Money for Nothing

Texas utilities want to be rewarded with lavish incentives for delivering less energy savings, at a time when Texas desperately needs to reduce energy waste for grid reliability

If another Winter Storm Uri hits next winter, ERCOT forecasts that peak demand will exceed 106 gigawatts. As things stand, the all-time ERCOT record is 85.5 gigawatts.

So if the nightmare storm of February 2021 repeats this winter, we’ll need to cover all of that, plus another Houston’s-worth of power.

Texas cannot begin to solve this challenge without finding ways to lower energy demand, especially by reducing energy waste. Unfortunately, utilities are hobbling those efforts at a state level — and padding their profits in the process.

It’s Supply AND Demand

ERCOT-initiated rolling outages, such as those we experienced in 2021, come down to supply and demand.

The state has done quite a bit to bolster supply in the four-plus years since Uri, most notably weatherizing power plants and maintaining a market that has added 35% more supply than we had then (though some legislators seem frighteningly obsessed with undoing this phenomenal growth).

But policymakers and regulators have almost completely neglected the demand side, ignoring solutions that would reduce energy waste and help people and power grids get through extreme weather.

As one example, over the last two years, the largest utility in the state, Oncor, has achieved less savings through efficiency than it did in 2021 and ‘22. Oncor recently told the PUC they expect to save even less energy in 2025.

Over the last four years, Oncor alone brought home $95 million in bonuses — cash paid by consumers which should fund energy waste reduction — even as their savings went down every year. That’s a lot of money for deteriorating results.

The eight investor-owned utilities collectively took home nearly $250 million from 2020-2023 — that’s up 112% compared to 2016-2019.

Most of the utilities’ bonuses for 2024 will be filed with the PUC by June 1 — conveniently, too late for the Legislature to do anything about it (the legislative session ends the next day). That will likely add up to an additional $80-$100 million in ratepayer funds .

And, unsurprisingly, that epicly high figure comes with even worse outcomes: in 2024, Oncor saved less energy through waste reduction than in any of the previous five years.

Zero Steps Forward, Two Steps Back

Neither the Legislature nor the PUC has done anything in 14 years to increase the utilities’ energy efficiency goals. This year, Texans will be lucky if the Legislature doesn’t move us backward.

Senate Bill 2994 is the only bill impacting efficiency goals and programs that has passed either legislative chamber. It would lower the bar even further for utilities, adjusting goals downward: utilities would only have to meet 75% of the energy savings they achieved in 2024.

As shown above, Oncor saved less energy in 2024 than it did in any of the previous four years. So SB 2994 actually allows them to achieve 50% less than they did in 2022.

And, true to form, the bill allows utilities to take even more money from consumers for their bonuses, even as energy savings outcomes sink.

Currently, utility bonuses are capped at 10% of the net benefits of energy efficiency; SB 2994 would allow that to rise to 20% of the net benefits (page 7, line 9). It does put a secondary cost cap of 30% in place, but that number is inclusive of the “calculated performance bonus,” which in some cases will actually exceed the amount the utilities spend on energy efficiency.

The effect is sky-high utility bonuses for dramatically lower results.

Short Term and Long Term

The legislative session wraps up in less than two weeks. The Legislature can fix SB 2994 by directing the PUC to set the secondary cost cap at a level no higher than 20% — which is more than utilities make on anything else they invest in — and setting the goal at a minimum of 100% of 2024 levels. Most importantly, the PUC should have the discretion to change those levels to maximize consumer and grid reliability benefits.

But more than all of that: why in the world would anyone think it’s acceptable for a multi-billion dollar utility to collect more money for achieving less?

Utilities should earn a bonus for exceptional performance, but 75% of a low baseline shouldn’t be an acceptable goal for anyone — certainly not legislators who are supposed to represent consumers. Utilities should have to work for this money. Ratepayers are paying them for performance, not less than status quo.

Resistance Is … Lucrative

The problem, of course, is incentives: utilities make more money when consumers waste more electricity. These inefficient efficiency bonuses pile on top of the profits that utilities make from drafty homes and inefficient air conditioners and heaters.

Consider resistance heat, the 100-year-old technology used in toaster ovens, hair dryers, and about three million Texas homes. It’s staggeringly inefficient, using copious amounts of electricity for minimal heat. It’s also terrible for the grid, which has to cobble together enough power to meet the demand.

Aurora Energy Research recently completed a study for the Texas Association of Business and the South-central Partnership for Energy Efficiency as a Resource (SPEER). It looked at the 3 million homes heated with resistance heat:

But it benefits utilities, which get to charge people — usually people without much money — a whole lot more for all of that electricity they’re inadvertently and uncontrollably wasting.

Obviously, utilities’ interests are misaligned with the interests of their customers. Yet Texas law lets utilities run the planning and execution of energy efficiency programs. If Oncor, CenterPoint, and the others care more about enriching shareholders than about reducing power bills and protecting the grid — and make no mistake, they do — then Texas should get them out of the efficiency business.

But utilities won’t give up energy efficiency programs easily — they love their bonuses.

Work Less, Make More

Of course this is all outrageous. Of course the Legislature should have laughed SB 2994 right out of committee. Instead, the Senate passed it 25-6. It’s now sitting in the House State Affairs Committee, which has to vote it out by Saturday or the bill dies. Without major changes, Texas is probably better off without it.

Longer term, though, it’s time for a bigger change. The Legislature, the PUC, or ERCOT needs to take the reins. Ratepayer money that’s dedicated to reducing energy waste should flow not to the utilities, but rather to the PUC (which can administer waste reduction programs itself), to ERCOT (which is standing up residential demand response programs), and/or to competitive bidders working on behalf of the PUC and the public.

A competitive demand-side market would deliver better results for ratepayers.

Less Waste = More Reliability

The Aurora study on demand side management found that if Texas could replace half of the resistance heat with high-efficiency heat pumps, “load shed can be almost completely mitigated in a 2030 winter storm” (slides 29-30) while delivering a financial boon of almost $500 a year to residential customers.

Even as energy use skyrockets in Texas, efforts to reduce energy waste are somehow going in the other direction. After the 2021 catastrophe, federal investigators recommended that Texas ramp up energy efficiency programs. That hasn’t happened. This year’s legislative session would have been a golden opportunity to change that by taking concrete steps to increase energy efficiency. Instead, the Senate passed a bill to maximize utility benefits instead of grid and consumer benefits.

The opportunity to reduce energy waste, particularly in the winter, could save lives. It also will save real money for consumers. Someone needs to ensure that the state takes advantage of it.

That won’t be the utilities.

Reducing energy waste is an essential job for our state’s future. It’s time to find someone who actually wants to do it.

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