Eye on the Lege: Inside the 87th Texas Legislature – Episode 3: Energy, Utilities and the Texas Grid

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Sherri Greenberg: [00:00:30] welcome and thanks for joining us for I on the ledge, the LBJ school’s podcast series on the Texas legislature. My name is Sherri Greenberg, and I’m a professor of practice at the LBJ school of public affairs at UT Austin. I also served in the Texas house of representatives from 1991 until 2001. And among other things I currently serve on the boards of Austin smart city Alliance.
And the Austin forum on technology and society. I am joined here by my esteemed colleague, Varun rye. He is director of UTC energy Institute, a professor in UTS department of mechanical engineering, a professor at the LBJ school of public affairs. And he also directs the energy systems transformation group.
At UT department of mechanical engineering. Andy has LBJ public affairs, associate Dean for research. Welcome Varun.
Varun Rai: [00:01:29] Thank you so much, Sherri for having me.
Sherri Greenberg: [00:01:31] Today, we’re talking about energy, the 87th session of the Texas legislature, who knew that this was going to be such a big issue. We knew that there were a lot of other issues that would be, uh, before the Texas legislature, whether it was the budget, the one bill that must pass a redistricting that will now be an issue.
Special session, of course, healthcare and COVID and many other things. But with the advent in February of the storm or storm gate, as I call it that left Texans without power, many for a week without water, many for awhile, without hot water boiling water, we see that this issue became a front and center issue of this session of the Texas legislature.
And we also saw that. It is a complicated issue, complicated in many ways, Texas has its own electric grid. Uh, the majority of the state, other are just a couple of communities in West, Texas and North and East that are on different power grids. But for the most part, Texas has its own power grid and is not subject to the.
Federal regulations that we see. But with the advent of the storm, we saw that there were some real vulnerabilities, one of which was weatherization. And in fact, a decade ago in a storm that, that wasn’t of this magnitude, but a severe storm in Texas was told, and there were reports and there were many discussions about weatherizing.
And this was a big issue, whether it was with the nuclear plants, with. Coal freezing with gas plants that were not functioning. Weatherization became an issue front and center as did. Of course the price increase up to the $9,000 and I know heard, and we’ll talk more about that to try and spur more production.
But of course, when you have none, it’s hard to spur more from that. We also sell the fallout with the variable pricing that Semtex has consumers had for their electric plans, because Texas deregulated the market. In the 1990s, we saw the fallout of those high prices and of what happened with some consumers and with the Texas Senate passing a bill to redo the pricing that had happened in 30 days.
That bill, the speaker had a different idea. It did not pass. The speaker was concerned about what that would mean in the market. A very complicated situation and more complicated by various regulatory bodies. In the state of Texas, we have the public utility commission, which regulates electricity, and it appoints the members of ERCOT, the electric reliability council of Texas.
We also have the railroad commission, which has nothing to do. With railroads, but it does regulate oil and gas. And we did see after this really unconscionable situation with the storm and the power outages that, uh, there were mass resignations on the PUC board or Cod new executive directors. But Varun that’s not enough is it.
We really need to see changes. Right. We need to see changes for instance, in weatherization per room.
Varun Rai: [00:04:51] Totally. Thank you so much for that background, Sherri. I think you raise many of the very important aspects here and it’s, it’s useful for us to take a step back and start by reminding ourselves what really happened, what the scale of it was and what the tone of the discussion right now, where we are headed.
And is that going to be enough? So, you know, in, in mid February, when the storm hit. Eventually we ended up shedding about 20 gigawatts of fluid. That’s about quarter of the estimated peak demand over four and a half million customers. So households and businesses were left without power for several hours, days.
And it. Actually up to a week in some cases. And as you mentioned, Sherri, also, you know, that led to loss of water for four days. And you know, other types of hardships, what precipitated this, it was a really severe weather event, you know, not once in a century or once in many centuries, but you know, it was still very severe, right.
You know, really an endoscope, geographical scope of it was pretty wide. And that led to. Disruptions on the supply of electricity. So, you know, if the event was not that severe, according to plans that had been put in place, you know, there should have been enough supply, but no things really cascaded pretty quickly.
And that led to a lot of power generation across, you know, uh, fuel sources. Right. So there were. Renewables that went down. There’s a lot of our natural gas based generation that went down on Monday night and then Tuesday and Wednesday, and really the whole situation escalated very quickly beyond even what the extreme scenarios that were planned for.
