Four years ago, Texas legislators asked the Texas Department of Motor Vehicles (DMV) to study and recommend a fair electric vehicles (EV) tax that would hit EV drivers no harder than the gas tax hits drivers of conventional cars and trucks.

About 29% of the money that pays for road building and repairs in Texas comes from the gas tax — which, of course, EV owners don't pay.

The DMV put forward a study suggesting roughly $100 would more than cover EV owners’ fair share of the state’s road responsibilities: “If the objective is to replace the average amount of state motor fuel tax that an equivalent conventional vehicle pays, the amount is estimated to be about $100 a year for an electric vehicle” (p. 6).

The legislature, in turn, ignored the study it commissioned. The Senate passed a $200 EV tax instead, which died in the House in the waning days of the last session. So legislators are back at it — the Senate passed the $200 tax again just this week. An identical bill (HB 2199) will be heard in the House Committee on Transportation on Wednesday.

To be clear, drivers of trucks that get ~20 miles per gallon (mpg) end up paying about $108 per year in state gas taxes, according to Texas Transportation Institute (TTI). Sedans pay, according to the DMV, $63.27 a year.

Texas leaders apparently think EV drivers — regardless of what model they drive — should be taxed at twice the highest rate in Texas and should pay more than three times the tax paid by drivers of conventional cars…

Senate Bill 6 would mean the end of electric market competition in Texas.

Last week, a Texas court ruled that the Public Utility Commission of Texas (PUC) set prices too high during Winter Storm Uri in 2021.

The Third Court of Appeals noted that the Texas Legislature enshrined competition as the cornerstone of the electric market. By fixing the price, the court ruled, the PUC overstepped its bounds and arbitrarily raised Texans’ energy bills.

There are a few reasons that energy bills are poised to climb even higher in Texas — it’s not just a bad PUC decision or two (though those have certainly made things worse). It’s also because state government — especially the Texas Senate — is moving rapidly away from the competitive principles that have been at the core of Texas’ electricity system since Dan Patrick was on AM radio…

Within about four years, the total electricity stored in electric vehicles in Texas will equal the entire capacity of the ERCOT power grid.

Electric vehicles are now one out of every eight cars purchased in the world and about one in 20 in Texas. More than 179,000 Texans now own electric vehicles. And EVs have an average battery capacity of 67kWh. So right now, at the very dawn of this boom, Texans now have 12,000 megawatts of power sitting in their garages. That’s enough to power the entire Houston area for an hour.

The Public Utility Commission of Texas clearly wants your electricity prices to be higher. They have endorsed a certainly expensive but otherwise uncertain and completely untested market design. The PUCT believes the amount will “only” be $460 million per year.

A new study from Aurora Energy Research presented at last week’s ERCOT Market Summit, called that number into doubt; they modeled the shiftily named Performance Credit Mechanism (or PCM, as in, “Pretty (much a) Capacity Market”).

Aurora estimated that the PCM would cost Texans an additional $2 - $3 billion per year — money paid entirely through electric bills for homes and businesses. That’s a net increase in costs, after subtracting out cost reductions in the energy market (the small gray bar in the slide below).

That amounts to roughly a 15% increase in energy costs.

Two years have passed since Winter Storm Uri plunged Texas into darkness — yet policymakers are still far from ensuring a reliable grid. There are a multitude of reasons for this. For instance, Texas hasn’t done nearly enough to winterize power plants, gas supply, or homes and buildings.

But the biggest problem may simply be one of vision: policymakers aren’t seeing — or, at least, aren’t acknowledging — that there are a multitude of grid challenges facing them, and, by necessity, they will require varied solutions. No single answer will solve them.

The ERCOT energy only market is—to borrow Churchill’s comment about democracy—the worst form of an energy market, except for all the others. Texans expect their leaders to make changes to protect them and their property from future extreme weather events. Unfortunately, too many state leaders have fallen under the spell of capacity market solutions — most peddled by large power generation companies — that would waste billions of consumers’ dollars for little or no reliability benefit.

The Public Utility Commission of Texas (PUCT) has already endorsed a version of a capacity market, albeit a wholly untried and unproven one with an eye-glazing name: Performance Credit Mechanism, or PCM. It sounds meritocratic, but it isn’t: the PCM’s distinguishing characteristic is that it would pay generators if they are available at certain times, not necessarily if they actually perform when needed.

As I write, about 800,000 Texans are without power. The problems today are very different than those during Uri when there wasn’t enough gas or power to meet the sky high demand in the extreme cold. These outages are on the local distribution grid but that doesn’t mean policymakers, regulators, energy companies, and Texans are powerless to reduce their severity.

