January 10, 2012
Senator Kirk Watson’s opening statement at the January 10, 2012 meeting of the Senate Committee on Business and Commerce:
We’re here to discuss whether the current drought is likely to lead to an energy shortage during the drought — a concern that some of the power plants we depend on may not be able to run because of water shortages, and demand may exceed what is normal because of extreme temperatures. This poses a serious concern for reliability and keeping the lights on in the short-term. We definitely need grid management plans in place to avoid rolling outages in times of extreme weather and drought.
But this specific discussion reveals the need for a more general discussion. There is an underlying issue we also need to be talking about, and that is whether ERCOT is facing a capacity shortage — a concern that we do not have enough plants and generators on the ground to ensure reliability. This concern is based upon ERCOT’s recent Capacity Demand and Reserve Margin chart indicating that Texas is poised to fall below the 13.75 percent reserve margin before we have time to build more plants. This is also an issue that the Independent Market Monitor raises repeatedly in the 2010 State of the Market Report for the ERCOT Wholesale Electricity Markets, published in August 2011.
As we go through the hearing today, I would like to hear from the panelists on both issues — drought impacts and capacity shortage. And, when it comes to the capacity shortage concern, I am also interested in knowing each panelists opinion on why this is a concern, and how we might fix it. I know this gets complicated, but I think it’s important that we talk about it and that the people reporting to us keep elected officials informed on what is going on with prices and investment in our market.
I come at this from a perspective of having been a long-time advocate for a state energy plan. I’ve filed bills — that haven’t been given hearings — calling for one. I do not see an energy plan as a replacement for the deregulated market, but as a way to ensure that our market is delivering the reliability we need, and that also works to achieve other goals, be they environmental, or affordability when it comes to electric power. We have an energy portfolio, and we will need one in the future to meet the needs of our growing population and our economic hopes and aspirations. The point of managing any portfolio — be it financial, energy or otherwise — is to meet needs without potentially facing very high risks. And, I think we need to be in a situation where we are doing some of that.
My concern is that when it comes to this issue we have a tendency to be short-sighted and unwilling to plan; unwilling to face the future with a plan. Maybe we stay too busy responding to the latest crisis, but somehow we lose sight of the big picture and our common goals when it comes to electricity, our energy infrastructure, and what we need from our system.
In Texas, we have a thoughtful state water plan that tries to balance the needs of a growing population with clean, affordable water. We can pinpoint the costs, projects, and various strategies for supply. We’ve built in a conservation goal that calls for about 25 percent of our future water supply to come from each and everyone one of us conserving water. In very sharp contrast, energy supplies that will serve that same growing population are not planned or managed in even remotely the same manner. We have no statewide goal for energy conservation to become part of an energy supply strategy. And we know that achievement of our water goals will require significant energy resources.
So part of the questions I raised in my letter is how do we do this in concert? In other words, we know our water issues. We know our energy needs. How do we plan and prepare in both of these venues at the same time to again manage the portfolio to minimize risk?
We will all agree that reliable and affordable electricity is vital to our economy. Like water, it’s a basic necessity. It drives all other economic engines. Without it, Texas will not attract manufacturing and other major businesses to our state. The people may still move here, but whether they will stay and prosper is not guaranteed. Without making investments in the basic necessities on which our economy depends, we leave the next generation and Texas’ future without the resources and infrastructure they need to support and grow their economy.
If there is anything good that has come out of the drought, it is that it has now focused our attention. Mr. Chairman, I am pleased that we are having this hearing, because hopefully it will allow us some reason to prepare for the future.