Power outages in Texas lead to ERCOT questions
Source: Getty Images

ERCOT Is Nonprofit, but There Are Texas Energy Companies You Can Invest In

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Feb. 18 2021, Published 9:44 a.m. ET

The Electric Reliability Council of Texas, or Ercot, manages energy from the Texas Interconnection for 25 million Texan customers. As polaric weather continues to rage, the majority of Texas by landmass is experiencing power outages.

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And meanwhile, across the nation, retail investors are doing what they do best—looking into how they can inject their capital for the sake of a trying time. Many are wondering if ERCOT is publicly traded.

ERCOT doesn't have stock because it's nonprofit

ercot
Source: Getty

On its website, ERCOT says it's a "membership-based 501(c)(4) nonprofit corporation." A 501(c)(4) is different from a 501(c)(3) in some key ways. While a 501(c)(3) is rooted in religion, charity, or education (donations are tax-deductible), a 501(c)(4) is a lobbying activist group for social welfare (donations are not tax-deductible and they can be connected to super PACs). With this in mind, it's easy to see how an energy company in the big oil state ended up as a 501(c)(4). 

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Texas power needs an explanation

In Texas, large energy corporations are highly politicized. In 2002, Texas deregulated the Texas Interconnection grid to promote competition. With the GOP maintaining Lonestar dogma, this means the state's electricity is not the responsibility of the Federal Energy Regulatory Commission. 

Former Texas governor Rick Perry said during the crisis, "Texans would be without electricity for longer than three days to keep the federal government out of their business." Many Texas constituents feel that the government shouldn't be able to make that decision for them. ERCOT has been administering rolling blackouts in the state to keep the grid from failing, and we're now into day five of outages.

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Are ERCOT board members paid?

With 90 percent of the state's households to care for, ERCOT board members have a major responsibility. However, one-third of the 15 board members don't even live in Texas. As ERCOT is a 501(c)(4), a board of directors is the governing force. Estimates suggest ERCOT board members make at least $200,000 per year, but an official report is hard to come by—especially as the board has received death threats during the outages.

Publicly traded energy companies have Texas exposure

Vistra (NYSE:VST) and NRG Energy (NYSE:NRG) are two companies that work with the Texas Interconnection and ERCOT. NRG stock has fallen 7.66 percent in the six days since Feb. 12. Meanwhile, Vistra has fared better—its shares are up 3.67 percent.

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Why has NRG stock been worse off during the deep freeze? Because its capacity to meet power generation demands is slimmer. This makes an investment in NRG riskier, and the market seems to realize this. Right now, energy costs are more than 4,000 percent higher in some instances. The grids—and the people they serve—will surely be struggling for some time after the skies clear. 

Elon Musk discommends ERCOT

In a tweet on Feb. 17, Elon Musk wrote "[ERCOT] is not earning that R," which refers to reliability. I'm sure many Texas residents would agree.

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