Will Texas Get Storm Response Right?

What to Watch for in the Last Days of the Legislative Session

By Doug Lewin, May 19, 2021

As the Texas Legislature speeds toward its conclusion, legislators still have not passed key bills that will define Texas’ response to the deadly February blackouts. Some important reforms are in danger of failing, and some negative changes are likely to become law.

The key question remains: Will legislators take meaningful action to avoid future blackouts?

Here’s what to watch for as the session enters its home stretch. There are three sections below:

• What's likely to pass: several securitization bills; ban on all-electric codes; weak power plant weatherization
• What may pass: tepid gas supply regulations; adding costs to renewables; increasing resiliency; revolving loan fund for energy system improvements
• What will likely not get done: anything meaningful to increase energy efficiency or demand response, decrease energy poverty, or prepare for climate change.

Things likely to pass before end of session

1. The Legislature will likely pass securitization bills.

To help cover losses incurred during the winter storms, the Legislature will likely pass a series of bills allowing utilities and ERCOT to issue tens of billions in bonds, which will be paid off through mandatory fees on Texans’ utility bills. This process of turning short-term shortfalls and/or recovery costs into long-term debt is called securitization.

No one at the Legislature has tallied the total cost to ratepayers of the securitization bills (an important thing to know!), but it’s likely that every household will pay between $2-$15 per month more combined on electric and gas bills,, for the next 15–20 years.

Securitization isn’t bad — costs from the winter storms are high and need to be spread out. But it addresses only the symptom, not the cause. Climate change is driving these hurricanes, wildfires, floods, freezes, and other crushing weather events. Without better climate preparation, planning and resilience, Texas will be back in two years (and two years after that, and two years after that …) securitizing more debt, and passing more costs onto generations of ratepayers, to cover the costs of climate change-fueled extreme weather events.

In this way, securitization has become Texas’ de facto climate adaptation policy — this will be the seventh (and eighth and ninth and tenth) time we’ve securitized the costs of a natural disaster. The state does nothing to reduce greenhouse gas emissions and little to build needed infrastructure projects like the Ike Dike near Houston. Instead, legislators wait for disasters to strike, take out staggering debt to cover those costs, and hand off the bill to current and future generations of customers. Rinse. Repeat.

The debates on the House Floor over this generationally significant legislation lasted less than 10 minutes each. In the Senate, these bills passed on the “uncontested” calendar, where they were not discussed at all.

The securitization package includes:

• HB1520: Authorizes $10 billion in bonds for gas companies like Atmos, CenterPoint, and Texas Gas Service.
• HB4492: Securitizes about $2.5 billion that was not paid to ERCOT (or then to generators) during the storms by entities that defaulted on this debt.
• SB1580: Allows securitization for costs incurred by co-ops — there is no dollar limit specified in the bill for these costs.
• HB1510. Securitizes costs for electric utilities outside ERCOT such as Xcel, Entergy, and AEP/Swepco.

2. The legislature has already passed a bill to ban cities from adopting all electric codes.

A few cities around the country, including Austin, have considered restricting gas in new construction to improve health and reduce greenhouse gas emissions. Such policies would help Texas avoid future winter blackouts by ensuring that more gas flows to power plants and less goes to buildings that have better alternatives for heat.

But rather than encourage these policies, the legislature is restricting them, preventing local governments from deemphasizing gas heating in new construction. This short-sighted state policy makes future blackouts more likely — even the American Petroleum Institute alluded to this on February 18 when it wrote this about the Railroad Commission’s order to prioritize use of gas in buildings over power plants:

“This represents another enormous pull on natural gas. Gas demand in the residential/commercial sector almost certainly hit a record high… the understandable decision of prioritizing residential customers may, in some instances, have made it more difficult for gas power plants to access fuel. It’s impossible to say right now how much of an issue this was, but surely, the task of simultaneously meeting record gas demand in both the power sector and on the residential side is a real challenge and that perhaps contributed to some gas power plants reducing output.”

3. The legislature will likely pass weak weatherization regulations on power plants.

The marquee blackout response bills are House Bill 11 and Senate Bill 3. While the bills create some additional weatherization requirements, most experts agree that there is far more the state can and should do to require generators to be more prepared for extreme weather.

