Power players leave an option off the table

What's the best way to make sure Houston has the electricity it needs in 2018? Is it building more generation along the Gulf Coast or building transmission lines to deliver it from elsewhere?

Or is there another option?

There are three major players in this debate. The Electric Reliability Council of Texas, a state-supervised nonprofit, is responsible for balancing the grid and planning transmission lines. CenterPoint Energy builds and operates transmission lines in the Houston area. NRG Energy generates electricity.

Guessing who falls on which side of the debate is pretty easy. But there is a third option, which is conveniently, intentionally and sadly, left off the table: reducing demand.

In recent months, the debate over Houston's electric grid has centered on a transmission project called the Houston Import Project, alternatively known as the Brazos Valley Connection. Depending on whom you talk to, the 130-mile, high-voltage transmission line is either critical to keeping the lights on in Houston in 2018, or a $592 million waste of ratepayers' money that will discourage the construction of new electric generators along the Gulf Coast.

ERCOT says it recommended the project to the Texas Public Utility Commission, which has final say, based on the best available analysis.

"We're looking out into the future, and it's difficult to tell what the future holds," Warren Lasher, director of system planning for ERCOT, acknowledged when I spoke with him. "If it takes five years to build a transmission project, you have to make that call ... to make sure people in Houston have reliable power."

Lasher, and executives at CenterPoint, insist they followed standard procedures in reviewing the project and that nothing has changed to reduce the need for North Texas power in Houston come 2018.

John Kellum, vice president of high-voltage power delivery at CenterPoint, told me that as a regulated utility, his company has legal obligations to make sure Houston has enough transmission lines.

"We don't have enough generation within our footprint to meet the demand, so we currently import about 40 percent of the energy our region consumes though existing tie lines," he said. "By summer of 2018, the demand in this area will exceed supply, both the native generation that exists here today and what comes through those import lines."

Executives at NRG, though, say ERCOT and CenterPoint are using old data and flawed analysis to justify transmission lines where new generation could solve the problem.

"We want to make sure this is the best use of $600 million for our customers. We want to make sure this makes sense for this market," said John Ragan, NRG executive vice president for the Gulf Coast region. "Across the nation we're seeing that as economic growth occurs, the demand for electricity is starting to flatten."

This fact that demand for electricity no longer grows proportionately with the economy has forced ERCOT to change its method for predicting future demand. The bigger problem, though, is that the Texas electricity market does not adequately reward businesses that make it possible for the economy to grow while keeping demand for electricity flat.

"We could run a massive energy-efficiency program through Houston with better enforcement of the building codes, and you probably could forgo or significantly delay the project," said David Power, deputy director at the grass-roots group Public Citizen, who sits on several ERCOT committees. "The problem is our Legislature has not seen fit to make that a method."

The Public Utility Commission, which oversees ERCOT, has capped the amount ratepayers can be billed for energy efficiency projects at about $1 each, Power said. The PUC has no qualms, however, about charging utility customers more for additional transmission lines.

Unlike other states, Texas also does not provide state incentives for customers to generate electricity with rooftop solar panels that could help stabilize the grid on hot days when air-conditioning use peaks and the grid is stressed.

An emerging industry that could shave off demand during peak periods is energy storage, ranging from large batteries to compressed air stored underground. A 317-megawatt compressed air project is under construction in Anderson County, and Oncor, another transmission company, has proposed a network of lithium batteries across the state.

Last, another relatively new business is demand response, where a third-party company makes money by managing the energy use of a large number of customers and takes demand off the grid during peak periods. State regulations limit how much ERCOT can spend on demand response and under what circumstances.

"We can talk about the possibility of demand response, but right now there is no market mechanism to put that into place on a regional basis," ERCOT's Lasher said. "The same thing with rooftop solar, and the same thing with battery storage. It's a future potential."

Current state and federal regulations prioritize consumption over conservation, and that likely means the PUC will approve the Houston Import Project, despite opposition from landowners and conservationists opposed to the proposed path.

The Public Utility Commission (or lawmakers if it won't act) needs to adjust the rules and empower customers to participate in the electricity market by generating power themselves, storing power when it's cheap and using it when demand peaks, or simply by conserving power when the grid comes under stress. Everyone saves money and energy using those strategies, except generators and transmission line operators.

Such a move would mean commissioners putting the public's interest in front of the utilities, something that, sadly, hasn't happened in Austin in years.