Doug Lewin / Austin American-Statesman (TNS)
AUSTIN, Texas — When Gov. Greg Abbott issued a directive to the regulators of Texas’ power grid earlier this month, he did something that could be considered unthinkable for a state chief executive who might have his eyes on a higher office in Washington.
Abbott called for more — not less — government regulation of the state’s electricity market. His orders to the Public Utility Commission signaled a move away from the state’s Wild West approach and indicated that he wants Texas’ energy market to have more government-controlled levers.
“It’s really a very odd, strange dynamic where you have folks who have traditionally been very pro-free market deregulation really moving quite in the opposite direction,” said Doug Lewin, an Austin-based energy consultant.
Abbott’s mandate — along with the implementation of three GOP-led laws passed by the Legislature this year — goes against the anti-regulation ethos that led to the creation of Texas’ energy-only market.
As the market currently operates, utilities generally buy electricity from power-generating companies at rates dictated by the push and pull of supply and demand. It’s a system engineered by the state’s political leadership, which has been dominated by Republicans since the late 1990s.
During a recent Senate hearing, PUC Chairman Peter Lake called Texas’ energy market a “crisis-based business model” — one that pushes utilities to keep the grid on the edge of its capacity.
Public Utility Commission Chairman Peter Lake, center, with state Sens. Kelly Hancock, left, and Charles Schwertner, called Texas’ energy market a “crisis-based business model” — one that pushes utilities to keep the grid on the edge of its capacity.
While designed to keep electric bills low, Texas’ power market is more exposed to vulnerabilities created by extreme weather events or power plant failures. Miscalculations and unplanned outages can force the grid operator to shut wide swaths of Texas down, as it did during the February freeze and neared during a mid-June power squeeze.
Abbott, who did not respond to requests for comment on this story, has said he wants to encourage the construction of more natural gas-, coal- and nuclear-generated power in Texas. Because they do not rely on the whims of Mother Nature, they are considered more reliable.
Abbott directed the PUC to develop financial incentives to build more dispatchable electricity that relies on heat to create electricity — heat that can be created by the flick of a switch rather the sun.
His mandate calls for the creation of government incentives to encourage better maintenance of Texas’ fleet of power plants and the construction of new power plants in an effort to shore up the grid’s stability and address the widespread outages in February. At least 210 people died in Texas from causes related to the winter storms, according to the latest numbers from the state health department.
The electric power grid carrying energy to Austin, San Antonio and Houston leaves the South Texas Project Electric Generating Station, one of the largest nuclear power facilities in the nation, near the Gulf Coast.
Could grid shift toward ‘capacity market’?
Abbott’s new regulations are peppered with Republican ideology. Specifically, the incentives are only to be given to fossil fuel and nuclear energy. Conversely, Abbott is also calling for “reliability fees” on wind and solar — a sector of power generation that has faced disproportional blame from Republicans for the February freeze and the near miss in June that led to statewide calls for conservation.
But even though the incentives are allocated only to the fossil fuel and nuclear energy sectors, which Republicans favor, the use of taxpayer money or government-imposed fees to ensure Texas has an adequate power supply during peak electricity demand is more in line with an electric grid operating setup known as a “capacity market,” a concept that has been favored by Democrats.
Under the Texas grid’s current arrangement, power plants are paid only for the energy they actually provide on a day-to-day basis. A capacity market works differently, in that power plant operators can earn money by committing to maintain their capacity to produce electricity for coming years, along with the daily grind of buying and selling electricity to customers. No such assurances are required in Texas.
Proponents say a capacity market is a more reliable way to run a grid and is more dependable than Texas’ energy-only market, which they say incentivizes cutting costs. They can point to places like El Paso or Beaumont, which experienced lengthy freezes in February but saw limited power outages because they are not on Texas’ main power grid, which is operated by the Electric Reliability Council of Texas.
Though Texas officials have not publicly indicated support for a capacity market — Lake, the PUC chairman, said Thursday that the state isn’t considering making that change — some energy experts say Texas does seem to be taking steps in that direction.
“I don’t think anybody said specifically they want to go down the road to a capacity market, but you hear people using language that sounds very suspiciously like that,” said Lewin, the energy consultant.
What’s different is Abbott’s attack on wind and solar power. The growing narrative among Republicans, at the PUC and among ERCOT leadership, is that the erosion of reliability in the Texas grid is because of the proliferation of wind and solar power.
“Several decades ago, our market was designed before intermittent renewables were so prevalent,” Lake said. “They have outpaced our market design, and we must take that new reality into account when we design our new market.”
Wind turbines sit in the distance beyond solar panels at the solar farm owned and run by Southern Power in Girvin in 2017. New state regulations aim to penalize power sources that lack constant availability.
Abbott in ‘awkward position’
Abbott’s decision to use government regulation to elevate fossil fuels and downplay renewable energy could also be an attempt to parry attacks from his right flank in what could be a bruising Republican primary in 2022 as he seeks reelection.
“The reason for that is given the political makeup of the state, his challenge is going to come from the right, not the left,” said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University. “The two announced candidates (former Texas GOP Chairman Allen West and former state Sen. Don Huffines), they’re likely to come after him for not taking care of the oil and gas industry more than anything.”
But Abbott’s use of government regulations to achieve those ends goes against the Republican ethos. His office touted reducing government regulation leading up to this year’s regular session of the Legislature, and he has repudiated government interference in business repeatedly.
Bullock said Abbott’s move seems aimed at finding a middle ground.
“He trying to take a middle tack, to a certain extent,” Bullock said. “It does put him in an awkward position. There’s no question about that.”