ERCOT is the reason you can choose your electricity provider in Texas. It’s also the reason 240 people died during Winter Storm Uri.
That’s not an exaggeration. Texas deliberately isolated its power grid from the rest of the country to avoid federal regulation. That independence created the deregulated market that lets you shop for electricity. It also meant that when half the state’s power plants failed in February 2021, we couldn’t import electricity from anywhere else.
Understanding ERCOT matters because it explains both the opportunities and the risks of Texas electricity. Here’s the full story.
What ERCOT Actually Is (And Isn’t)
ERCOT stands for the Electric Reliability Council of Texas. It manages the flow of electric power to more than 27 million Texas customers—about 90% of the state’s electric load.
ERCOT is not an electricity company. You can’t buy power from ERCOT, and they don’t send you a bill. They’re more like air traffic control for electrons: balancing supply and demand every second of every day across the entire Texas grid.
ERCOT is also not truly accountable to you. It’s a non-profit corporation governed by a board that includes industry representatives. When the grid fails, ERCOT doesn’t pay your damages. That’s your problem.
Here’s what ERCOT actually does:
- Manages the wholesale electricity market: Generators sell power, and ERCOT runs the marketplace where that happens
- Balances supply and demand in real time: Texas needs exactly as much power generated as consumed at every moment—ERCOT coordinates this
- Plans for the future: Forecasting demand years ahead and making sure enough generation gets built
- Processes customer switches: When you change electricity providers, ERCOT handles the transfer
- Monitors grid reliability: Watching for problems and coordinating responses
Think of ERCOT as the referee and scorekeeper of Texas electricity. The players (generators, transmission companies, retail providers) do the actual work. ERCOT makes sure everyone follows the rules and the game keeps running.
Why Does Texas Have Its Own Grid?
Look at a map of the US power grid and you’ll see three separate systems: the Eastern Interconnection covering everything east of the Rockies, the Western Interconnection covering the Pacific states and mountain west, and then there’s Texas—standing alone.
This isn’t an accident. It’s a deliberate choice Texas made back in the 1930s.
The History
When utilities started connecting their systems in the early 20th century, they created interstate networks. Interstate commerce falls under federal jurisdiction, which means federal regulation. Texas utilities realized that if they kept their grid entirely within state borders, they could avoid federal oversight.
During World War II, Texas utilities built more connections between their systems to support wartime manufacturing. But they kept everything inside Texas. By the 1970s, they’d formalized this arrangement into what would become ERCOT.
The result: Texas operates its own power grid, regulated by the state—not the Federal Energy Regulatory Commission (FERC) that oversees the rest of the country.
The Trade-offs
Independence has benefits:
- Texas sets its own rules for electricity markets
- The state can pursue policies without federal approval
- Regulatory decisions happen closer to home
Independence has costs:
- During emergencies, Texas can’t easily import power from neighboring states
- The grid has limited connections to Mexico and the Eastern Interconnection (small DC ties that can move some power, but not enough to matter in a real crisis)
- Federal reliability standards don’t automatically apply
This independence is a big reason why the Texas deregulated electricity market looks different from electricity markets in other states.
How the Texas Grid Actually Works
Electricity is weird. Unlike water in pipes or gas in tanks, you can’t store meaningful amounts of it (yet). Every second, the amount of electricity being generated must exactly match the amount being consumed. Too much or too little, and the grid becomes unstable.
ERCOT’s control room operates 24/7/365, constantly monitoring and adjusting. Here’s the simplified version:
The Generation Mix
Texas gets electricity from a diverse set of sources:
- Natural gas: About 40% of generation, and the most flexible for ramping up and down
- Wind: Around 25-30%, making Texas the national leader in wind power
- Solar: Growing fast, now around 15% and climbing
- Coal: Declining but still present at about 10%
- Nuclear: Two plants providing reliable baseload power
This mix changes constantly. Wind blows more at night in West Texas. Solar peaks at midday. Natural gas plants adjust to fill the gaps. ERCOT coordinates this ballet of electrons across hundreds of power plants.
The Market
ERCOT runs a wholesale market where generators compete to sell power. Every 15 minutes, generators submit offers for how much power they can provide and at what price. ERCOT accepts the lowest-cost offers first until supply meets demand.
During normal operations, wholesale prices hover between $20-50 per megawatt-hour. During extreme demand? Prices can spike to $5,000 or more per megawatt-hour—by design. These high prices signal generators to produce more and consumers to use less.
Retail providers like TXU Energy, Reliant, and Rhythm buy power on this wholesale market and package it into the plans they sell to you. Whether they hedged well or got caught by price spikes affects their costs—and ultimately yours.
Winter Storm Uri: What Went Wrong
You can’t talk about ERCOT without talking about February 2021. Winter Storm Uri dropped temperatures into the single digits across Texas. Millions lost power for days. Hundreds of people died. It was the most significant grid failure in modern American history.
The Technical Failure
Here’s what happened: Extreme cold hit Texas harder than forecast. Demand for electricity spiked as everyone cranked up heating. At the same time, generation failed across the board:
- Natural gas wells and pipelines froze
- Wind turbines shut down due to ice
- Coal piles froze solid
- Even nuclear plants had cold-related problems
Within hours, the grid lost about 50% of its generation capacity while demand hit record highs. ERCOT had two options: controlled rolling blackouts, or let the entire grid collapse.
