Energy Policy Reforms Will Keep Texas on the Business Grid

Gloria Salinas, Vice President, Economic Development

In February of 2021, Winter Storm Uri wreaked havoc across the state of Texas where millions were left without heat, power, and running water in freezing temperatures. The storm, while rare, exposed challenges to the State’s energy grid and infrastructure.

“Both our power generation ability was crippled, as well as our natural gas deliverability was crippled,” said Bruce Bullock, Director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business. “That forced ERCOT, which manages the state’s grid, to bring down the power grid and selectively allocate power to certain customers based on certain priorities and actually [gave it] the ability to keep from doing further damage to the grid.”

In 1974, Dallas oil businessman Cary M. Maguire founded the Maguire Energy Institute in the SMU Cox School of Business to study the policy and economics of the energy industry.

Matt Garcia, DRC Senior Vice President of Public Policy, moderated a virtual DRC Tomorrow Fund Investor Breakfast discussion with Bullock, which discussed legislative and energy market fixes to the Texas energy grid.

Here are key takeaways from the conversation with Bullock on the future of Texas’ electric grid:

Texas Senate Bill 3 ‘Is A Step in The Right Direction’

“Senate Bill 3 is certainly beginning to move, which is a good sign and it’s a good step in the right direction,” Bullock said.

Texas Senate Bill 3 aims to identify vulnerabilities in the state’s energy system and calls for mapping the supply chain from the well head to the light switch to prevent future rolling black outs, like those experienced during the winter storm. Additionally, accountability bills will reform the makeup of the regulatory and oversight bodies of the state’s energy system.

“Measures that make oversight authorities a little more responsible to consumers, both business consumers and individual consumers, so that the lights stay on are also important,” Bullock said.

Texas Independent Energy Grid and Competitiveness

Texas’ deregulated energy system is not perfect, Bullock said, but addressing the issues now will position the state to continue to remain attractive for businesses and new residents.

“Our deregulated [energy] system has its issues, but it has kept up with the growth in Texas and we’ve attracted more business in Texas than any other state in the nation,” Bullock said. “And [the system] has provided competitive power costs or competitive power supply as a result of that.”

Bullock, who has studied regulated and deregulated energy systems, said there is not another system that could have enabled and sustained Texas’ rapid growth. Texas’ deregulated system enables the state to find and fix issues much faster than going through rate cases to get winterization costs approved. It would be 2023 or 2024 before rate cases would go through in a regulated state, Bullock said.

“While we’ve got issues that we need to fix, our deregulated system does allow us to be much more nimble,” Bullock said. “I think in that regard it’s not permanent damage, it is some temporary damage that we need to show that we are getting our house in order, if you will.”

Capacity Market vs. Energy-Only Market

A capacity market, as opposed to energy-only market, would allow for generators to be compensated for standby capacity. Individual generators are compensated at competitive power costs if they want to provide backup power.

“I think throughout country in general, one thing is going to happen, and this is regardless of what happened [in Texas], is we’re going to see more micro grids being built,” he said.

Micro grids are smaller distributed power systems among manufacturers or communities that generate their own power. The shipping channel in Harris County, for example, would be a good place for a micro grid allowing the larger industrial facilities in the area to be removed from the ERCOT system, Bullock said.

“The good news for us in Texas is we’ve got a lot of natural gas in Texas and we can in fact provide the resource to fuel [micro grids]. Not to mention the wind and solar,” Bullock said. “I think these distributed energy resources will probably be a growing way for us to help meet manufacturers’ needs in addition to fixing the power system.”

How Do We Keep the Lights On?

“I think the business community and the investment community is going to have to be very vocal – and very vocal now,” Bullock said. “We really need to make sure that our manufacturers and our other business interests in the state participate and monitor this effort closely and let them know that this is very important to us, very important to our future.”

Bullock said he would be concerned about the grid’s capacity to manage a Texas summer with 30 days above 100 degrees. If the weather heats up, Bullock said, ERCOT should send clear signals that they are going to raise the price cap and raise it early; and plant inspections and certifications should continue throughout the summer and not just be a one-time thing.

“If we’re going to fix it, let’s just fix it once,” Bullock said. “Let’s not spend the next four or five years trying to fix it.”

Holmes Murphy is the 2021 Tomorrow Fund Investor Breakfast series sponsor, and the May breakfast was sponsored by Frisco Economic Development Corporation.