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The Secret Rules Behind ERCOT Prices with Andrew Reimers

2026-02-18 · 11:03 UTC ·Texas Energy and Power Newsletter ·48 min read

Brief

ERCOT’s market design is becoming one of the most important pieces of Texas infrastructure policy because, in an energy-only market, reliability policy doubles as investment policy. In this interview, Potomac Economics deputy director Andrew Reimers explains that scarcity pricing and the operating reserve demand curve are supposed to send the signal for new generation and flexible capacity to get built. The problem is that Texas has spent the post-Uri period leaning toward more conservative operations—keeping more reserves online to reduce outage risk and even avoid politically toxic conservation alerts. That may improve short-run comfort, but it can also undermine the scarcity prices that tell investors the market needs more supply. Reimers argues this tension is especially acute in ERCOT because Texas is electrically isolated, has unusually high penetrations of wind, solar, and storage, and cannot rely on neighbors the way PJM, CAISO, or New York can.

The major recent structural change is real-time co-optimization, which went live on Dec. 5, 2025 after years of advocacy from Potomac and others. Before RTC, operating reserves were procured in the day-ahead market and carried as real-time physical obligations, which could create severe price distortions because reserved capacity was effectively withheld from the real-time energy market. Reimers points to summer 2023, when ERCOT’s addition of ECRS pulled thousands of megawatts out of the energy stack and produced what Potomac estimated were billions of dollars in excess consumer costs. Potomac now supports NPRR 1309, which treats DRRS as a true operating reserve product, but strongly opposes NPRR 1310, which would layer a capacity-like resource adequacy mechanism into hourly reserve procurement. His core objection is methodological: real-time or day-ahead operating conditions are appropriate for pricing present scarcity, but not for setting durable forward signals to induce efficient future investment.

The conversation also highlights how batteries and forecasting are reshaping ERCOT’s operational logic. Solar has lowered prices during high-load daylight hours and shifted reliability stress to the evening net-load ramp, where roughly 15 GW of batteries now help bridge the loss of solar output. But Reimers says forecast error—not peak demand alone—is now the key variable, especially with wind, whose output is harder to predict. That is why Potomac favors a multi-interval real-time market that looks ahead one to two hours, allowing batteries to preserve state of charge when the system expects tighter conditions later. He argues ERCOT’s current four-hour duration requirement for non-spin is a crude substitute that can misprice storage and unintentionally push batteries into energy sales rather than reserve provision. More broadly, Reimers warns that out-of-market programs—from emergency reserves to residential demand response and firm-fuel constructs—can dilute the transparency and allocative efficiency of scarcity pricing by paying resources through side channels instead of through the core market.

Why it matters

ERCOT’s real-time co-optimization (RTC), launched on Dec. 5, 2025, shifted operating reserves from primarily day-ahead physical obligations to real-time physical awards, with day-ahead reserve awards becoming largely financial positions that participants arbitrage against real-time outcomes.

Key details

  • Andrew Reimers of Potomac Economics said ERCOT’s post-Uri “conservative operations” posture—carrying larger operating reserves to avoid outages and even conservation warnings—can distort prices in both directions: it can suppress scarcity prices and weaken generation investment signals, or, as in summer 2023, elevate prices when reserves are held out of the energy market.
  • Potomac estimated that ERCOT’s pre-RTC handling of ECRS (ERCOT Contingency Reserve Service) in summer 2023 created “billions of dollars of excess costs” because thousands of megawatts that had previously participated in the energy market were sequestered as reserves, making the energy market appear scarce even when physical capacity existed.
  • Potomac supports NPRR 1309, which defines DRRS (Dispatchable Reliability Reserve Service) as an operating reserve product, but recommends dismissing NPRR 1310 “with prejudice” because it would create an hourly capacity-like product intended to drive future resource adequacy through day-ahead and real-time procurement signals that Reimers argues are structurally misaligned with future investment needs.
  • Reimers argued ERCOT’s load-growth forecasts likely overstate demand because “officer letter load” from interconnection requests is being included in forecasts under policy pressure from HB 5066 (2023), even though many proposed large loads may never materialize, making those forecasts risky inputs for market design and transmission planning.
  • Texas’ resource mix is changing the shape of scarcity: solar has pushed the most stressed hours from gross peak demand toward the evening net-load ramp around 7–9 p.m., while roughly 15 GW of batteries now help cover the daily solar down-ramp, but wind forecast errors remain a major reliability challenge because they are less predictable than solar output.
Cleaned source text

title: The Secret Rules Behind ERCOT Prices with Andrew Reimers

author: Texas Energy and Power Newsletter

content_type: newsletter

publication: substack.com

published: 2026-02-18T11:03:32+00:00

source_url: gmail://19c70741217bb9b1

word_count: 10789

Listen now (55 mins) | ERCOT just flipped a major switch on how it buys reliability; the ripple effects hit prices, batteries, and investment signals that Texas depends on.

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The Secret Rules Behind ERCOT…

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Listen now

The Secret Rules Behind ERCOT Prices with Andrew Reimers

ERCOT just flipped a major switch on how it buys reliability; the ripple effects hit prices, batteries, and investment signals that Texas depends on.

