The Texas Power Podcast from Renewable Energy World debuts on Thursday, Sept. 29. Subscribe to the Texas Power Podcast wherever you get your podcasts.
Texas is tackling an energy market redesign not seen in decades. The freeze and subsequent outages from Winter Storm Uri in 2021 left hundreds dead and millions without power. The storm’s aftermath also sparked a debate over how to make the ERCOT grid more resilient in the face of extreme weather events and a changing energy mix.
On Episode 1 of the Texas Power Podcast, host Doug Lewin is joined by Pat Wood, former chairman of both the Federal Energy Regulatory Commission and Public Utility Commission of Texas. He helped deliver former Texas Gov. George W. Bush’s deregulation agenda in the 1990s.
While Wood was the chair of the PUCT from 1995-2001, the Texas Legislature passed two major deregulatory bills: Senate Bill 373 in 1995, which restructured wholesale energy markets and Senate Bill 7, which restructured retail energy markets and established the Renewable Portfolio Standard and the Energy Efficiency Resource Standard.
Wood led FERC from 2001-05, during which time the U.S. experienced what is still the largest blackout ever in terms of customers affected in 2003.
Lewin’s conversation with Pat Wood covered the state’s market redesign efforts, the enabling technologies that can support grid resilience, and the moment when then-governor Bush was first drawn to renewables.
Lewin and Wood discussed, first and foremost, how Texas is dealing with the fallout from Uri and working to ensure it never happens again. They also explored issues and controversies surrounding the ERCOT market, deregulation (aka restructuring), renewables, storage, energy efficiency, transmission, nuclear power, demand flexibility, electric vehicles, and more.
Episode Highlights (quotes edited for clarity)
Pat Wood’s first interaction with George W. Bush (4:46)
“So when I was at FERC, I worked for Jerry Langdon, who is a Democrat Texan from Midland that was appointed by President Reagan to one of the spots on FERC. And FERC was required to be bipartisan, usually 3-2, whatever the ruling party was by the presidency. And then George H.W. Bush came in and appointed a close associate of his who was is actually his first campaign manager when he ran unsuccessfully for Congress out of Midland back in the sixties, I suppose.
“Martin Allday. He appointed Chairmen Allday to be chairman of FERC. So Jerry hired me shortly after that, after President Bush came into office, Jerry hired me to work for him as his legal counsel. So I got to know Jerry and Chairman Allday really well.
“Anyway, they wrote a nice letter on my behalf. I came back to work for… after (President Bill) Clinton was elected and I knew Chairmen Allday would be gone and Jerry would not be reappointed because Clinton wanted to put his own Democrats on the committee commission. And so Jerry and Chairman Allday and Jamie Baker, who’s the secretary of state son who was a partner at the Baker Botts Law Firm that I used to work at before I went for work as a staffer at FERC.
“And so I came back to Texas to look for a job, and I ended up getting suggested to interview with a young man who had just gotten elected to the Texas Railroad Commission. Barry Williamson and he was elected in the 1992 election.
“I went to interview him just honestly, to get those others off my back, because there was no way that I was going to: A) work in the government any longer than the two years I had already done it because of my poor private sector dad just had to keep his head up over the dashboard of this idea that his son was working for the public sector, and then also living in Austin, Texas. I mean, I’m an Aggie. I was driving a maroon car. It was just that hardcore. So needless to say, I interviewed this guy and I thought he was great.
“He was funny, he was bright. He was, you know, forward-leaning. He really was a good lawyer. I thought, you know, Austin wouldn’t be too bad for a single guy. That’d be a pretty awesome place for them because it really was that. And that’s where I met my wife and we had our first two kids there and all that kind of came, you know, a few years later.
“But yeah, I met Bush after that election Chairman Allday and Commissioner Langdon wrote a letter on my behalf to George W. and said: ‘You know, you ought to get Pat in your government because he’s worked two years for us. He’s worked two years at the Railroad Commission. He knows energy issues.
“I don’t think they identified where I should work. They just were introducing some people that they knew to the new governor and there wasn’t a big Republican farm team out there because even though he began what became a total realignment of the state. There wasn’t a real deep bench. I mean, you had Kay Hutchison, you had Barry (Williamson), and then you had Rick Perry across the street at the AG Department. Those people were the statewide elected Republican officeholders at that point. So the people working for them were the team, but everything else was still a pretty Democrat state.