And, you know, in the end, Matt off it, after we, you know, look, once we look back, this was really a pretty. Or shattering moment for a state that prides itself with energy production, energy generation being globally important, perhaps a leader in across the spectrum of, of energy. And it was very difficult moment to recommend it.
And one of the most important lessons that came out of this and in the question is, are we going to be able to address is, is. The operation reliable operation of the electricity system is not just about the power plants that generate it, right? The power plants that generate the electricity and supply the supply to consumers and to the load and how that load and how that demand, behaves, and interacts and understands the situation is very important.
And on the other side, these power plants, for example, if it is a natural gas based plant, it needs fuel to. Produce the electricity. And so what happens in the production system and in the fuel supply system matters quite a bit. And on the renewable side, you know, what happens to the wind and the sun.
Those are the fuel to generate power in those types of generations. It all matters a lot. So, you know, the whole system is very integrated. And then you add on to that, the regulatory and market aspects. So, you know, you, you absolutely rightly mentioned the. Public utilities commission, the Orca that is a system operator.
And then also, you know, how it all interacts with oil and gas, which is regulated by the railroad commission. So the complexity of the situation really came to the fore that it involves multiple stakeholders, multiple players and actors, and a combination of market constructs, regulatory constructs that operate within a policy landscape.
And on the other end, this. Full spectrum of consumers for residential commercial, industrial customers operating all together. So. To address the situation, really the integrated nature of the problem needs to be taken into account. And, you know, that’s, that’s where some of the discussion is happening.
Sherri Greenberg: [00:08:41] And are there a couple of things first and foremost that you think must happen Varun to address the situation?
Varun Rai: [00:08:49] Totally. So you already mentioned weatherization and you know, that’s, that’s one of the very clear one. You also alluded to the 2011 event afterwards. There were. Reports that did point to the issue, both on the power generation side of things, but also on, on gas production side of things. And there is progress in the ledge on that there are bills that have been considered.
In fact, you know, one of them has asked the Senate, which, which basically do require different types of weatherization to address events like this. So, you know, that’s, that’s obviously was very relevant to what happened a couple of months ago in the state, but then also it seems like we are making. Good progress.
And that’s certainly one of the top items that we might come out seeing some very concrete action. So that’s one and we can come back and have more discussion on that. Something else that is relevant here is in terms of the loads, right? And, and something that is important to remind ourselves is part of what happened is what type of load got shed.
And the way this is managed is part of the way this is managed is, you know, there are a critical load. Lists that basically are not curtailed and everything else then depending on, you know, how constrained you’re on the supply side then gets on the load shed list. And part of what happened is many of our entities and many of our facilities that are part of the gas production supply, including, you know, some gas, gas production sites, but then also other services that are part of enabling gas production.
They actually lost power.
Sherri Greenberg: [00:10:22] They were not
Varun Rai: [00:10:23] on the critical, critical infrastructure list. And, and that’s, that’s because of a variety of reasons. There are some forms that need to be filled out and so on. But the end, the end result was that they are not on that list and they lost the power. And because they lost power gas production, that was already strained was for the strain.
And so you, that meant less gas could flow or, you know, it could flown yet, you know, much lower pressures into the power generation. System. And it basically became a loop that very quickly got very worse. And so, you know, you’re also seeing progress on that front, right? Where, where, so plead there have the, you know, for example, the house bill HB 14, Calls for the creation of the Texas electricity supply chain security and mapping committee, which basically, you know, takes into account these types of interdependencies and make sure that, you know, what really is critical infrastructure to keep our system going and really supply reliable electricity reliably to the extent possible given extreme situations, you know, so we are also seeing progress on that front.
So these are, these are good. Good. Movements that we have seen, then, you know, the third frontier, you know, there are other deeper questions as to is that, is that enough to really address reliability in the broader sense? So that frontier is, is still evolving.
Sherri Greenberg: [00:11:45] Certainly that is, but one thing we do know from the dueling public hearings that were happening on the same day in both the house and the Senate is that there were critical infrastructure such as these gas plants that were not on the list.
And again, if you don’t have the supply, it doesn’t matter if the price goes to $9,000. If you don’t have the supply from your gas production plants, because they weren’t on critical infrastructure. If you don’t have the supply from coal plants, because of lack of weatherization, coal freezing, or the lack of supply from the nuclear plant or alternative energy, it doesn’t matter how much you increase the price.
Does it
Varun Rai: [00:12:26] burn. In, in theory, it could matter depending on the scale of the problem you are, you have. And so part of the reason why you have these higher price gaps is, you know, they could, depending on the nature of the problem could incentivize, if those problems could be addressed to, you know, power supply that is lying around to basically try to come back online.