As an example, HB11 has no fines at all for failing to comply with weatherization standards. In SB3, the maximum fine for power plants that don’t weatherize is $1 million. That’s an eye-catching number. Less eye-catching is this provision inserted into the bill in the Senate and kept in, so far, by the House:

Yes, to be fined more than $5,000 — for generators with billions in assets — the violation must be in the highest class of violations.

Items that may pass but prospects are unclear

1. Weak weatherization requirements for the gas supply system.

Trade associations representing oil and gas interests are lobbying hard to weaken the already weak gas weatherization requirements in SB 3, which are nevertheless the only such requirements that have passed either chamber.

The oil lobby successfully got the words “gas wells” completely removed from SB 3, even though gas supply failures were among the biggest causes of the blackouts. The Dallas Federal Reserve wrote that weatherizing wells would be one of the most cost-effective storm prevention strategies.

The oil and gas industry and the Railroad Commission (which began crafting messages jointly while Texans were still freezing to death) have steadfastly insisted that all gas outages were due to power failures. Neither the industry nor the agency that is supposed to regulate it have accepted any responsibility for the systemic gas infrastructure failures that occurred, even though large portions of the gas supply system failed before the power outages. And in the House committee substitute to SB3, which was publicly released the day before this article was published, outage-preventing gas regulations were further weakened. See here for details.

2. Adding costs to solar and wind energy in an effort to weaken Texas clean energy

Senate Bill 3 was supposed to lay out the Senate’s response to the winter blackouts. Yet just before it was voted off the Senate Floor, the bill took on confusing, poorly written language requiring solar and wind generators to “purchase ancillary services and replacement power sufficient to manage net load variability.”

If you don’t know what that means, don’t worry — neither do the bill authors. No one has been able to explain what “replacement power” is, how these costs would be calculated, or how generators are supposed to manage system-wide load variability in the first place. The legislation seems designed only to hobble Texas’ fast-growing clean energy industry. This dangerous and reckless language was removed by the House State Affairs Committee. Still, it will likely be proposed as an amendment from the House Floor, and the Senate may push for it in conference committee, should they not accept House changes when SB 3 returns to the Senate.

3. Increasing resiliency through distributed resources

One of the Texas’ energy system’s biggest weaknesses is its inability to keep the lights — and heat — on in critical facilities such as nursing homes, dialysis centers, hospitals, and water treatment plants. House Bill 2275 would help address this problem by creating a funding mechanism to help such facilities develop onsite generation (i.e. solar) and storage (battery) systems.

Seems like an intuitive, basic response, right? So much so that Rep. Erin Zwiener, the House author, got 94 cosponsors for the bill in that chamber.

Yet at the time of this writing, the bill has not even been referred to a committee in the Senate, let alone received a hearing.

4. Revolving loan fund for grid and energy systems improvements

The House passed House Bill 2000, which would create a revolving fund — seeded with $2 billion from the state’s Rainy Day Fund — in order to leverage more than $20 billion in bonds to help pay for energy system improvements. The program, called the State Utilities Reliability Fund (SURF), is modeled after the State Water Infrastructure Fund for Texas (SWIFT), which has successfully deployed the same system to fund water infrastructure.

Importantly, similar to SWIFT, HB 2000 includes key provisions for reducing energy waste and encouraging conservation, which would help ensure that power remains available in extreme weather events.

However, like HB2275, this important bill has yet to be referred in the Senate.

Things that the Legislature has neglected

1. Energy efficiency

The Legislature has nearly completely neglected the demand side of the equation. Even if everything in play passed in perfect form, we’d have only a half-solution without demand side strategies like energy efficiency and demand response.

Texas’ energy efficiency goals are 80% lower than the average state’s. The legislature hasn’t increased state efficiency targets in 10 years. While Texas pioneered the Energy Efficiency Resource Standard in 1999, we now rank dead last among the 28 states with a standard.

