Dive Brief:
- Texas regulators on Tuesday selected Pablo Vegas to serve as president and CEO of the Electric Reliability Council of Texas at a time of rising energy prices and amid efforts to improve reliability. Vegas currently is an executive vice president at NiSource, an Indiana-based utility company.
- Vegas will assume leadership of ERCOT in October, replacing Brad Jones, who has been the Texas grid operator’s interim CEO since May 2021.
- Along with voting to approve Vegas’ position, the ERCOT board of directors on Tuesday heard a report from independent market monitor Carrie Bivens, who warned that congestion costs and changes to the grid’s operating reserve demand curve have added billions to customer bills.
Dive Insight:
Vegas takes over at ERCOT at a difficult time for the Texas grid. After widespread blackouts during Winter Storm Uri in February 2021, regulators approved a series of market reforms that have helped to avoid grid disruptions this summer — but the costs are showing up on customer bills.
Vegas has "a lot of work ahead of him, still, but we've made incredible changes in a short amount of time,” Jones said Tuesday at his last board of directors meeting as ERCOT’s head.
Among those changes have been lowering ERCOT’s high systemwide offer cap to $5,000/MWh from $9,000/MWh and shifting the ORDC, which is used to determine when scarcity pricing events occur, to encourage generator availability.
The changes to the ORDC increased the minimum contingency level to 3,000 MW from 2,000 MW, which has helped drive up power prices, according to Bivens.
“The ORDC is an adder to the price. It increases energy costs, and it has done so by about $2 billion year to date,” Bivens said, referencing the end of July. “And half of that has been as a result of the shift of the minimum contingency level in the curve.”
Real-time congestion costs are rising also, said Bivens. They stood at $2.1 billion at the end of July, compared with $2.1 billion for all of 2021.
Market observers say they hope Vegas can help address rising costs, but they expressed reservations.
Vegas “has deep experience but mostly in markets quite different from ERCOT in terms of resource mix and market structure,” energy analyst and Stoic Energy President Doug Lewin said in an email. “I'm hopeful that he can lead ERCOT to leverage innovation and competition to lower costs and increase reliability. Consumers are hurting badly in Texas.”
Texas consumers are paying about $0.20/kWh today, or about double what they were in January, Lewin said.
“The approach of ERCOT and the [Public Utilities Commission of Texas] to date has been reliability at any cost. But Texas will not be an attractive place for businesses to locate and more Texans won't be able to pay their energy bills if we can't solve the affordability crisis while we solve the reliability crisis,” Lewin said.
Karl Rábago, a former Texas electric utilities regulator and now a principal of Rábago Energy, said in an email that “nothing in this bio” suggests Vegas “would bring the kind of creative leadership needed to make ERCOT achieve affordable reliable electric service in a competitive market construct, or to achieve results in the vital area of accelerating deployment and use of distributed energy resources, which would support both reliability and affordability.”
In addition to serving as executive vice president of NiSource, Vegas is group president of NiSource Utilities. He will be paid a base salary at ERCOT of almost $1 million annually, with provisions that could send his total compensation to about $2 million annually.
This is Vegas’ second stint in leadership in the ERCOT region. In 2008 he was president and chief operating officer for AEP Texas, among other roles he held at American Electric Power.
“I’m excited to return to Texas,” Vegas said in a statement. “Texas is the fastest growing electric grid in the nation with peak demand larger than any other state, and leads the nation in advancing reliable resources. Texas leaders have faced the challenges in the ongoing energy transition head-on and are committed to driving improvements.”