The difference in the situation we failed a couple of months ago is that the scale and scope of the supply disruption was so. Big that, you know, that level of market signal in terms of, you know, prices being at 9,000 per megawatt hour at the cap, basically where, you know, certainly not incentivizing, you know, it was certainly incentivizing everybody that could supply to supply.
So, you know, yes, it is helpful in that perspective, but really there was not much lying around to come, come, come back up. So that’s one. The other thing to keep in mind is, you know, these, these. The way the Texas market is structured. You know, these prices are basically not just to help in the moment, but also these are, you know, to offer some signals for building of new capacity.
So for example, if you see prices hitting these high levels for a few periods during the year, and let’s say if that becomes the basis for future price projections in the, over the next few years, operators. And product developers can then take that into account and see what they might expect in revenues and profits.
And would that be enough for them to build more generation it’s? It’s a very important thing to keep in mind that these prices are actually not just for the moment, but also a very important construct for us to manage building of new capacity over time. That’s
Sherri Greenberg: [00:14:12] an important point because we have our own grid.
We have a market. And what I was alluding to is in this specific instance, it raising the price to the max and $9,000. Wasn’t enough. To ameliorate the situation because we just didn’t have enough supply in this particular situation, but certainly we’re operating in a market. And that is an important part of our market system.
When we talk about the situation, not only. Do we hear people discussing the need for weatherization and frankly band-aiding weatherization this time, but of course that comes with a price tag. We will see if any of the recent discussion with the federal money coming from the Biden jobs plan funding.
There is money in there for. Addressing electric grid issues, but no one knows yet how much would come to Texas for addressing our situation with the electric grid. But there are many people who believe that this time weatherization needs to be a mandate, but again, How do you fund it and how much will we get from the federal government?
Will it be enough? I don’t think we know that yet. Do we for it? No,
Varun Rai: [00:15:33] we do not know that, but you raise a very important point on the, on the price tag. And in terms of, you know, going back to the notion of requiring weatherization. You know, I think one of the things that we all need to keep our eyes on, and I already mentioned that, you know, there is good progress on what’s potentially going to come out in terms of requirements for weatherization across the energy system, but something we all need to pay attention to is, will it all add up?
Right. So certainly looks like there is more emphasis being placed on the power generation side of things and, and, you know, I would expect that, that piece of the puzzle, you know, in terms of weatherization, which will more or less get solved, but what we will see on the supply side, for example, for, you know, gas, production and supply.
Will that add up. And, you know, when we have situations like this, either to management of critical loads, that’s part of the puzzle and, and through weatherization at production sites and transmission, because, you know, we’re talking about gas, transmission infrastructure. That is very, and it’s not simple or obvious to just say, Hey, we mandated all of that be weatherized, but, but yet, you know, true, uh, a number of items that.
That can be addressed. You know, the, the end goal should not be to say, let’s, let’s do this or that, but rather to keep an eye will all of those things add up in terms of giving us a reliable supply. Right? And so my assessment is that we are going to see as far as things stand up. Now we are going to see that get sold only for part of it, which is on the power generation side.
I’m not as clear as to how that. Yeah, we are seeing progress, but I’m not sure it’s if it is clear, if it’s being addressed at the same level of. Clarity on the, on the fuel supply side. Uh, but, but as we discussed earlier, it’s really both these two things playing together in sync that is required. If one of them fails or if one of them doesn’t operate at the level, it is expected to during.
Stress situations then, then overall the system will actually fail again. And so, you know, that that’s a very important thing to keep in mind. The second thing I really want to come back to Sherri is the notion of price tag. And that’s a very important one. Part of the logic throughout has been. To really, you know, in a, not Borden operators and market participants and let them let them do.
And then, you know, that that helps us with lower prices. And that’s good for us, you know, supplying customers across different sectors with power, and that logic has great merit to it. Right. You know, in, in general, yes. You want to leverage as much of the strength of the markets and that comes from competitive power as, as possible at the same time.
So that. Logic of leveraging the power of market and competition has, has great power to it. But at the same time, when it comes to managing extreme scenarios and when it comes to really all pieces of the market coming together and offering. Solutions to what become collective problems that are of importance to the state and to the people that is not a given in construct like this.
And so to manage those types of situations, you have to, you know, Put in those constructs because they do not emerge automatically and be evidenced that very clearly a couple months ago. Now the flip side of this is the, the bill itself. Right. And so sure we be operated the baby dead. And now, you know, there are estimates which are put the losses because of the storm.