“On his third day of office, Bush invited me to come in and I’d been vetted by his appointments office officer Margaret Lamontagne, who later became Margaret Spellings, the secretary of education for the country, wonderful gal. She picked on me and said, ‘Come talk to me.’ So I talked to her. And then two days later, I was talking to her boss and he had his cowboy boots up on the desk and he was to an omelet cigar and talking to me about kind of his philosophy of regulation and of energy and of course, telecoms was a big issue back then. It’s become largely competitive and deregulated since that time. But at the time, 1995, the telephone industry was extremely politically powerful.
“Southwestern Bell was a dominant player in the state capital. And the Texas PUC was under Sunset Review at the time for restructuring that industry as well as the electric industry. So as much as my career subsequently focused on electricity, I would say for those six years in Austin, half my dance card was telecom issues, from new area codes to implementing the Federal Telecom Act, to interconnectivity issues with the Internet versus the public switch telephone network.
Texas Gov. George W. Bush takes on energy market deregulation in 1995 (11:30)
“But anyway, electricity is what we’re here to talk about today and that that really did start right off the bat. (In) 1995, that first bill, Senate Bill 373. I was appointed at the end of January, confirmed about a month later. It was kind of an interesting confirmation season.
“Right off the bat, Bush told me, ‘Pat, the utilities care more about what we think…” pointing to himself and the government, the Senate and the House on either side of him “…than what their customers think. And we’re going to change that because that’s wrong.” And so I had it kind of from the get-go, we were going straight to retail competition, which was just then largely kind of a concept being talked about at the federal level, but nothing had really been done in Texas.
“The large industrials just were so excited. I mean, that’s what they’ve been pushing for ten years, particularly the ones that lived here in Houston and lived on the ship channel and just wanted to move power around the different plants, not live in some huge competitive environment, but just to take advantage of their economies of scale and move power around rather than had to sell it back to the utility.
“Needless to say, that that did not go very far in ’95, but it did create an environment that, ‘Oh my God, this is really going to change and change big.’ And if Bush was really clear about where he stood on that deal and he, of course, came in with consistent for those six years, pretty powerful presence in Austin, unlike some governors.
“They knew that this was going to change, which was very helpful to me. (Bush) backed me up really through some really tight battles for six years in both industries. He constantly would say, do not come lobbying me. Take it to Pat and Judy. Judy was his other first appointee, Judy Walsh, the stellar woman who he appointed right in June of 1999.
“She and I were really twins for the next six years together and restructuring the industry. But it ended up being a really constructive six years. I’d like to think that we left our utilities in better shape than they started. I think we had some misadventures perhaps outside of Texas that wreaked some havoc on Reliant, which was the HL&P spin-off.
“The Oncor split out, the AEP, Central Southwest Companies all have maintained a pretty robust presence over the years in different forms. Obviously, TXU went through privatization with KKR and others, and then through bankruptcy and became Vistra and Oncor and TXU. All the utilities did what we wanted, which was to split into a competitive arena and maintain that regulated part in the middle that the PUC continued to oversee as they had in the past.
“Really the envisioned a platform for the creators and the entrepreneurs and the innovators to thrive on. And I mean, you and I both are reaping the benefits of that now in what we do today. But that really was the vision from the beginning, is let’s create a foundation that’s not skewed toward the historical utility, but puts them in the place of being the foundation and the enabler of everybody else’s hopes and dreams. First and foremost, the customer.
“Once Senator Armbrister, who was the Democrat from Victoria, I believe, who led the restructuring effort in ’95, Senate Bill 373, and he was my oversight chairman. He said, “I know you want retail just slow down and do it in order for him. You get a good wholesale bill, go implement it and make it work and then we’ll talk.”
ERCOT is formed (17:01)
“And so that’s what we did. So we got the IRC, got ISO, we were the first ISO. It was very rudimentary. It was not at all what ERCOT is today. It was really an enabler of wholesale transactions and the major beneficiaries of that were co-ops and munis who were trying to navigate this sea with these great big four or five vertically integrated investor-owned utilities.
“That was a small audience at first, but we made that work and we, and we broadened the membership of ERCOT to include marketers and independent power generators. And so then that became and that trust environment really was important. And I think that’s what I missed that first when I got to FERC later.
