Texas both produces and consumes more energy than any state in the U.S. It controls one-quarter of U.S. proven oil reserves. Energy companies looking to grow or to establish a U.S. presence set up operations in Texas. The primary electricity transmission system in Texas is independent of the rest of the country (a long-time source of pride). The Electric Reliability Company of Texas, or ERCOT, is responsible for regulating the generation and supply of power to 85 percent of the state, except the extreme eastern and western portions.

Five Challenges

1) Texas electric demand is huge and growing. Texas produces and consumes more electricity than any state in the U.S. Population growth is booming, and the nearly 26 million residents have a growing demand for power, as does the petrochemical and energy industries that has made up most of the state’s relatively rapid job growth.

2) EPA regulations are coming at a difficult time for power systems operators. For ERCOT, greenhouse gas emissions and mercury regulations for power plants is turning aging inefficient power infrastructure that is already expensive to operate into economically unviable dinosaurs. The state government and industry groups have struggled with the EPA for some time, and the Texas state legislature voted to have the state Department of Environmental Quality take over the permitting process for new power plants.

3) Texas’s power system is a deregulated market, and inconsistency brings inefficiency. There is no certainty for long-term pricing contracts for new developers under the current system, and in Texas’ energy-only market, power providers are not paid for their capacity or for remaining online in case of emergency. The decision to build more generation capacity is based on potential economic consequences rather than regulatory forecasting (which provides security for investors), and drawing in investors without long term revenue certainty is extremely challenging.

4) The fracking boom is producing energy, but also straining resources. Low fuel prices lower the apparent cost for new gas generation, but those same low prices pull down electricity prices in the current market lowering revenue for a new generating facility and energy companies have not been motivated to build new power plants. Fracking is energy intensive adding to the growing demand for power and it is also a tremendous stress on water resources.

5) Drought and the energy industry’s huge demand for water has run some communities dry. During each of the summers of the past few years, droughts in Texas have threatened energy capacity shortages. Investors and lenders are demanding that developers of new gas generation can show adequate water availability throughout the life of a new plant, which increases costs and slows development.