Texas Businesses Have an Incentive to Save Power—and Aid the State’s Electricity Grid

In February 2021, an extreme winter storm hit the Texas power grid hard, triggering widespread blackouts. This summer’s waves of extreme heat are again putting the electricity network to the test. But this time the system has kept running, thanks in large part to a regulatory quirk that has little to do with environmental sensitivity or civic responsibility and everything to do with cold hard cash.

The state provides a big financial carrot for businesses that reduce their power demand the most on certain peak days, coupled with the smack of a painful stick for those who aren’t as successful doing so. The result: Big companies are slashing electricity use at critical moments to minimize their share of expenses to maintain the grid, saving them millions of dollars in the process.

The setup is complex but potentially lucrative. In addition to paying for the electricity they use, factories, cryptocurrency miners, and other large Texas power consumers are responsible for helping cover about $4 billion in annual expenses to build and maintain transmission lines. Each company’s share of the total is based on how much electricity it uses during periods when demand is highest. So any time demand spikes, companies have an incentive to throttle back operations, dim lights, start backup generators, and do whatever else they can to avoid getting saddled with a big chunk of the expense.

The practice, called curtailment, puts companies in head-to-head competition to out-conserve one another. The winners are able to slash 20% to 30% off their annual power bills, says Gregg Dixon, chief executive officer of Voltus Inc. in San Francisco, which helps large power consumers manage their supplies. The losers get stuck paying the lion’s share of the transmission fees. “That’s a pretty powerful incentive,” he says.

It’s also an effective tool for preventing the grid from being overwhelmed on hot days. On all 11 occasions this summer that Texas power use set a record, demand came in lower than the grid operator had forecast. A key reason was curtailments, which helped shave as much as 3,000 megawatts from the system on high-demand days, according to Dixon and Thomas McAndrew, CEO of Enchanted Rock LLC, which helps companies manage their power use. At least half of that was from customers trying to minimize their transmission fees, both say.

Texas was home to the most devastating power failure in modern U.S. history two winters ago, contributing to the deaths of more than 200 people. Now the struggle to keep the lights on amid searing heat is a key issue in the state’s governor’s race between incumbent Greg Abbott, a Republican, and Democrat Beto O’Rourke. Abbott, who’s said the causes of the grid failures have been fixed, has been urging crypto miners to move to the state, helping to drive record growth in electricity demand. O’Rourke has criticized Abbott’s ties to energy interests that profited handsomely during last year’s grid failure and proposes connecting Texas’ state-only grid to the national grid to ensure consistency of service.

Any long-term changes to how the grid can handle extreme events will be driven by the outcome of the November elections. But for now the state’s experience with curtailment to avoid blackouts could provide a blueprint for other regions coping with surging demand for electricity and a swift transition to renewables.

This summer will determine how at least $13 billion in grid fees will be split across users on four US electrical networks. Whereas Texas uses summer demand to divvy up transmission costs, three East Coast grids use summer usage peaks to allocate costs for power reserves throughout the year. All the money the luckiest users save because of their conservation efforts has to be covered by other businesses and millions of households on those four grids.

These curtailments help keep grids stable when supply is tightest. The practice is becoming controversial in the Lone Star State, where most households are typically asked to conserve without compensation while their transmission costs continue climbing to support growing demand from power-hungry businesses such as crypto miners.

“People should be concerned that they will not be paying for their share of costs for transmission upgrades,” says Adrian Shelley, Texas director at Public Citizen, a consumer advocacy and lobbying group. Crypto miners already curtail because their profits hinge on cheap electricity prices, “so the state giving them a premium payment on top of that behavior they’re going to have to do anyway doesn’t make a lot of sense, and it will result in more wealth transfer from the state to these private enterprises,” Shelley says.

During the February 2021 winter storm, big users curtailing their demand when prices were at the $9,000-a-megawatt-hour price cap helped keep the grid from even longer blackouts, but it wasn’t enough to stop the disruptions. That’s because almost half of the grid’s power plants failed during the freeze, along with the natural gas network that fuels much of the system.

Electric Reliability Council of Texas (Ercot), which operates the state’s grid, and regulators are considering ways to provide households with incentives to curtail when conditions are tight. Tesla Inc. is urging the grid operator to change rules so household batteries, paired with rooftop solar or in electric vehicles, can be pooled together to effectively create “virtual power plants” and reduce demand.

In Texas, major transmission charges are divvied up based on usage during the highest 15-minute demand period in June, July, August, and September. So timing curtailments perfectly for all four months can significantly reduce or eliminate big electricity users’ share of grid upgrade costs.

A large manufacturer or modest Bitcoin miner using 100MW an hour can save $4 million to $5 million annually, according to Dixon and a Texas miner. That means Riot Blockchain Inc.’s 400MW facility could save as much as $20 million in transmission costs next year. Savings may be smaller when users contract for backup generation gear instead of owning it. Such units, which run on natural gas, propane, or even diesel, are key to ensuring that big users can keep their lights on when the local utility or grid has blackouts. But they also can be pulled into service at peak usage times, lowering a business’s electricity draw from the grid.

Recent experience suggests that the chance to lower transmission fees is changing business behavior. The Texas grid had a peak on July 20 that hit 80,124MW in the 15-minute period that ended at 4:45 p.m., Ercot data show. It was a record-setting day, but Ercot had predicted consumption would top 82,200MW that afternoon.

Most of the 1,200MW of Bitcoin mining capacity in the state was offline during the peak hours, says Lee Bratcher, president of the Texas Blockchain Council. Badger Mining, which produces sand used in drilling shale oil, shut its dry and wash systems. And Gavilon Agriculture Holdings shut fans for cooling grain in elevators and some other operations, according to Voltus, which helps both companies manage their energy usage.

When wind generation and reserve levels are very low, curtailments are “the difference between normal conditions and going into emergency conditions,” says McAndrew of Enchanted Rock, which manages power supplies for users such as Texas grocery chain H-E-B LP. The retailer stopped tapping the Ercot grid during the July peak and stayed open by using backup generation, he says.

Figuring out exactly when to stop pulling power from the grid to win the transmission fee reduction can require a bit of game theory. If everyone curtailed on what Ercot expected would be a record demand day or time, that could shave the peak and potentially shift it to another hour or day, says Gary Cunningham, head of market research at brokerage Tradition Energy. If there’s a five-day stretch of extreme heat with record demand expected on the last day, the high may be on Day 4 because everyone curtailed on Day 5. So businesses will have to curtail at least 40 hours to get those four 15-minute peaks right, Dixon estimates. “It’s like squeezing a balloon: You’re not actually changing the demand of energy, you’re just moving when that peak happens,” he says.

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