Clearly, increasing energy efficiency and reducing electricity demand would help prevent future blackouts. According to ERCOT, without energy efficiency programs, we would have had about 2.1 GW more demand. That’s equal to about 400,000 additional homes that would have been without power during the blackouts. However, had Texas met merely average energy efficiency goals over the years, the state would have saved enough power for about 1.5 million homes to keep their lights on — reducing the outages by about a third.

Our homes and buildings can also generate power via solar panels and store it in batteries, including batteries in electric vehicles. Building standards can require more insulation to keep homes warm in the winter and cool in the summer. These all represent potentially life-saving policies; they are particularly important for low-income families.

Yet in this legislature, bills increasing Texas’ efficiency goals and programs failed even to get out of committees and were not included in the blackout response legislation.

2. Demand response

For a fleeting moment, it looked like the Senate was serious about legislation that would enable more Texans to plug into programs that would help them to reduce their electricity use when demand rises and supplies get tight: Senate Bill 2109, filed by Sen. Charles Schwertner, would have created a 5% goal for demand response.

The bill was soon gutted and replaced by Berkshire Hathaway’s spendthrift idea to force electricity customers to buy $8 billion in gas plants that they don’t need.

Even though demand response programs delivered measurable, important energy savings reductions during the winter storm, the Legislature has not heard a single bill on them, andone of the most promising potential solutions was cast aside.

Many Texans are willing to lose power for 30 minutes or so during an emergency to ensure their vulnerable neighbors are protected. Many would appreciate cash payments when their power is reduced or cut multiple times within a single climate event. Paying willing homeowners to reduce electricity use during February’s blackouts would have saved lives.

Naturally, saving energy during a crisis means less money is spent on electricity. That undercuts the bottom line of electric generators, which helped block demand response bills like Senator Schwertner’s.

3. Energy poverty

The winter storm gave all Texans a taste of the crises that some Texans in poverty face every day. Unfortunately, Texas eliminated its System Benefit Fund years ago; it was designed to help out fellow Texans in need who were facing power shut-offs.

HB3460 would have provided cash assistance and efficiency improvements to Texans who experienced damages and hardship during the storm. While securitization bills that offer a lifeline to utilities are cruising to passage, this bill that offered a modicum of relief to actual Texas customers never got out of committee.

4. Climate change

There hasn’t been a single legislative hearing on climate change this session. Not one.

Yet the climate is changing anyway, and Texas is especially vulnerable to it. Extreme weather events like the February blackouts are happening with increasing regularity — and as with the blackouts, Texas is unprepared to deal with them.

This is the second session in a row that leaders prevented even a single hearing on climate change. Sen. Kelly Hancock, who chairs the Senate Business and Commerce Committee, even prevented one of his colleagues from asking a question about climate change — and that was to a meteorologist.

ERCOT CEO Bill Magness said after the blackouts, “We don’t have any climate specialists on staff.” No state agencies specifically plan for the effects of climate change. But the past is no longer a predictor of the future. Humans have already altered the climate. It’s time we started acting like it.

The willful ignorance and stubborn unwillingness of state leaders to take climate science seriously leads to a lack of planning and preparedness, which in turn leads to unnecessary suffering and death.

Conclusion

The formula for preventing future winter blackouts is really quite simple:

1. Ensure the weatherization of Texas’ gas supply and power plants, in that order.
2. Massively increase energy efficiency, demand response, and local energy generation.
3. Seriously plan for climate change.

By these measures, the 87th Texas Legislative Session is likely to have a disappointing, even dire legacy. The legislature has blocked or ignored meaningful bills addressing energy efficiency, demand response, local energy and climate change. And relentless lobbying by the oil and gas industry seems likely to stop meaningful weatherization and accountability for it.

For all of the talk and activity after the storms three months ago, the legislature is simply not enacting the kinds of policies needed to prevent future blackouts.

There’s still time to protect Texans from weather-related power outages, especially through amendments to Senate Bill 3. But that window is closing fast.

Doug Lewin is an energy consultant with Stoic Energy, LLC focused on the potential to grow a clean energy economy and the challenges of dealing with climate change in Texas. To stay up-to-date on these topics, please follow Doug on Twitter (@douglewinenergy) and LinkedIn.