During his press conference yesterday, Governor Abbott said: “It’s important to remember that local outages are not a reason to say there is a problem with the power grid.” I know what he probably means and I hear this from people all the time, but it’s wrong. He likely means there aren’t problems at the transmission level, also called the bulk power grid, or the ERCOT grid. But the distribution level grid is still part of the grid. Local outages are still outages.

During the cold snap that began Dec. 22, 35-40% of the coal and gas power plants in ERCOT were offline for at least some period of time, many for the entire time.

Had snow and ice accompanied the cold—as happened with Winter Storm Uri in 2021—the data shows that Texas again would have faced an unacceptably high risk of outages. Pablo Vegas, CEO of ERCOT, even sent a letter to the U.S. Secretary of Energy, asking her to “find that an electric reliability emergency exists within the State of Texas.”

Yet in prepared remarks Jan. 12 to the Public Utility Commission of Texas (PUCT), ERCOT VP Dan Woodfin described December’s scare as “a non-event.” Forecasts by the state’s electric grid operator underestimated Texas’ energy demand 23% during parts of the freeze — and yet Woodfin said ERCOT’s “under forecast had no impact on reliability.”

Nearly two years after hundreds of Texans died in Winter Storm Uri—and 18 months into a convoluted, often secretive drive to redesign the ERCOT electricity market—the Public Utility Commission of Texas (PUCT) finally answered the question many stakeholders have been asking: What problem are you trying to solve?

Unfortunately, it’s the wrong problem

In the early dark of Friday morning, ERCOT missed its demand forecast by a whopping 13 gigawatts. It’s an egregious mistake, and it scrambles the odds of blackouts through this severe cold snap.

But the reason for the error is pretty clear: ERCOT can’t get its head around the amount of electricity Texans are forced to use when it gets this cold…

As if it wasn’t enough that Texas has some of the best wind resource, best solar resource, and largest shale oil and gas deposits in the world, we also have a great geothermal resource. Unlike the others resources, though, geothermal is yet to be tapped. That’s about to change.

The Texas Geothermal Alliance launched last year and has grown to nearly 50 members including major oil and gas companies, power generators, and pure play geothermal companies. For this episode of the podcast, I talked with Barry Smitherman, TxGEA’s Chairman and President. Barry’s not new to the energy world in Texas though. He’s the only Texan to ever chair both the Public Utility Commission of Texas and the Railroad Commission (which regulates oil and gas). He literally has a unique perspective.

We talked about geothermal and how perfectly suited it is to a state that has drilled—get this—one million wells. As he put it, instead of finding oil and gas, you’re finding heat. And that heat is a major source of energy—renewable energy at that. And it’s an unlimited, renewable power that is both firm and dispatchable. In fact, with Enhanced Geothermal System (EGS), operators can build up steam pressure to allow a variable flow of energy. It effectively works as a form of energy storage. 

Perhaps most importantly for a state with 200,000 oil and gas workers, taking geothermal power uses the same skillsets…

When someone offers up a solution, they should—at the very least—know what problem they’re trying to solve.

You might assume that, in “solving” the issue of Texas’ ERCOT electricity market, the Public Utility Commission of Texas is focused on solving the reliability problems that led to days of blackouts and hundreds of deaths during Winter Storm Uri.

If you did, you’d be wrong.

The PUCT just spent 600,000 taxpayer dollars on a consultant’s report to recommend a new market design. Surely the consultant—California-based E3—modeled the kinds of conditions that devastated Texas less than two years ago, right?

Nope. The study “does not include the extreme cold weather event caused by Winter Storm Uri… Such analysis is beyond the scope of this study,” it says on page 35.

It gets worse.

The study also did not look at the availability of fuel. “The availability of fuel for thermal resources is not considered in this analysis; all thermal resources are assumed to have unlimited access to fuel when needed. The potential for fuel limitations is beyond the scope of this analysis” (page 56).

The Federal Energy Regulatory Commission and North American Electric Reliability Corporation cited lack of fuel as a major cause of the blackouts. Less than a month ago, FERC released its Winter Assessment for this year and this remains a problem.

But neither E3 in its report, nor the PUCT in its market design solution, seem to even acknowledge the problem.

The report essentially tells the PUCT how to redesign the market so that the grid is reliable in an average year. Average years aren’t the problem.

Unfortunately, after winter 2021 and summer 2022, Texans don’t seem to be experiencing many average years anymore. Climate change is driving higher frequency and intensity of extreme weather.