“In Texas everybody once they kind of realized that the game plan wasn’t going to get them anywhere because Bush wouldn’t put up with it, Bullock, and then Perry had no interest in stretching that out. They just wanted to get to Texas and really focus on the economic development attributes of what we were doing and make those primary.
“They started between ’97, which is when in response to a pretty harsh decision we had in a regulated case for Central Power Light, which was an AEP company. The commission came back with, we turned a 4% rate hike request into about a 4 to 6% rate cut. And and it made some really, I think, eye-opening decisions about what rate-making in the competitive Republican era would look like.
“It was not at all what they had planned. And so the utilities went immediately down to the governor, and lieutenant governor said, we need to put them in a box. And so Bush said, well, no, you’re not. You’re going to work with them and we’re going to build a new box. And so we honestly ran out of time that session.
“We took care of a lot of the utility issues with regard to their worries about stranded costs for their nukes and what have you. But there wasn’t much else in that bill that really brought everybody else along. And so the bill died, but it sat there on the shelf and we got the message to kind of keep pushing that world toward the wide open world of retail competition.
Don’t California my Texas energy market (19:50)
“Maybe the next session. But we’re going to start a study committee. So that study committee and it was Judy Walsh and I were on that, but there were also a number of others like Susan McClellan from the Public Utility Council and people from the industry, the utilities, and the competitors, and the large customers.
“We went out with about half dozen to sometimes ten legislators to different places we went to. We flew to San Francisco in January (1998) and we spent two or three days at the CAISO in Sacramento and then at the Public Utility Commission in San Francisco.
“And I totally remember Senator Nelson who was just a lot of fun to be around. She’s from Dallas area was with the group. She was just chewing gum while walking on the sidewalk and she was fretting about something. And we went into the Public Utility Commission. I remember her eyes across the room. She just her eyes were like big, like, ‘We are not doing this.’
“So we all got back in the plane. And I remember being so damned depressed because I knew that that was not what we wanted and that there was no freakin way that I was going to get what I wanted, which was that the open market where customers could be king.
“We looked at each other and Steve Woolens from Dallas was the state rep, had my oversight committee in the House, just looked at me and they just said, ‘Yeah, if that’s where we’re going, we ain’t going there” because we saw the everybody selling into the California Power Exchange and this was just very different market than the one we’d kind of been fantasizing about.
“And so honestly, where did I think it was going, for most 1998 I was depressed So, at the need of ’98 the group had gone to the UK. So the UK report came back actually very good and I remember people going, ‘Well, there’s something over there, we kind of like that.’
“We went in December to Harrisburg, Pennsylvania and talked to them about their restructuring Flying back from that, that’s when Sibley and Whelan’s and I looked at and did it on the quintessential cocktail napkin, just like Southwest Airline’s origin story, the restructuring of the Texas market was done on that. And that’s when that price-to-beat concept about how do you make competitive markets work while not basically blaming the customers, kind of taking them for granted or jacking up their rates.
“The (Renewable Portfolio Standard) and the (Energy Efficiency Resource Standard) came into the bill, customer protections came into the bill, although another batch came in in 2001. And that’s where Senator Nelson was really a key leader on that one. And oh, gosh, I mean, the restructuring of the market and the separation of utilities in the regulated and unregulated, all that kind of vision was built around… the core of it was that that price to beat in that retail market structure feature that you would hold the price where it was 6% lower than the last rate. So there was kind of that political rate cut, which I hate.
“We had held those rates up from ’97-99 and we started booking the costs that the utilities earned in excess of their regulated rate of return. What you generally do, if you were allowed to earn 10% return on equity, you just pick a number. I think they were a little higher than that at that time. We took you normally common for rate case and dropped the rate because what was happening in is all those coal and gas plant nuclear plants that were put in in the eighties brought the rates up to a high point and then they were depreciating down and there weren’t a lot of new plants being added because we’d also made that pronouncement back in ’95 when I got on the commission, no more rate based plants.
“So that was a problem later when nobody built anything because they knew people weren’t allowed in and old people weren’t building. So that kind of had an almost a little daze, I believe, what was happening this summer that we’re living through. But people are building stuff when you need it. But at that time, people were waiting to see where this was all going.
“So nobody built the plants. But at that, so the rate that you would set if we’re doing it the old style way of the vertically integrated utility look at all their cost snapshot. The rates would drop. So what we did is we held the rates even, but we took that triangle which was growing each year, each month, and we book those dollars as an offset to future claims on stranded costs.
