Texas, New York Take Divergent Paths On Natural Gas Generation

Texas House Moves To Incentivize Natural Gas Generation

Late Monday night, the Texas House of Representatives overwhelmingly approved a slate of bills intended to incentivize the building of additional natural gas power generation for the state’s electricity grid. The bipartisan votes came just before the deadline for the House to approve bills that originated in the state Senate.

On a vote of 119-21, the House approved an amended version of SB 7, a bill that will provide for the creation of a fund to subsidize low-interest loans as an incentive for generators to invest in the building of new power plants fired with the state’s abundant supply of natural gas. Shortly after that vote, house members overwhelmingly approved an amended version of SB 2627, a bill that allows for a completion bonus to be paid from state funds for gas plants that are completed and integrated into the ERCOT-managed state grid by 2029. Members then approved a third, companion vehicle titled SJR 93, which serves as the enabling legislation which authorizes a November ballot measure that voters must approve to create the Texas Energy Fund that will take in and manage funding for the incentives.

Taken as a package, the passage of these bills represents a victory for Lieutenant Governor Dan Patrick, who made the passage of incentives that would encourage generators to “put steel in the ground” for new plants powered by the state’s abundant supplies of natural gas a part of his emergency agenda for this session. SB 7, though amended by the House, was a part of the initial package of bills approved by the Senate in early April. SB 2627 and SJR 93 were voted out just two weeks ago as much of the Senate’s original package struggled to obtain House support.

All of the bills were sponsored by Texas Senator Charles Schwertner, a Republican from Georgetown, Texas who chairs the powerful Senate Business and Commerce Committee.

The slate of amended bills now go back to the Senate for its consideration with only 6 days remaining in this year’s legislative session.

Meanwhile, In New York…

State officials in New York, along with New York City’s government, are taking an opposite approach to gas-fired generation, enacting laws and ordinances designed to force most of the state’s fleet of gas plants out of business over the next few years.

In 2019, state officials adopted a so-called Peaker Rule, which applies to older thermal power generation facilities – mostly natural gas – whose role is to kick in during peak demand times in summer months. The rule requires these plants to adopt costly emission control technologies by 2025, an investment most operators determined to be non-feasible from a profitability standpoint. Thus, the state’s Department of Environmental Conservation recently said that 37 plants have plans to retire over the next few years.

The prospect of a large fleet of plants being retired in the coming years is raising concerns about grid reliability, as promised projects for renewable generation capacity very predictably fall behind schedule. “I’m not trying to say it’s good for the environment to burn the gas turbines, but it’s better than the alternative of possibly no power at times,” James Shillitto, president of the Utility Workers Union of America recently said. “With the New York City ordinance to go all-electric, it’s putting huge pressure on the distribution and transmission systems.”

The ordinance to which Mr. Shillitto refers was adopted by the New York City Council in December 2021, requiring all new buildings in the city to be all-electric. Obviously, it’s a regulation that will increase demand for electricity at the same time the Peaker Rule will be forcing natural gas generation capacity out of business. Adding to a potential looming capacity crunch on the state’s grid, the New York legislature recently passed a law banning the installation of gas furnaces, stoves and other natural gas appliances in new homes and other buildings across the state.

Bottom Line

What we see here is a divergence of philosophies in the approach to electricity policy being taken by two of the largest population states in the country. Policymakers in Texas are going against the popular energy transition narrative, while those in New York hold fast to it.

In the midst of all this, it is interesting to note a recent report detailing the fact that New York has shed 500,000 residents since April, 2020, a 5.3% decline. During the same period, Senator Schwertner’s home town of Georgetown has seen its population grow by 14.4%, while Texas’s overall population has risen by more than 1.3 million. If people really do vote with their feet – or a rented U-Haul – perhaps the two states’ divergent approaches to energy policy has something to do with these outcomes.