s unusual is that we have a hybrid board that consists of “affiliated directors” that are affiliated with a particular stakeholder group. There's complete transparency on that, who they're affiliated with. And it is completely balanced. There are four affiliated directors representing the supply side, and there are four affiliated directors representing the demand side. So those are the two sides of almost every market — supply and demand, production and consumption — and there is a perfect balance. Then there's the “independent directors.” There's five independent directors, and the independent directors can have no association with either side of the market. The challenge with independent directors is: It's hard to find people that have the technical expertise, and (are) independent of the market participants. Now, here's the problem: So, one natural thing is you could say, "Well, you know, it's important that the directors live in Texas." Well, then you’d just be imposing another constraint. So, if we say, "OK, now you have to be independent from all market participants. You have to live in Texas. And you have to be an expert in a highly technical industry…" The reality is it's going to be very difficult to find people that fill all of these.

Walsh: So far, you've described a bunch of advocates for various sectors, and a bunch of experts. It sounds slightly more technocratic than democratic. So, where is the accountability to the public — the democratic element of the board?

Cramton: Absolutely. So, it's critically important. And that is the Public Utility Commission of Texas. So, there's a Public Utility Commission that consists of three commissioners, and they provide that oversight. And in fact, that oversight is incredibly important. So, for example, it's the Public Utility Commission that is responsible for the more delicate decisions that are made in the market. And the Public Utility Commission has oversight over all the market rules. What about a renegade Public Utility Commission? You know, who's watching them? Well, who's watching them: that's the legislature and the governor. The commissioners serve largely for the governor and legislature. And if they're doing something that the governor, the legislature does not like, then the governor and legislature can take action to replace the commissioners or whatever other action they want. So that's the continued hierarchy in this governance structure, and that's all within Texas.

Walsh: Why did you resign? It sounds like you're a big fan of ERCOT and their mission. It sounds like you think ERCOT performed well throughout this. Why did you and other members of the board ultimately resign?

Crampton: We resigned, in short, because the politics are toxic right now. The governor and legislature suggested that we resign. And we basically took him up on that. And so that is the reason that we resigned. So, I think the best way to put it is: We were on the boat. And we were — we didn't leave the sinking ship. We were thrown off the boat. But we're all good swimmers, so I'm sure we'll all do just fine. And quite frankly, because of the toxic politics, we're not the ones that are — for me, I'm a professor. I'm an expert in electricity market design. And I'm not an expert in delicate politics.


Here's a story from the Texas Monthly on the Texas power grid that also discusses some of the political players:

The Texas Blackout Is the Story of a Disaster Foretold.  Those in charge of Texas’s deregulated power sector were warned again and again that the electric grid was vulnerable.  by Jeffrey Ball

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