House speaker pushes using Texas savings, Biden relief money to help weatherproof power plants

Updated at 2:48 p.m., March 12, 2021: to include White House spokeswoman’s comment about Phelan’s idea of using federal money and note introduction in Texas House of legislation to create “SURF” fund.

AUSTIN — House Speaker Dade Phelan is the first state GOP leader to outline a way to pay for electricity generators to be weatherproofed so Texas can avoid a repeat of last month’s prolonged blackouts.

House leaders soon will introduce a bill to tap the state’s “rainy day” dollars to create a loan fund to stimulate weatherization projects, Phelan told broadcast news outlets this week.

Phelan, a Beaumont Republican, also said lawmakers should consider using state emergency aid coming from the $1.9 trillion COVID-19 relief package that President Joe Biden signed Thursday.

It could be treated as a one-time source of money to help electricity and natural gas producers protect their infrastructure against another arctic blast of the sort that crippled Texas Feb. 15-20, he said.

By week’s end, although no GOP state leaders had specifically endorsed Phelan’s ideas, none had openly opposed the speaker’s plan either.

Consumer groups did question the need for subsidizing private industry.

However, Joe Barton of Ennis, former chairman of the U.S. House Energy and Commerce Committee, said he thinks either credits against property taxes and state taxes or state-subsidized loans should be considered to promote weatherization.

“Markets sometimes don’t monetize or don’t act properly on environmental and safety issues,” said Barton, a supporter of the 1999 state law that deregulated the electricity market in most of Texas.

In that deregulated market, he explained, the costs of guarding against rare and unpredictable weather can’t be passed on to consumers, as with traditional utilities.

“They don’t want to put a lot of money into weatherization that they won’t need but once every 10 years,” he said of electricity generators. “So if you can’t figure out a way to pay for it or incentivize them, they’re not going to do it unless they’re forced to do it. If they’re forced to do it, some of them, if it’s too expensive, they’ll shut down.”

Phelan and other GOP state leaders have called for the Legislature to move quickly to prevent future blackouts of the sort that last month spiraled into water outages, broken pipes and widespread misery.

But doing so will require financial assistance, to help prevent Texas’ power system from imploding again during a deep freeze, Phelan said.

The federal help for states is intended “for recovery of disaster, and this is a disaster,” Phelan said on Austin Spectrum News on Monday night. “It’s a good use of money to cover some of these one-time expenses that won’t be here in 2023.”

On Friday, though, White House spokeswoman Jen Psaki, when asked about Phelan’s idea, said she’ll have to check with the U.S. Treasury Department.

“I’m not sure if there are limitations on the use of it,” Psaki said. “Obviously, it’s intended broadly to ensure we’re keeping cops, firefighters and others on the beat.”

The state money Phelan would like to offer as an incentive for electricity generators and gas companies to insulate and otherwise bolster their facilities against freeze-offs and breakdowns would be from state savings — and used in a loan fund similar to one created eight years ago to increase water supplies for a growing state population.

“It was $2 billion from the rainy day fund to create this,” Phelan said of the water program during an appearance Tuesday on Texas Standard, a program aired by public radio stations.

Low-interest loans are leveraged to obtain other financing, and as they’re paid back, the state can make additional loans, said Phelan, who’s been heavily involved in the water effort.

“We would like to do the same thing for power generation from the grid to try to incentivize more generation and new technology. And some of these projects could be the weatherization that we’re referring to,” Phelan said.

“And this stuff, these plants, they all cost money.”

The state rainy day fund, which now has $10.6 billion, will grow to $11.6 billion by August 2023 if lawmakers don’t draw down some of the savings, Comptroller Glenn Hegar has estimated.

Daniel Cohan, associate professor of civil and environmental engineering at Rice University, said “there’s a lot of wisdom” to Phelan’s idea of providing low-interest loans rather than full taxpayer subsidies to nudge the electricity industry to invest in weatherproofing its plants.

“It would truly be a more visionary approach,” though, if state leaders also considered financial incentives to reduce demand for power, he said.