Well, upwards of hundred billion dollars. Right. And, you know, there are all sorts of things calculations and some of which say, you know, conservative estimates of what it would take, if you were to, you know, weatherize, you know, all power generation equipment, including, you know, gas, production, engine ration, that would be to the tune of a few billion, to a few tens of billions.
Right. I mean, you know, these are all, you know, obviously back-of-the-envelope hand-waving numbers, but even with that, yeah. You know, you’re, you’re seeing order of magnitude difference. And my point is not necessarily by these numbers. My point is when you’ve been, we talk about bills and price tax. We need to keep both sides of the equation, which is yes, there is the cost of, you know, that is incurred in building infrastructure, but you also need to keep in mind what is the damage and cost of not building that infrastructure.
And that is by any measure. The losses and the cost, both in a life health of facilities of manufacturing, no matter which dimension you cut it from what we experienced was much higher than what it would have taken to actually manage the problem.
Sherri Greenberg: [00:20:23] Absolutely. This is an integrated system and we have to take a systems approach, whether we’re talking about the market, the supplied, the different regulatory bodies, but yes, there is a cost to weatherizing, but the human cost really was unconscionable, whether it was to people’s homes.
And we had. People who, who perished. So this is something that must be addressed. And we see summer is coming summer is typically in Texas where we see our highest demand. So let’s not forget that we must also address this, not just. For what was a weather event that was much colder than we typically see, but we must also address it for the extreme heat that we will see.
And I know that there are many bills floating about in the legislature. Right now. I mentioned the repricing that passed the Senate, but not the house there’s bills that have come out of the Senate on weatherization. There are bills that have come out of the house, two on weatherization and other aspects.
But of course this all has to be reconciled,
Varun Rai: [00:21:36] right? Yes, totally. Sherri. And you know, I’ll say something on the repricing matter. And then, you know, in turn, uh, ask you a question about the bills that are floating around and where we might, how they might, might all get reconciled or not. So on the repricing, I think it’s, it’s, you know, in many ways the coming together.
And manifestation of all the different issues, but in a bit of financial price tag. And in that it’s easy to talk about those things, the price tag off, you know, what we are talking here is like $16 billion, you know, with, you know, how much, how much of that four or $5 billion of that customers get to see.
It’s a very. Complicated issue. And there are good, good arguments on both sides of things as to, Hey, totally. And with hindsight, you know, you might just say, Hey, you know, we, we now know that, you know, that was not needed and it really didn’t help. And so on at the same time, it is the, you know, the state’s agency that yeah, that made that decision and market participants took that signal and build that into their operations.
And, you know, Yeah, there are all sorts of financial and business implications that flow from that. And once, once that happens, it really gets embedded itself into the, you know, broader. Market that goes well beyond Oregon. Well beyond taxes and financial markets. Yeah. It’s really integrated. And so I do see good logic in trying to claw back some of that, but really I think in what I’m very concerned, if that gets done is the precedent it sets for future emergency scenario.
So for example, if. We faced something similar in future. And if actions are thick and our promise to be taken by, you know, state agencies during those emergencies, how are market actors supposed to take signal from that? And, you know, I can tell you, based off, if you were to clawback signal would be, Hey, what we are being given as market signals in, in this new emergency situation, uh, we should take it with a grain of salt and that’s not a good way to really.
Lay foundations for regulatory system or market system that really is based on long-term last week, we made a mistake. We it’s a big one. It’s a hard one. The chew it, we learn from it. We accommodate it. And then in look forward to learning and not making mistake, but not complicating it for there. I think, you know, that would raise and create even more.
Complications challenges. Uh, we actually saw,
Sherri Greenberg: [00:24:09] right, because if you’re relying on the market and the market can not rely on you, then everything falls apart. I think that there will be some ways that you can address the situation for some of those individual consumers.
Varun Rai: [00:24:22] Yeah. Yeah. So Sherri, if it is okay, you know, I, I have a question for you, you know, there are bills coming out of the Senate, which are failing in house and they’re, you know, bills, you know, being discussed in the house.
Tell us a little bit, you know, you have spent 10 years directly in the capital and you, you are such an expert in, in following the mechanics and integrators of how all these things evolve. Also help us understand a little bit, how do things that progress in Senate, you know, how do they get taken up or reconciling in the house and eventually what really comes out and really seize the day of the light.