“But we were able to claim that money and and use it for customers’ benefit on down the road so it wasn’t a giveaway.”
Behind the deliberative polling process (27:00)
“Oh, my, oh my gosh. All I can say on that one. Central Southwest who we later made an example of with that rate case but to their perpetual credit they came in with the new law that was passed in ’95 was setting up this process called Integrated Resource Planning, where Karl Rabago, who was my predecessor, I took Karl’s spot when he went to the Department of Energy under President Clinton. That opened up a spot on the PUC. And Karl was this Wonderkid kind of left the center, but very kind of new energy person that still is. Just smart and clever but had put in this process assuming that the world would stay vertically integrated for a while, that the world was going to stay vertically integrated, then Bob then we were going to make sure that utilities didn’t just make these decisions in a smoke-filled room about what they were doing to bring on the resources that are to meet the growing load of taxes. But we’re going to involve the people.
“And so there’s this kind of open-ended requirement that required cost. I think it was customer consultation or something in that mindset. And so we weren’t sure how to interpret that. We just put that in our rule that customer consultations should be shown and the commission will entertain whatever you bring forward and we’ll look at it. The first utility to come in was Central. And so they brought in this idea from this University of Texas professor that had been used by Ross Perot in his unsuccessful run for president in ’92 where he would use the deliberative polling process to ask people their ideas about things. They would stop people in the shopping mall and ask ‘What do you think about A, B, C?’ But the wrinkle was then they would have a day or two of a small group, big group kind of accordion discussions about the issues and delve deep into the issues in a way that was engaging to the layman. And then at the end re-poll them. So they did the equivalent of this 16, maybe 15 cities including Shreveport, Louisiana, where it was first SWEPCO.
“Across Texas, we just made the deliberative poll the process to engage with the public. It was great PR, but it was even more important than that. It changed minds, including my own. So the big four questions were: 1) Do we build new gas or coal plants? 2)Do we use transportation to move excess power from across the state to where you need it? 3) Do you use energy conservation and energy efficiency or 4) Do you use renewables? So it wasn’t nature exclusive, but those were kind of the four areas where we spent most of these two days.
“The people of Texas not the cognizant and the chattering class, but the real bill-paying public really liked the idea of energy efficiency. They understood how it worked. And they wanted to have more empowerment and more information to be able to do that meaningfully. And then close second runner up was we cared a lot about renewable energy. My favorite one still as I walked outside at the Beaumont because I’m from Port Arthur and we have one for Entergy over in Beaumont and an older guy out there was outside having a cigaret and he I said, ‘Mr. Jones, a Johnson or Jones’ or something like that. I said, ‘What do you think about everything? He took a deep drag out of that Marlboro and he blew it out, kind of out of my face. And he said, ‘I’m just goddamn sick of all this pollution. I think we need some more clean energy and I’m ready for that. And I just thought, ain’t that rich? That is the best.”
“I walked back into then-Governor Bush because he had told me at the front end of this one day I was in his office and he said, ‘Hey, Pat, by the way, we like wind.’ And of course, I was like, kind of this Reagan Republican type with my little yellow suspenders and my red power tie and all the all that. And I just leaned back in the door and I said, ‘What?’ ‘You heard me. Now go get smart on it.’ So I went back, told Judy Walsh about that, and she said, ‘Well, Pat, we’re just going to have to get smart on it.’
“I leaned into him and I said, ‘Hey, by the way, I got a report back on this, these deliberative polls.’ And he said, ‘What you learn?’ And he knew exactly what I was going to say, I said, ‘Well, I think Texans like wind, too. He says: ‘I told you!’ And he leaned forward with that laugh that we all know so well, that I’ll tell you what, when you’re the recipient of it, it’s a cringe. But, you know, it was hilarious. And people are very interested in energy efficiency, too. We got to work on that. He goes, ‘Well, those two need to be part of our bill, don’t they?’ I said, ‘Yes, sir.’