Joshua Rhodes and Nathan Peavey

Feb 18

READ IN APP

Texas keeps adding load, adding generation, and adding complexity. But attracting the next wave of investment often comes down to a crucial question:

How does ERCOT use market forces – especially signals that determine where energy prices are set – to boost reliability on the grid?

In this episode, Josh Rhodes sits down with Andrew Reimers to pull back the curtain on the machinery most people never see, including operating reserves, scarcity pricing, and what changed when ERCOT launched real-time co-optimization in December.

The quiet lever: reserves, scarcity, and incentives

Andrew breaks down the pricing story to a simple idea: when electricity on the grid gets tight, the value of the next increment of reliability rises fast, which should signal to investors that they can make money by building more generation in Texas. ERCOT tries to reflect that through scarcity pricing and its operating reserve demand curve.

The hard part is running the grid in a way that ensures affordable, reliable electricity, _and_ that doesn’t smother the very price signal that’s supposed to attract new capacity to the market.

> “Carrying this large volume of operating reserves… you can suppress the prices… disincentivizing investments in new generation.”

That tension – lowering the risk of outages today vs. maintaining investable signals for tomorrow – drives the entire market design debate in Texas.

Reliability policy is also investment policy.

What changed on Dec. 5, and why it matters

In this episode, Josh and Andrew discuss ERCOT’s move to real-time co-optimization late last year and what it means for the ways reserves are procured and obligations show up in real time. That can change outcomes, even if the physical grid looks the same.

The conversation covers:

Why pricing can look wrong even when the grid is fine.

How rule changes can create unexpected incentives.

Why these mechanics matter more as demand rises and the resource mix shifts.

Batteries, forecasting, and the value of looking ahead

Josh and Andrew also show how this all connects to batteries.

Andrew frames batteries as a question of timing and trade-offs, not just megawatts.

> “Batteries… it’s opportunity cost. If I discharge now, I can’t necessarily discharge in the future.”

If ERCOT’s market structure encourages operators to look ahead even an hour or two, the state will end up valuing flexibility more intelligently – and customers will avoid the excess cost of simply buying more reserves to cover forecasting errors.

Final Thoughts

This episode shows that the Texas grid is not just about steel in the ground. It’s also a unique, and largely successful, experiment in how free-market policy – with smart guardrails – can translate individual investment into reliability for all.

If you want to understand why ERCOT decisions spark so much argument, and why market design tweaks can have outsized consequences, this conversation is a great map.

If this prompted questions for you, drop one in the comments. And if you know someone who cares about ERCOT prices but hates reading market docs, send them this episode.

Timestamps:

00:05 – Episode Setup, Why This Matters

01:09 – Andrew Reimers, Role of the IMM

05:03 – Operating Reserves and Market Design

09:55 – Real-Time Co-Optimization Explained

14:30 – ERCOT vs Other Markets

16:42 – Post-Uri Conservatism and Price Signals

19:12 – Scarcity Pricing and Investment Incentives

23:50 – DRRS, RUC, and Reliability Tradeoffs

28:26 – NPRR 1309 vs 1310 Debate

31:02 – Load Forecasting and “Officer Letter Load”

36:55 – Solar, Wind, and Shifting Peak Dynamics

40:45 – Batteries and Multi-Interval Markets

49:15 – Out-of-Market Actions and Hidden Impacts

53:59 – Final Takeaways and Wrap-Up

Resources:

Guest & Company

Andrew Reimers (LinkedIn)

Potomac Economics (Website \- LinkedIn)

Potomac Economics - ERCOT IMM overview

Joshua Rhodes (LinkedIn)

Webber Energy Group (LinkedIn)

IdeaSmiths (Website \- LinkedIn)

Company & Industry News

ERCOT NPRR 1310, IMM comments (Feb 3, 2026)

S&P Global, ERCOT ancillary services rule changes and IMM perspective (Aug 6, 2025)

RTO Insider, ERCOT and IMM ancillary services study (Jul 1, 2024)

Potomac Economics, 2024 State of the Market Report for ERCOT (PDF)

Books & Articles Discussed

Ancillary Service Study, Initial IMM Results (Aug 28, 2024)

Transcript

Josh Rhodes (00:05.174)

Right now, Texas is planning for rapid load growth while still catching up on transmission and interconnection constraints. The challenge is not whether demand is coming, but how fast the system can realistically respond. Welcome to the Energy Capital Podcast, where we cover the decisions, data, and debates shaping the Texas grid and the energy future. I’m your host, Joshua Rhodes. Today’s guest is Andrew Reimers. He’s deputy director of ERCOT at Potomac Economics, the independent market monitor. Andrew is an expert on grid planning,

Josh Rhodes (00:35.234)

load growth, and how infrastructure decisions actually get made in Texas. In this episode, we walk through what planners know, what they are assuming, and where uncertainty is doing real work in the system. We discuss load forecast, transmission bottlenecks, and the trade-offs between moving quickly and maintaining reliability. You’ll walk away with a decision-useful lens for understanding how Texas is navigating growth right now, and where the biggest pressure points are likely to emerge next. Let’s get into it.

Josh Rhodes (01:09.25)