They chose blackouts—which turned out to be neither rolling nor controlled for many areas. Some neighborhoods lost power for days while others kept lights on the whole time.
What Actually Failed
The root causes went deeper than weather:
Inadequate winterization: Texas power plants weren’t built for extreme cold because extreme cold was rare. Equipment that works fine at 20 degrees fails at 5 degrees.
Market design: ERCOT’s market rewarded cheap power, not reliable power. Investing in weatherization meant higher costs with no guaranteed return.
No capacity market: Unlike grids in other states, Texas doesn’t pay generators to be available. It only pays for electricity actually produced. This means less buffer when things go wrong.
Gas-electric interdependence: Natural gas plants need gas to run. Gas production needs electricity to pump. When both fail together, recovery becomes extremely difficult.
The Reforms
Since 2021, Texas has made significant changes:
- Mandatory weatherization: Power plants must now prepare for winter weather
- New reliability programs: ERCOT can pay generators to be available during extreme conditions
- Better forecasting: Improved weather monitoring and demand prediction
- Texas Energy Fund: A $5 billion program to build new dispatchable generation
Has it worked? The grid has handled subsequent cold snaps and heat waves without major failures. But Texas hasn’t faced another event as extreme as Uri. The real test may still be ahead.
What ERCOT Means for Your Electricity Bill
All of this affects what you pay, even if you never think about ERCOT directly.
Price Volatility
Texas’s energy-only market creates more price swings than you’d see in regulated states. When wholesale prices spike during heat waves or cold snaps, that flows through to retail rates—especially for variable-rate plans.
If you’re on a fixed-rate plan, your retail provider absorbed the risk. If you’re on a variable plan tied to wholesale prices? You’re exposed. This is why we generally recommend fixed-rate plans for most Texas customers.
Reliability Costs
Post-Uri reforms aren’t free. New reliability programs, weatherization requirements, and backup generation all cost money. Those costs get passed to customers through various fees. Your bill includes more reliability-related charges than it did five years ago.
Market Competition
ERCOT’s structure enables the deregulated market where you choose your retail provider. That competition has generally kept Texas rates below the national average, even with the added reliability costs. More than 100 retail providers compete for your business—which means you have leverage if you shop wisely.
Areas Outside ERCOT
Remember that 90% figure? About 10% of Texas isn’t on the ERCOT grid:
- El Paso: Connected to the Western Interconnection, served by El Paso Electric
- Parts of East Texas: Small areas connected to the Eastern Interconnection
- Some Panhandle areas: Also connected to Eastern or Western grids
If you live in these areas, you don’t participate in the ERCOT market, and the deregulation rules are different. El Paso Electric, for example, is a regulated utility—customers there don’t choose their provider.
Most major Texas metros (Houston, Dallas-Fort Worth, San Antonio, Austin suburbs) are on the ERCOT grid.
Looking Ahead: The Grid of 2030
Texas’s grid is changing fast. Here’s what’s coming:
More Renewables
Wind and solar now provide nearly half of Texas’s electricity on good days. That share keeps growing as new projects come online. The challenge: renewable energy produces power when the sun shines and wind blows, not necessarily when you need it most.
Battery Storage
Grid-scale batteries are finally becoming economical. Texas is seeing major battery projects that can store excess solar power during the day and release it during evening peaks. This helps smooth out renewable variability.
More Demand
Texas keeps growing. New data centers, manufacturing plants, and population growth all mean more electricity demand. ERCOT projects the state will need substantially more generation capacity over the next decade.
New Natural Gas
Despite the growth in renewables, new natural gas plants are also being built. These provide reliable power when renewables can’t, acting as backup for the entire system.
What You Should Do
Understanding ERCOT won’t change your daily life, but it can help you make smarter electricity decisions:
Choose fixed-rate plans if you value predictability. You won’t be exposed to wholesale price spikes during extreme weather.
Pay attention to contract end dates. When your contract expires, you’ll roll onto expensive month-to-month rates unless you proactively switch.
Prepare for outages. Even with reforms, no grid is immune to failure during extreme events. Have a plan for keeping your family safe if power goes out for an extended period.
Stay informed. ERCOT issues conservation appeals during tight conditions. Reducing usage during those times helps keep the grid stable—and might avoid rolling blackouts.
Shop your options. The competitive market exists because of ERCOT’s structure. Use it. Compare providers regularly, and don’t assume your current rate is still competitive. Learn more about when to switch electricity companies.
The Bottom Line
ERCOT is the organization running Texas’s independent power grid—a system born from a century-old desire to avoid federal regulation. It enables the deregulated market where you choose your provider, manages wholesale electricity trading, and keeps supply and demand balanced across the state.
The system has strengths: competition, innovation, and generally competitive prices. It has weaknesses: volatility, complexity, and the isolation that made Winter Storm Uri so devastating.
Understanding how it works helps you navigate the Texas electricity market more effectively. You can’t change the system, but you can make choices that work within it.
Ready to put this knowledge to use? Check out our provider comparisons to see how companies stack up, or browse our best-of categories to find the right provider for your situation.