“We worked throughout that whole ’99 session. EDF (Environmental Defense Fund) came in with proposals on RFPs that were very market-centered which addressed Bush’s need because he knew from the New York experience, do not set a cents per kilowatt target like they did for co-gens in New York. Just let it be set by the market. He was familiar with kind of how the emissions trading programs had gone at the EPA under his father and the Clean Air Act amendment of ’90 that EPA introduced pretty quickly under then-President Bush. And he was familiar with the difference in how to do market-based. So he said to get the authority in the law to do something like that. So where do you would let the market set the subsidy and not lock in the price. So that’s what we did do with our RFPs.
“We were able to make the case pretty clear to the legislature that there were some things at this stage of development that were market failures. And so it was not un-Republican or un-Texan the kind of way in there and tip the scales. So the RPS was certainly a political compromise, I mean there were purists there who didn’t want to subsidize or do a preference for anything. But I said preferences baked into everything. So we just got to be clear about what we’re doing it and set the set a target and then hit the target and then the energy efficiency thing had a bit different constituency. I’ve always said the root word of conservative is conserve and there were in that day there a good batch of people that got that and understood that the utilities were incentivized just to keep selling kilowatt hours because they got paid every time a new kilowatt hour got done.
“Even under the new construct with the wires only company, you still only got money for your wires investment. If people were flowing kilowatt hours over it. And people understood that, that this is more complicated than most bills that come through the legislature. But there was a lot of trust that both Dems and Repubs had in David Sibley and Steve Wall. And that again, it was a magical moment for me and made me such an optimist on government that in these days when it’s really easy to be cynical, I just hearken back to that because it did work and it worked for the right reason. It wasn’t a court order or crisis or something that was done. It was done because we knew this would make Texas better.
Should we ask Texans (again) what they want out of their energy system? (37:00)
“I think it’s a stellar idea. I think the deliberative poll part to ask people what they want because what we’ve got, we’ve got a lot of different answers this time. We had this very unusual event last year when after the storm, the entire PUC was turned over, as well as ERCOT. So a lot of the institutional knowledge was gone. And so I went in to visit the new commissioners, not really with my Hunt Energy Network hat on, but just as a member of the of the club of formers, and, I said, ‘It’s been a quarter century since we did this and I just want to say from the old guard have at it. We should look at it fresh and new. What we’re going to is a different world.
“The legislature did put a very forceful piece of authority in that Senate Bill 3, Section 18, which told the Public Utility Commission to figure out what is it about dispatchable capacity that we should do. They might have kind of leaned toward what they wanted the answer to be, but nonetheless, they gave the commission sufficient authority to really plan not just for the fixes that didn’t work during URI, but for the world, we’re moving to, which is where we’ve got now probably supercharged with another ten years of subsidies, which I’m honestly not a big fan of on wind and solar, and supercharged by a real hot bogey price set by $8 gas instead of $3 gas.
“So I sense that if there were incentives for renewables to come to Texas before Uri, they’re actually much higher now because just the economics of subsidy coming in on the supply side and then the price being on the demand side, it will be very profitable to do renewables in Texas. It is time to think about what kind of world we’re moving into. And I think that’s a world that’s much more decentralized, that’s going to have a lot more technology involved in it. How customers can get a price signal on their demand and then even more importantly, get paid for it.
Don’t forget about demand-side management (41:00)
“So two prongs. One is kind of a government-centered one, which is where you go in and actually subsidize people for the simplest one that’s been around the longest is getting better insulation in kind of particularly in the southern part of the state where you just haven’t had to worry about it too much. But this whole drive toward electrification of everything which will be on steroids is when you start putting all the cars on there. We started long ago with electrifying gas heat. I mean, I’ve got gas heating this house. But, you know, two-thirds of the houses in Texas almost are heated by electricity. And you pointed out to my internal lament is we are using these glorified hairdryers called resistance heating to keep people warm in the winter. Well, you know, you stand ten feet from a hairdryer, you aren’t that warm, but it uses a hell of a lot of electricity in a very spiky, peaky way. But those are things I wish we had done in a different order. I wish we had decarbonized our grid first and then electrified everything because if we had the wind and solar on there, then the things you point about do matter.
“Like for me, the wind’s going to blow at night. Well, that’s when I’m going to charge my car. I mean, I was on the Griddy plan before that. That business was banned by the legislature, which we’ve got to undo that. So the government route is route one, but the more promising route is route two, which is where Griddy, I think had at least a touch of the right answer, which is let people see the price signals of what they’re putting on the grid, the stress or the benefit they’re putting on the grid in real-time and let them react to that.
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