If Texas made it cheaper for homeowners with modest incomes to insulate their homes and pipes and install more efficient electric heat pumps and programmable thermostats, such conservation “would help the whole system keep lights on,” Cohan said.

During last month’s extended freeze, two investor-owned, vertically integrated utilities operating in the Texas Panhandle and states to the north and west of Texas enjoyed the benefits of their extensive weatherization of gas- and coal-fired generating plants, which can operate in extreme low temperatures.

Both Minneapolis-based Xcel Energy, which serves the Panhandle, and Kansas City-based Evergy Inc., which serves Missouri and Kansas, had sufficient power and experienced only temporary outages because grid operator Southwest Power Pool asked them to “shed load,” said spokeswomen for the two companies. Investors put up the money, and the costs were passed on in rates charged to consumers, both companies said.

GOP state leaders in Texas, though, have shown no interest in dialing back deregulation — and it’s unclear, experts say, whether reconstituting the vertically integrated utilities that were broken up in the late 1990s is even feasible. In a marketplace in which generators are paid only for megawatt-hours of electricity, and not necessarily enough to pay for weatherization, Phelan sees a need for financial carrots.

His model for loans for electricity and natural gas systems’ improvements is the State Water Implementation Fund for Texas, or SWIFT, which the Legislature and voters agreed to create in 2013. It has helped spur more water reservoirs and water conservation and reuse projects. Phelan, one of the legislators who in recent years helped oversee the SWIFT program, is a big proponent.

“There’s no reason why we can’t duplicate that for energy and infrastructure,” said Phelan, a former president of the Lower Neches Valley Authority, a regional water provider.

Starting with $2 billion from the state’s Economic Stabilization Fund, commonly called the rainy day fund, SWIFT leveraged the building of $27 billion in new water projects identified in the State Water Plan. It was approved by voters 3-to-1 in an off-year constitutional amendments election.

Longtime consumer advocate Tim Morstad of AARP Texas said a key difference between the water push and what might be done now to encourage weatherizing the power system is that the low-interest loans for water went only to political subdivisions, not for-profit companies.

“The public needs to follow this closely,” Morstad said. “We’re talking about private companies who are not rate-regulated who could considerably benefit from what is essentially state money, which is our money, and we’re all the ones who are paying higher bills and had to suffer through the winter storm to begin with.”

Virginia Palacios, head of Commission Shift, a new nonprofit focused on strengthening oil and gas oversight in Texas, objects to subsidizing natural gas producers and pipeline companies.

“The Railroad Commission knew in 2011 that it needed to require operators to winterize gas wells to prevent wellhead freeze-offs” but did nothing, she said.

Late Thursday, Phelan spokesman Enrique Marquez said the “SWIFT model has a proven track record” and “can be a lifeline for municipal utilities, electric cooperatives, and other infrastructure that need access to capital.”

On Friday, Houston GOP Rep. Dan Huberty introduced a legislative package that would submit to voters on Nov. 2 a constitutional amendment along lines described by the speaker. Though it doesn’t yet say how much state money would be used to launch, or from what source, Huberty’s legislation would create a “State Utilities Reliability Fund,” or SURF. Water and broadband utilities, as well as electricity and natural gas entities, could qualify for low-interest loans to weatherize or increase capacity during times of peak demand.

Gov. Greg Abbott, Lt. Gov. Dan Patrick and two top Republican senators, though, have stopped short of blessing the speaker’s how-to-pay proposals.

Abbott “continues working collaboratively with the Legislature to find meaningful and lasting solutions to the impacts of the recent natural disaster, from the physical and the personal to the financial,” said spokeswoman Renae Eze.

Patrick is committed to passing a set of legislative fixes, said spokesman Steven Aranyi, but “is starting with a blank slate, and he is considering all ideas.”

Two leading Republican senators, chief budget writer Jane Nelson of Flower Mound and lead business regulation writer Kelly Hancock of North Richland Hills, said they want to discuss Phelan’s idea.

Washington Bureau Chief Todd J. Gillman contributed to this report.