Sherri Greenberg: [00:24:57] Of course, and the timing is perfect because this session of the Texas legislature will be ending. The end of may. It meets up by annually for six months. Of course, there can be special sessions and there will be this time. They last 30 days each and the governor calls them. But as far as the regular session, That we are in now, this is really the, the high tide.
And what we have seen is, uh, various bills coming out of the Senate and the house, trying to address the different aspects that we had discussed of this very complicated issue. But of course we cannot have two bills on the same subject that are not identical in law. What would you do? So what happens is when the house passes a version of the bill and the Senate passes a version of the bill and they are not exactly the same, then the Lieutenant governor can appoint five members of the Senate to a conference committee and the speaker of the house.
You can choose to 0.5 members of the house to a conference committee. The conference committee meets and the members of the conference committee can only make adjustments to the things that are different in those two bills. If they do that. And sometimes things never come back out of conference committee, they die.
There it’s much easier to kill a bill. Then to pass the bill, think of the legislative session as the Olympics with people running. And there are the hurdles and there’s one hurdle after another. So one of the hurdles is if the bill goes to conference committee, it has to come down when it comes out, it goes back to the house and back to the Senate for each devote, because it’s not the same bill.
That went in from either house. If the house and the Senate passed the bill, then it will go to the governor. And the governor of the state of Texas actually has three choices, which is a bit unique. The governor, the state of Texas can pass a bill. The governor of the state of Texas can actually let a bill go without his signature, which is a bit unusual.
But if he does not veto the bill, because the governor has the right to veto and, and the line item detail, if the governor does not veto, but does not sign the bill becomes law without his signature. And I basically call that the governor holding his notes, you know, vetoing a bill is a big deal. So it’s like, well, this bills.
A little, a little smelly, but it’s not so sticky that I’m going to
Varun Rai: [00:27:21] veto it. Great. No, that’s super helpful. Sherri. And one related question here is there, there are, let’s say you mentioned, you know, two different versions of the bill and that gets reconciled. There are also things, for example, that the Senate has a comprehensive bill or package at once, but the house is considering standalone pieces of the bill.
How does that then get integrated into one big package?
Sherri Greenberg: [00:27:48] It may or may not. So if the Senate has what we call more of an omnibus bill where it’s in one package, if the house does not pass that bill right. And does not take it up or does not pass it, it fails. Then the house has separate pieces of legislation.
If those. Those can go over to the Senate. If the Senate either doesn’t take them up or fail, then those don’t pass. So it’s really between the house and the Senate reconciling not only two versions of the same bill, but determining basically, do they want an omnibus bill, right? Or are they going to pass separate pieces of legislation?
Varun Rai: [00:28:27] That’s very helpful. And that certainly tells us the analogy you gave us off an Olympic race with hurdles after another is with less than a month and a half to go into the regular session of the ledge. It’d be very interesting to see, even with a lot of progress that have been made in each embers.
Really what comes out that is consistent and has a potential to be reconciled or did we just have a lot of discussion and in good period and learned a lot, but really we do not see many changes coming out. So at this point it could head in either direction, wherever would you like to call it? Sherri?
Yeah,
Sherri Greenberg: [00:29:07] that is a big question. Certainly some legislation will pass, you know, whether it’s dealing with weatherization or the commission or determining what’s critical infrastructure, there will be some pieces of legislation that pass the question is, will they be one off? Will there be an omnibus bill and also will people be satisfied?
Will they think that there was enough done? Will they think that there was a mandate where there needed to be a mandate or that there was not enough? We’ll call it behind these pieces of legislation. Great. Unfortunately, we need to wrap up the session here at Varun. I deeply appreciate you joining me in this conversation.
I think that we could go on for hours, but we do need to conclude with this third episode of I on the ledge, our series includes episodes on criminal justice reform voting and an overview of the legislative session through the lens of the COVID crisis and the fight over state versus local power among.
Other issues, check them out at LBJ dot U, texas.edu. Thank you very much. Thank
Varun Rai: [00:30:15] you, Sherri.
Sherri Greenberg: [00:30:18] This is policy
Varun Rai: [00:30:18] on purpose, a podcast produced by the LBJ school of public affairs at the
Sherri Greenberg: [00:30:23] university of Texas at Austin.
Varun Rai: [00:30:25] We take you behind the scenes of policy
Sherri Greenberg: [00:30:27] with the people who help shape it to learn more. Visit LBJ dot, texas.edu, and follow us on Twitter and Facebook.
At the LBJ school. Thank you for listening. .