These are massive flaws in the E3 study. Unsurprisingly, they led to a flawed product.

A capacity market by another acronym

The PUC’s consultants ended up proposing a straight-up capacity market, in which Texans would spend far more money on excess electricity that they would not use. It’s a model that the Texas Legislature has consistently opposed. Perhaps recognizing the political opposition to a capacity market, PUCT Chairman Peter Lake introduced a new concept: the Performance Credit Mechanism, or PCM.

But don’t let the new acronym fool you: it’s still a capacity market…

Public Utility Commission of Texas meetings are typically staid affairs. On December 2, 2021, the PUC of Texas held one that was anything but. The Commissioners came down from the dais and sat around a squared horseshoe of conference tables, next to or facing each other.

It was an internal discussion for the world to see.

And it was tense.

Nine months after the catastrophic grid failure that cost hundreds of lives and shut down the state for days, the commissioners met to talk about the future of the Texas electricity market. There were four commissioners at the time, and the proposal pushed by Chairman Peter Lake — known, suspiciously banal-sounding, as the Load Serving Entity Obligation, or LSEO (more on that later) — was clearly unpopular among the other three.

Commissioner Jimmy Glotfelty said he was “wary” of the LSEO, saying it would likely force some retailers out of the market and undo the competitive system set up by the Legislature a generation ago.

Commissioner Will McAdams said the LSEO would cost too much, pointing to the wealth of data showing that very effect in other markets.

Commissioner Lori Cobos also started to voice “deep concerns” about the LSEO, at which point the Chairman cut her off and snapped: “You have concerns about everything.”

Like I said, it was tense.

The one point of agreement: the LSEO needed a detailed analysis. Last week, it finally got one.

The ERCOT board voted unanimously on October 18 to approve a pilot 80 MW “virtual power plant.” Lots of tiny resources, in this case mostly solar panels and batteries, will add up to a large amount that will help with grid reliability and resiliency.

I first wrote about the pilot in May after the Commission invited comments. They subsequently established a Distributed Energy Resource Task Force which has met many times over the last several months and doggedly ironed out differences to reach a compromise, which is notably twice as large as first proposed. The commission will likely vote to approve the pilot on November 3.

For the latest episode of the Texas Power Podcast, I talked with Amy Heart, VP of Public Policy at Sunrun and member of the PUC’s DER Task Force. Sunrun is the largest residential solar installer in the US and has grown its Texas business significantly after Winter Storm Uri. We talked about how much the market has changed, what are the biggest barriers to solar and storage installations, and about her work on the Task Force.

While the pilot is a massive step forward, it is only the beginning. It is small relative to the size even of the existing DER market (~3GW), not to mention the current exponential growth accelerated by persistent worry about the fragility of the ERCOT grid. Commissioner McAdams, who led the creation of the task force and the pilot, reported in a memo earlier this year that there are nearly 3000MW of DERs in ERCOT, with 25% of those installed in 2021.

Assuming a similar growth rate in 2022, the 80MW pilot brings in only about 2% of the existing installed base. But, as with all things, you’ve got to start somewhere and this is an excellent start. All involved, including the commissioners, recognize that the point is to get some lessons learned in order to expand the number of DERs participating in the ERCOT market…

If only Texas leaders would think similarly. But they want to go the other way. They deny and delay, punishing anyone investing in lower emissions, refusing to acknowledge the reality of human-caused climate change or the energy transition.

The state of Texas is in an energy transition. Some prefer to call it an expansion, but make no mistake, it’s happening and we’re in it.

We can try to hold it back, but it would be like trying to hold back the tide. We’ll lose.

Or we can lead it. Shape it. Create high-paying jobs from it. Profit from it. And hell, maybe even help maintain a habitable Earth.

Right now, Texas’ political leadership seems hell-bent on choosing a quixotic battle against economic gravity—and Texans will suffer for it.

Last month, the Texas Comptroller functionally blacklisted financial firms that have net-zero goals (goals to reach zero emissions at a future date). In the minds of Texas leaders, that equals a boycott of oil and gas firms.

But by that definition, Texas-based Oxy, a $40 billion oil and gas producer, boycotts oil and gas. They have an aggressive net-zero goal — they actually trademarked the term “Zero In.” Another boycotter: Schlumberger, the largest oil field services firm in the world. And Pioneer. And for goodness sake, Exxon!

