Texas seeks to establish its own energy fund in November.
The 2023 Off-Year Elections: A November to Remember
The 2023 elections may not have the fireworks of 2024, but there is still plenty up for grabs. In this “off year,” most of which takes place on Nov. 7, Virginia will be keenly watched, particularly by followers of Gov. Glenn Youngkin and whether he can springboard Republican success into national aspirations. Meanwhile, the governor’s mansion is up for grabs in Kentucky and Mississippi. New Jersey’s Republicans believe they have a real shot at turning the state red in legislative elections, while there are also fierce mayoral and district attorney battles throughout the United States. Voters will also decide several fascinating referendums, particularly in Ohio, Maine, and Texas. This Washington Examiner series, November to Remember, will dive into all of these and more over the following two weeks. Part 11 will consider the Texas energy grid.
The Divisive Proposition 7: What You Need to Know
The 2023 off-year elections are of major importance in Texas because ballots will feature questions on a dozen conditional amendments that would help direct billions of dollars in state funding, primarily in the energy sector.
All told, 14 propositions and $13 billion in state spending will be on this year’s ballot. But the lion’s share of spending, and the controversy, has been focused on just one: Proposition 7, or the $10 billion energy-focused initiative that would bolster the state’s aging power grid and protect against blackouts, primarily through investing in new natural gas-fired generation.
Supporters have praised Proposition 7 as a way to guarantee more dispatchable gas generation and firm up the aging Texas power grid, something that took on critical importance following Winter Storm Uri, the 2021 storm that caused 4.5 million residents to lose power and resulted in 246 deaths.
But Proposition 7 has also sparked sharp criticism from some in Texas, who have described it as a “giveaway” to natural gas developers and an investment that comes at the expense of other, more energy-efficient alternatives.
Others still have criticized the power it puts in the hands of state utility regulators, whom they see as ill-prepared to operate as a lender at this scale, or to assume billions of dollars in taxpayer-funded risks.
Ahead of Tuesday’s election, here’s what to know about the divisive Texas energy proposition.
What is Proposition 7?
Proposition 7 would create the $10 billion Texas Energy Fund, of which $7.2 billion would be funneled into a program to subsidize and offer low-interest loans to developers building new natural gas plants.
It would also invest a smaller amount in creating new microgrids to help keep critical facilities online.
The goal of Proposition 7 is to build out 10 megawatts of natural gas plants in the state, or enough power to supply roughly 2 million homes.
Under the program, qualifying developers would be eligible for a 3% interest rate loan from the state to build out thermal energy plants. Additional state subsidies could cover up to 10% of their project costs, according to the current text, so long as the plants are built in compliance with certain state deadlines. Companies must also commit to building 100 MW of new generation in order to be eligible.
The loan distribution would be overseen by the Texas Public Utility Commission, making it the preferred lender for gas power developers in the state and allowing the body to operate effectively like a bank.
Response and Criticism
Proposition 7 has sparked sharp debate in Texas. Fossil fuel advocates, including the Texas Oil and Gas Association, the Texas Association of Manufacturers, Koch Companies, and others, have voiced strong support for the measure, arguing that adding more gas-fired generation to the grid will help the state protect against outages caused by extreme weather events such as Uri.
“By supporting Prop 7, Texans have an opportunity to regain the balance needed to provide a more resilient electric grid that performs regardless of weather, without raising taxes,” Todd Staples, the head of the Texas Oil and Gas Association, said in a statement.
But it has also prompted strong opposition from climate advocates, consumer groups, and some energy analysts, who say it both creates outsize reliance on natural gas without any guarantee that companies will choose to bring new capacity online.
Opponents have argued that there are no indications from the industry that it is looking to invest in new projects in the state.
Experts said industry groups claimed the opposite in state testimony earlier this year, when Texas legislators debated but failed to pass S.B. 6, a bill that would have incentivized new gas-fired development.
“When you go back to the discussion of it during the legislative process, primary owners of dispatchable generation in ERCOT did not recommend that this be approved,” Michael Jewell, an attorney and advisory board member for the Conservative Texans for Energy Innovation, told the Washington Examiner in an interview.
State energy data appear to bolster this assessment. Texas is already the largest natural gas producer in the U.S. and third-largest producer worldwide, according to data from the U.S. Energy Information Administration.
And over the last eight years, Texas’s energy market actually created 7,000 MW of new gas-fired generation at no added cost to consumers, Doug Lewin, president of the Texas-based Stoic Energy Consulting firm and author of the Texas Energy and Power newsletter, said in a blog post.
Post-Uri analyses have recommended that gas-fired plants in the state undergo weatherization upgrades and other maintenance to ensure they can come online in extreme cold or extreme heat. But none have stressed the need for more gas-fired facilities to be built.
In fact, there has not been any deep desire expressed by developers to build out additional gas plants in Texas, as some groups pointed out ahead of Tuesday’s vote.
“No companies provided a commitment to use this program to build new generation if the amendment is passed by voters,” the Texas Consumer Association said in a recent statement. “No experts testified that this scheme will actually work.”
Market Concerns
Others say the Texas utility, the Texas Public Utility Commission, is ill-prepared to act in the capacity of a major lender tasked with doling out billions of dollars in loans and subsidies, or to gauge risk for default on these massive, taxpayer-funded investments.
“If you think about large lending institutions, they have significant teams of people who are working through analyzing loan applications, addressing the potential for default,” Jewell, who has worked in the Texas legislature in various capacities since 1985, told the Washington Examiner.
