Texas electric grid operator grew quickly but lacked controls
By Sudeep Reddy, The Dallas Morning News -- July 4
Biometric fingerprint technology secures some of the doors. A hallway window overseeing a key control room can be fogged at the flick of a switch.
But now, the Electric Reliability Council of Texas' image as a stronghold has
been shattered by a probe into accusations of improper financial deals and
possible security holes.
Texas Public Utility Commission Chairman Paul Hudson has declared a
"crisis of confidence" in ERCOT's internal controls.
The grid operator may have tried to grow too fast, and without the necessary
controls, its critics say, as it evolved from a loose coordinating body to the
nerve center of the state's electricity system.
ERCOT is charged with ensuring that electricity flows reliably to homes and
businesses in nearly every corner of the state.
The organization traces its roots to World War II, when industrial
manufacturers needed to coordinate their power needs.
In 1999, ERCOT took on greater responsibilities and began to grow
dramatically after deregulation plans became law in Texas.
Although officially a private nonprofit corporation, ERCOT assumed a
quasi-public function in its new role.
Soon, the concept of a deregulated electric industry hit a rough patch with a
series of major blackouts in California and the collapse of energy giant Enron
Corp.
ERCOT charged ahead, vowing to avoid mistakes made elsewhere.
"We certainly do anticipate challenges going forward," Tom Noel,
ERCOT's chief executive, said at a hearing in early 2002. "This thing is a
very complicated process. It is, however, a very dynamic market."
(Mr. Noel, who announced retirement plans last year, is set to leave his post
soon. He will be replaced on July 26 by a former Wisconsin utility executive,
Thomas F. Schrader.)
ERCOT had some problems when residential customers were first able to switch
electricity providers in January 2002.
Computers lost data. Lights went out in some homes. Customers complained
about billing errors. Attempts at switching customers failed.
As ERCOT struggled with the market's rocky opening, some of the group's most
serious problems were overlooked, consumer advocacy groups say.
"Nobody was looking at the organizational issues," said Randy
Chapman, executive director of the Texas Legal Services Center. "So much of
the work that should have been done in-house was being contracted out."
ERCOT is funded by fees on all electricity users. For an average household
spending $100 a month on power, the ERCOT fee would amount to 44 cents.
Consumer groups have complained that since deregulation, ERCOT has received
too much money with few restrictions, minimal controls and inadequate oversight.
Under the organization's current plan, spending will nearly double to $260
million in 2008, from $133 million this year.
ERCOT, which has grown from 50 employees in 2000 to about 400 today, is
slated to have 650 people by 2008, according to current budget projections.
ERCOT plans to issue revised budget forecasts by the end of August.
The average annual salary for an ERCOT employee is about $80,000, plus
$30,000 in benefits. Those figures are excessive, Mr. Chapman said, particularly
in a soft labor market for tech workers.
ERCOT has attracted staff from the PUC, enticing them with bigger salaries
than they'd receive at a state agency.
ERCOT officials declined to be interviewed for this story but provided
written responses to some questions about budgeting and financial practices.
The organization defended its salaries, saying most employees "are
highly skilled, technical experts" in areas such as engineering and data
management.
The ERCOT budget has been growing with the grid operator's responsibilities
"and reflects the necessary investment in staffing, systems and
facilities," the group said.
ERCOT said much of its growth occurred with borrowed money that must be paid
back, for everything from basic equipment to the construction of a second grid
control center in Taylor, Texas, northeast of Austin.
But ERCOT said its goal now "is to hold the fee steady by increasing
internal efficiencies and making tough management decisions."
Compared with other U.S. grid operators, ERCOT performs a unique role by
handling retail switching in addition to running a wholesale market and
balancing the flow of electricity over the grid.
With all those tasks, predicting ERCOT's budget would have been difficult in
deregulation's early days, said John Fainter, president of the Association of
Electric Companies of Texas, a group of investor-owned utilities.
"We knew that there was going to be a tremendous organization with
expansion because the workload has expanded," he said.
In the long run, Mr. Fainter said, ERCOT's activities will make the market
"more efficient and probably cost-effective."
The impact of rising costs goes beyond deregulated areas. Municipal utilities
and cooperatives, which have largely steered clear of competition, also operate
on the ERCOT grid and pay its fees.
The state's co-ops, serving more than 3.5 million consumers, have been
concerned about rising costs, said Mike Williams, president and CEO of Texas
Electric Cooperatives Inc., a trade group.
"Those costs have to be passed on to somebody," he said. "They
just flow back to the consumers."
With deregulation, ERCOT took over the vital function of directing the
state's power grid and power plants to ensure reliability.
In other words: If ERCOT goes down, so does electricity to most Texas homes
and businesses.
With worries at utilities nationwide about attacks from terrorists and
hackers, attention to grid security has increased -- but not always in the right
way, experts say.
Organizations have often tried to solve problems with new technology without
putting the right management plans in place, said Jim Tiller, chief security
officer for INS, a consulting firm that works with utilities worldwide.
"Right now we've got the cart before the horse," Mr. Tiller said.
"There's a lot of technology out there, and it's growing."
A task force convened after last August's massive blackout in the northeast
United States said power entities such as utilities and grid operators failed to
follow industry best practices calling for autonomy for security officials.
Some organizations had their security staffs reporting through the chief
information officer, creating a conflict in controlling risks. ERCOT followed
that structure until recently.
Despite efforts from grid operators nationwide to bolster security in an age
of terrorism, the risks haven't subsided, Mr. Tiller said.
"They're under a constant barrage of attacks, and it's just a matter of
time before somebody weasels their way through."
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