Fossil fuels got a boost from lawmakers aiming to fix Texas’ grid, while renewable energy escaped stricter regulations

Editor's note: The Tribune inadvertently published the wrong story under this headline. You can read our story about how environment and climate proposals fared during the legislative session here.

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Texas lawmakers began this legislative session with the deadly winter storm from 2021 still on their minds. Days of freezing weather caused power outages for millions in the state and pushed the electricity grid near collapse.

Over these past five months, legislators were determined to do something to prevent that disaster from repeating. Whether they succeeded — which some doubt — and how much electricity costs will rise as a result over the coming years will be put to the test.

Politicians voted to spend billions to support the construction of gas-fueled power plants, even though many gas-fired plants failed dramatically in the freezing weather, as did other power sources like wind and solar. They also allowed a limited version of another proposal to help gas-fueled plants make more money in the Texas market.

And lawmakers complicated the economics for renewable energy producers, which have immensely increased in number over the past decade in Texas, offering cheaper electricity than gas- or coal-powered plants can produce. One new policy will make connecting rural renewable projects to the grid more costly.

But a lot of other proposals died, including one that would have spent billions of dollars to build natural gas power plants that would sit idle unless an emergency arose. Legislators also dropped a much-feared plan to create new, rigorous permitting requirements for wind and solar projects.

What did the Legislature change?

The Legislature passed Senate Bill 2627, which created a fund designed to encourage the construction of gas-fueled power plants by:

• Providing loans at 3% interest for the construction of or upgrades to gas-fueled power plants in the main Texas electricity market.
• Paying bonuses for connecting new gas-fueled plants to the main grid by June 2029.
• Offering grants for modernizing, weatherizing and managing vegetation growth around electricity infrastructure in Texas outside of the main electricity market. (About 90% of the state’s power needs are met by the Texas grid.)

A second major bill, House Bill 1500, changed how companies that produce electricity can make money in the Texas market. These changes include:

• Setting a net $1 billion cap on a proposed financial tool that would require companies that sell power to pay extra money to companies that generate power, if they promise to be available when grid conditions are tight.
• Creating a second financial tool, known as an ancillary service, that will pay power generators that can produce power within two hours and run for at least four hours. Such services smooth grid operations day to day.
• Requiring new power producers that connect to the grid starting in 2027 to be prepared to produce a set amount of power during to-be-defined times of high demand or else face penalties — which could mean that wind farms, for example, need to have batteries on site or find some other solution to provide power when they can’t generate enough.
• Establishing an “allowance” for the cost of building new transmission lines to connect power generators such as wind or solar farms to the grid and requiring companies to pick up the tab above that amount. This was designed to target companies such as wind and solar power producers that build on inexpensive, remote land. The costs of building new transmission lines are typically passed on to electricity users.

The bill also directs electricity regulators at the Public Utility Commission to allow public testimony on their meeting agenda items, improve the agency’s communication with the public and require electricity generators on the main grid to explain any unplanned outages to grid operators.

Who is affected?

Everyone who lives or runs a business that needs power in Texas is affected by these policies, especially those on the main Texas electricity grid. That grid encompasses most of the state and is run by the Electric Reliability Council of Texas.

Who influenced the outcome of the bills?

Industry lobbyists were tepid on the idea for grants and loans, which gathered force through a late-in-the-session bill that the Senate and then the House pushed through. Advocates for electricity consumers preferred it as an alternative to other ideas.

Industrial companies that use a lot of electricity, the Texas Oil and Gas Association and environmental advocates also became an odd alliance that united to call for capping the cost of the new financial tool that will increase bills and direct more money to gas-fueled power plants.

The right-leaning Texas Public Policy Foundation supported the requirement that companies be prepared to produce power in high-demand times. Shell and large electricity consumers supported the new four-hour ancillary service, believing it will improve the reliability of the grid for only a slight increase in costs.

Renewable energy companies successfully fought proposals designed to regulate their businesses even more strictly and avoided some efforts by lawmakers to impose more costs on them through the various financial changes to the power market.

How much will it cost Texans?

The Legislature set aside $5 billion for the loan and grant programs for the next two years and increased the annual budget appropriation for the beleaguered Public Utility Commission of Texas from $19 million to $33 million.

All electricity customers on the ERCOT grid should expect to see their electricity bills rise because of the new financial tools.

What alternatives were considered?

Senators pushed Senate Bill 6 to spend billions of dollars from state funds or charges to electricity customers to build gas-fueled power plants that would be used only in emergencies.

They also filed Senate Bill 624 to impose extensive permitting requirements for wind and solar power facilities.

Senate Bill 2015 would have required at least half of the new power generation that connected to the Texas grid starting in 2024 to be “on-demand” power like gas-fueled plants.

All three died in the House.

What’s next?

Voters will decide in November whether to approve the creation of the fund for the loans and grants, outlined in Senate Joint Resolution 93. If approved, the Public Utility Commission must begin accepting loan applications by June 1, 2024, and make decisions on approving them by the end of 2025.

It’s not yet clear when the other changes to the electricity market will happen.

“We’ll continue to work closely with the Legislature to enact what they passed this session,” ERCOT President and CEO Pablo Vegas said Wednesday, “and we’ll share more details as to what those different impacts will be as we have an opportunity to go through the details of the bills.”

Both SB 2627 and HB 1500 are headed to the governor’s desk for his consideration.

Disclosure: The Texas Public Policy Foundation has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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