That means if something goes wrong during the construction or operation processes and creates a situation in which the money cannot be repaid, these lenders are responsible, a luxury the Texas Public Utility Commission does not currently have.
If Proposition 7 is passed, Jewell told the Washington Examiner, it will be crucial for the Texas Public Utility Commission to have access to “all the normal ability for a lending institution and the expertise that goes into that, to be available to the commission” in order to achieve its objectives.
Others, such as Lewin, were less sparing in their critiques.
Proposition 7 “puts literally billions of taxpayer dollars at risk, protected only by an agency that knows nothing about assessing credit risk,” Lewin said on X.
Microgrids
Proposition 7 includes $1.8 billion for the creation of microgrids, or small-scale, “backup” power programs that would keep the lights on for systems serving critical facilities, such as hospitals, schools, and fire stations, in the event of a supply shortage.
That’s especially crucial since, in the event of a grid shortage or blackout, local utilities are required to first direct available capacity to these systems before supplying other residents. This would free up local utilities to supply residents in the event of another crisis or capacity shortage such as Winter Storm Uri.
According to the text of Proposition 7, microgrids would be required to provide up to 2.5 MW of power to these systems, allowing them to operate for a minimum of 48 hours.
The microgrid component makes up just a small part of Prop. 7 funding but has won rare and full-throated support from fossil fuel advocates, consumer groups, and environmental voices alike.
Microgrids “are incredibly valuable,” both for the systems they benefit, such as schools and hospitals, but also for the additional consumers that are kept online as a result, Jewell said.
Renewable Energy Concerns
Others have criticized Proposition 7 for its emphasis on natural gas resources, rather than renewable resources such as solar and wind power, to augment the state power grid and say it risks moving the Texas power market in the wrong direction.
Texas is by far the nation’s largest producer of carbon-free power. In 2022, it produced a whopping 180,145 gigawatt-hours of electricity of carbon-free power sources, according to data from the U.S. Energy Information Administration. California, by comparison, took second place with just 124,055 gigawatt-hours of carbon-free generation.
The trend is only expected to increase in the coming months. Texas is on track to add 7.7 GW of solar capacity and 2 GW of wind power this year alone, according to EIA projections, keeping its spot as the largest renewable energy producing state in the U.S.
Passing Proposition 7 could risk driving renewable project developers out of Texas and into different parts of the country with more favorable policies for zero-carbon developers. It also threatens to take the state in the wrong direction on air quality and climate goals.
“We’re concerned about it for that reason,” Luke Metzger, the executive director of the group Environment Texas, told the Washington Examiner in an interview. “But also, we’re skeptical that this will actually accomplish what it’s setting out to do in terms of boosting grid reliability.”
“The thing that used to be said all the time in the Texas legislature was that the government shouldn’t pick winners and losers,” Metzger added.
“Now, that ethos has just kind of been thrown out the window and particularly with Prop. 7,” he said. “The government just seems so blatantly putting their thumb on the scale for gas.”
Click here to read more from the Washington Examiner.
What are the concerns raised by renewable energy proponents and advocacy groups about Proposition 7 and its focus on natural gas infrastructure?
R advocacy groups, and renewable energy proponents.
“Prop 7 is an outdated, shortsighted approach that prioritizes fossil fuels over clean, renewable energy sources,” said Luke Metzger, Executive Director of Environment Texas. “Investing in natural gas infrastructure while neglecting wind, solar, and energy storage technologies is a step in the wrong direction for Texas and for our planet.”
Opponents argue that investing heavily in natural gas infrastructure is not the best long-term solution for the state’s energy needs. They argue that the funds should be directed towards renewable energy sources, such as wind and solar, which are more sustainable and have a smaller environmental impact. Additionally, they express concerns about the influence the proposition gives to state utility regulators and the potential risks and liabilities that come with such a large investment.
The Impact on the State
If Proposition 7 is approved, it would have a significant impact on the state of Texas. The $10 billion investment in natural gas plants would help address the current power grid’s vulnerabilities and increase its reliability. The additional natural gas generation capacity would provide a more stable power supply and reduce the risk of blackouts during extreme weather events.
Supporters argue that investing in natural gas is a practical and cost-effective solution to address the state’s energy needs. They highlight the dispatchability of natural gas generation, which allows for quick ramping up and down of power production to meet fluctuating demand. They also emphasize the job creation potential and economic benefits of the proposition, as it would stimulate the construction and operation of new natural gas plants, creating employment opportunities and driving economic growth.
However, opponents fear that the proposition’s focus on natural gas will hinder the state’s transition to clean and renewable energy sources. They argue that Texas has vast potential for wind and solar energy production and that investing in these technologies would create more sustainable and resilient energy infrastructure. They also express concerns about the environmental impact of increased natural gas extraction and combustion.
Conclusion
Proposition 7 presents a complex decision for Texas voters in the 2023 off-year elections. The $10 billion investment in natural gas plants comes with the promise of a more reliable and secure power grid, but it also raises questions about the state’s commitment to renewable energy and the potential risks associated with such a large investment.
The outcome of the election will have implications not only for Texas but also for the national energy landscape. It will shape the state’s energy future and influence discussions surrounding energy policy and climate change. The decision on Proposition 7 will determine whether Texas chooses to prioritize short-term stability or long-term sustainability in its energy sector.
The November elections are an opportunity for Texans to voice their opinions on these critical issues and shape the direction of their state. Whether it will be a November to remember for Texas and its energy grid remains to be seen, but one thing is certain – the outcome will have far-reaching consequences.
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