Texas power grid regulations put Governor Abbott in an “uncomfortable position”

When Governor Greg Abbott issued a directive to Texas power grid regulators earlier this month, he did something that could have been considered unthinkable for a head of state who may have higher office in Washington in mind.

Abbott called for more – not less – government regulation of the state’s electricity market. His orders to the Public Utility Commission of Texas signaled a move away from the Texas Wild West energy market and showed that Abbott wants the Texas energy market to have more state-controlled levers.

“It’s a really weird, weird dynamic where people who have traditionally been very much in favor of free market deregulation are really going in the opposite direction,” said Doug Lewin, an Austin-based energy consultant.

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Abbott’s mandate – along with the implementation of three GOP-led laws passed by the legislature this year – goes against the anti-regulatory ethos that led to the creation of the Texas energy market.

As the market is currently functioning, utilities generally buy electricity from power generation companies at prices determined by supply and demand. It is a system developed by the state’s political leadership and has been dominated by Republicans since the late 1990s.

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During a recent Senate hearing, Public Utility Commission Chairman Peter Lake described the Texas energy market as a “crisis-based business model” – one that is pushing utilities to keep the grid at the edge of its capacity.

While the Texas power market is designed to keep electricity bills down, it is more vulnerable to vulnerabilities caused by extreme weather events or power plant outages. Miscalculations and unplanned outages can force the grid operator to shut down large parts of Texas, as it did during the February freeze and a power shortage in mid-June.

Abbott, who did not respond to requests for comment on the story, said he wanted to encourage the construction of more natural gas, coal and nuclear power in Texas. Since they do not rely on Mother Nature’s whims, they are considered more reliable.

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Abbott directed the Public Utility Commission to develop financial incentives to build more switch-on electricity that relies on heat to produce electricity – heat that can be produced by the flick of a switch rather than the sun.

His mandate calls for state incentives to encourage maintenance of Texas’s power plant fleet and the creation of new power plants to shore up the stability of the grid and fix the widespread outages in February. At least 210 people died in Texas from causes related to the winter storms, according to the latest figures from the state health department.

Could the Texas power grid shift towards a “capacity market”?

Abbott’s new regulations are peppered with Republican ideology. Specifically, the incentives should only be given for fossil fuels and nuclear energy. Conversely, Abbott is also demanding “reliability fees” on wind and solar power – a power generation sector that Republicans blamed disproportionately on the February freeze and June near miss that led to national environmental demands.

But even if the incentives are only allocated to the fossil fuel and nuclear energy sectors that Republicans prefer, using taxpayers’ money or government-imposed fees to ensure that Texas has adequate power during peak electricity demand is more like a well-known power grid operation than “Capacity Market”, a concept favored by the Democrats.

More:ERCOT’s electricity grid panic in June, triggered by some of the same plants that went down in February

According to the current regulations of the Texas grid, power plants are only remunerated for the energy that they deliver on a daily basis. A capacity market works differently, in which power plant operators can earn money by undertaking to maintain their electricity production capacities for the coming years, as well as buying and selling electricity to customers on a daily basis. Such representations are not required in Texas.

Proponents say that a capacity market is a more reliable way to run a grid and that it is more reliable than the Texas-only energy market, which they believe offers incentives to cut costs. You can point to places like El Paso or Beaumont that were frozen long in February but had limited blackouts because they are not on the main Texas power grid operated by ERCOT.

While Texas officials have not publicly signaled their support for a capacity market – Lake, the utilities committee chairman, said Thursday the state was not considering the change – some energy experts say Texas appears to be taking steps in that direction.

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“I don’t think anyone has explicitly said that they want to go the way to a capacity market, but you can hear people using language that sounds very suspicious,” says energy consultant Lewin.

Abbott’s attack on wind and solar energy is different. There is a growing narrative among Republicans, the Utilities Commission, and ERCOT leadership that the erosion of the reliability of the Texas grid is due to the proliferation of wind and solar power.

“Our market was designed a few decades ago before intermittent renewables were so widespread,” Lake said Thursday. “They have overhauled our store design and we need to take this new reality into account when designing our new store.”

Governor Greg Abbott in “an awkward position” with the Texas power grid

Abbott’s decision to use state regulation to increase fossil fuels and downplay renewables could also be an attempt to fend off attacks from his right flank in a potentially painful Republican primary in 2022 as he seeks re-election.

“The reason for this is the political makeup of the state; its challenge will 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 Texas Senator Don Huffines) are likely to come after him because he was no longer involved in the oil and gas industry.”

But Abbott’s use of government regulations to achieve these goals goes against Republican ethos. His office announced that it would reduce state regulation in the run-up to this year’s regular session of the Texan legislature, and he has repeatedly denied government interference in the economy.

Bullock said Abbott’s move aims to strike a middle ground.

“He’s trying to strike a middle ground to some extent,” said Bullock. “It puts him in an awkward position. There is no question about that.”