But let’s come back to Oxy, the recent object of desire of one Warren Buffett. Their CEO, Vicki Hollub, says the way to win the energy transition is to be the most sustainable oil and gas producer. I know, I know: oil and gas is not sustainable for the long term. But for the short to medium term, we’re going to use it. Hollub acknowledges that oil and gas are not sustainable long-term, but she says Oxy will have emissions so low that they’ll “be the company to produce the last barrel of oil.”

“I’m thinking about the long term for our shareholders,” Hollub told the Financial Times. It’s a fascinating strategy and it’s working; Oxy stock is up 100% on the year…

A small group of coal, gas, and oil executives are putting together a plan for Texas’ energy future.

They have no website. They have had only one meeting since the Legislature created the group over a year ago — they made no public announcement of that meeting, and there was no livestream, recording or transcript.

The State Energy Plan Advisory Committee is charting Texas’ energy future out of public view and in the dark.

The reasons for the secrecy likely won’t be clear until the group files its report over the next few weeks. But given the membership, it seems likely that the group intends to falsely blame clean energy generators for the state’s electricity woes — and to punish them with discriminatory costs that drive up Texans’ electricity bills even higher. Many observers believe the group’s report is already written.

Some who attack renewables do so for ideological reasons—not this group. It’s purely economic.

Who has a voice — and who doesn’t

The State Energy Plan Advisory Committee was created in Senate Bill 3, which the Texas Legislature passed in response to the blackouts during Winter Storm Uri. Its 12 members — appointed by the Governor, Lieutenant Governor and Speaker of the House — represent coal and gas generators (NRG, former Energy Future Holdings/Vistra, and the Lower Colorado River Authority), oil and gas drillers (Apache, Pioneer, and ConocoPhillips), and utilities (Oncor and Pedernales).

Not one consumer representative, independent expert, or non-profit group of any kind has a seat…

The Independent Market Monitor for ERCOT came out swinging in the recent assessment of the health of Texas’ electric market.

The annual State of the Market report from the IMM showed how the winter storm outages in 2021 and subsequent regulatory actions have raised costs. The IMM also showed how many of the market changes made thus far have done little to increase reliability. Electricity costs are soaring in Texas and while some of that is attributable to high gas prices, much of it is a direct result of (a) the catastrophic outages in Texas during Winter Storm Uri and (b) actions taken by the PUCT and ERCOT since then.

The biggest takeaway straight from the IMM: “While we continue to believe that an energy-only market can be successful and adapt to changing system needs, it is not compatible with ERCOT’s current conservative operational posture.”

She left no ambiguity here. The actions taken by the PUCT and ERCOT leadership, if continued, effectively mean the end of Texas’ competitive energy-only market.

At a press conference in July 2021, PUCT Chair Peter Lake was asked if a “capacity market was on the table.” He said it was not. “That was not addressed in legislation by the 87th legislature,” he noted at the time.

Yet the IMM report confirms what many people thought was happening in spite of assurances to the contrary: Texas’ energy-only market has been replaced by an unvetted, ill-conceived, half-baked capacity market. Lake and interim ERCOT CEO Brad Jones have been routinely describing the procurement of massive amounts of reserve capacity, even when they aren’t needed, as “conservative.” The IMM is not a fan…

Largely because of the colossal failures of February 2021, local sources of power, usually referred to as distributed energy resources (DERs), are now, finally, getting some attention.

Texas is a land of contradictions and extremes. Our power grid is no different. It is, simultaneously, both an exemplar of innovation and a complete mess.

Texas is number one for wind power and is soon to be tops in solar. Texas is also #1 in coal.

The ERCOT market is wide open. The regulatory and permitting burdens that stop projects in their formative stages in other states, barely exist here. Things get built in Texas and we’re going to need to build a lot more things to transition to a cleaner resource mix.

But the lack of regulation that helps so much for power plants and transmission projects has a dark side. Lack of even minimal regulation of gas supply and power plants contributed to the longest blackout in modern American history in February, in which at least 246 Texans, and likely more than 700, lost their lives.

One area where Texas is among the worst is on the demand side. Following February, just about every discussion at the Texas Legislature focused on energy supply. But part of the problem was that energy demand was off the charts; Texans needed 15% more than ERCOT imagined in an extreme weather scenario. Largely because of the colossal failures of February 2021, local sources of power, usually referred to as distributed energy resources (DERs), are now getting a moment in the sun…

The February blackouts gave Texans a clear view of our state’s energy system. Texas legislators still haven’t come to grips with it.

For a decade, including during the most recent legislative session, state leaders in Texas have mostly ignored the potential to reduce energy demand through energy efficiency and demand response.