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Texas oil and gas regulators grilled by state lawmakers for response to winter storm outages

Tough questions from elected officials flew in a Tuesday Senate committee hearing called to assess the progress of regulators toward fulfilling the intent set by the Legislature through bills passed during the regular session earlier this year.

AUSTIN — A state Senate committee grilled the Railroad Commission of Texas on Tuesday for leaving open a loophole that, if left unresolved, could expose Texans to more grid failures in the coming winter.

“You’ve unified this body,” Democratic Sen. John Whitmire of Houston told the commission’s executive director, Wei Wang, noting that he and other senators who don’t always see eye-to-eye were in solidarity in launching a storm of criticisms and hard-line questions.

The heated exchange centered around the discussion of an “opt-out” for operators of natural gas infrastructure, including wellheads and pipelines, from having to register those items as critical components in ensuring electricity supply. Being designated as critical would require the operator of that piece of infrastructure to weatherize it so it works in extreme cold temperatures.

However, as Wang explained, an operator could avoid weatherization requirements simply by filling out an application for an exemption to the requirement and declaring they aren’t prepared to be on-call during a winter emergency. The fee for that application is only $150.

Sen. Lois Kolkhorst, R-Brenham, described that as a loophole that’s “the Achilles heel” of the current plan to reform the grid. She pointed out that an operator might choose to pay the low application fee rather than weatherize their facilities, which can be costly. According to a report by the Federal Reserve Bank of Dallas the cost to weatherize new and existing wellheads is between $20,000 and $50,000 per well.

Wang defended the RRC’s progress toward identifying critical infrastructure, saying that asking operators to self-identify as ready to operate in a winter emergency meets the requirements outlined by the Legislature in the sweeping grid reform bill that passed earlier this year. He noted that the Legislature’s deadline for a more in-depth assessment of critical infrastructure isn’t until the fall of 2022.

“It sounds like you’re going to miss this coming winter,” said Sen. Donna Campbell, R-New Braunfels, putting in plain words the widespread fear of more problems with the natural gas supply chains that could contribute to yet another catastrophic outage in the winter of 2022.

Democratic Sen. Jose Menendez of San Antonio said during the meeting that it wasn’t too late to file a bill to get rid of the loophole. However, grid reform isn’t on the call for the current special session, which will be over by mid-October.

The tough policy questions occurred during Tuesday’s Senate Business and Commerce Committee hearing on progress by the Public Utility Commission, the Electric Reliability Council of Texas and other market participants in carrying out grid reform legislation that passed in the spring.

The heat on Texas’ oil and gas regulators came less than a week after federal and North American energy regulators published a report finding that failures in the state’s natural gas supply system were among the leading causes of the February grid crisis that left millions of Texans in the dark and without heat as record-setting cold temperatures swept the state. More than 200 Texans died during the storm, according to the Texas Department of State Health Services, although some reports estimate the death toll to be much larger.

Incentives for new generation

Also discussed on Tuesday was providing incentives for new “dispatchable” generation through grants or subsidies. The committee considered the definition of dispatchable — which to most simply means that a generation unit is able to switch on and off quickly. Although thermal powered generation — natural gas and coal-powered facilities — currently makes up the largest share of Texas’ dispatchable energy, the state’s growing energy storage fleet (batteries) also meets the definition.

During the discussion of incentives for bringing new dispatchable resources to the grid, some Texas generator owners pushed back against proposals they believe would limit the free market that’s made ERCOT attractive to their companies.

A representative from Vistra Corp. who testified during the Tuesday hearing offered two proposals that involved market incentives for generators to have their own on-site fuel storage rather than offering subsidies, which she believed would give some generators an unfair advantage.

Market redesign

PUC commissioner Peter Lake on Tuesday dodged directly answering questions about what Texas’ energy market redesign will look like.

There’s suspicion that the new market will have more elements of a capacity market, which ensures reliability by paying suppliers to commit to certain levels of generation for delivery years to come.

Some critics of the shift toward a capacity market say that it will dramatically raise energy prices in Texas, which is known for having some of the cheapest energy prices in the country. However, multiple senators said during the meeting that Texans would be willing to pay higher prices for improved reliability.

“The cure for high prices is high prices,” Lake said, reassuring senators on the committee that higher prices will attract new generators, which will in turn drive the prices down and the market will eventually settle.

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