Warren Buffett, the Sage of Omaha, is generally acknowledged to be the world’s smartest investor. Maybe so, although it can be argued that his warm embrace of fossil fuels indicates he may be good at making money but not so good at keeping his customers healthy. For the past few weeks, his minions have been scurrying around touting a plan to keep the lights on in the Lone Star State even during extreme weather events such as the one that severely disrupted the state’s electricity grid in February.
Here’s the essence of the plan: Buffett’s Berkshire Hathaway would spend more than $8 billion to construct 10 1-gigawatt natural gas-powered peaker plants in Texas in exchange for a guaranteed rate of return. According to a report by the Texas Tribune, the new generating facilities would be in place and ready to provide electricity to the grid no later than November, 2023. A peaker plant sits idle most of the time until it is pressed into service to meet high demand for electricity. In theory, it can be brought online to provide electricity in as little as 10 minutes. “When you flip that switch and say, look, demand has exceeded supply, it has to come on in 10 minutes,” Chris Brown, CEO of Berkshire Hathaway Energy, told the Texas Tribune in an interview. “That’s the Texas Emergency Power Reserve promise — that’s the promise that we’re making to the citizens of Texas.”
The new power plants would be paid for by a surcharge on the utility bills of Texas consumers — $1.42 per month for residential customers, $9.61 for commercial customers, and $58.94 for industrial customers. ERCOT, the Texas grid administrator, would determine when to activate the new facilities, not Berkshire Hathaway.
Electricity On The Cheap
For decades, the Texas utility grid has been designed to provide electricity at the lowest possible cost. As a result, spending money to protect the infrastructure from extreme weather was taboo. When sub-freezing weather gripped the state in February, lots of Texans turned on electric space heaters, which sent the demand for electricity soaring. ERCOT tried to respond but many pieces of the grid infrastructure were knocked out by the cold. Valves in the natural gas pipelines froze. Diesel engines that power those pipelines refused to start.
“We didn’t have a shortage of power plants, we had a shortage of power plants that could work in the cold, and the gas to run them,” says Dan Cohan, an associate professor of civil and environmental engineering at Rice University. “Texas has an enormous amount of natural gas plants already. It’s not at all clear that there’s a need to have more power plants built.” J.P. Urban, senior vice president and acting CEO of the Association of Electric Companies of Texas, a trade association of electric companies in the state, warned lawmakers earlier this week against subsidizing new power plants in their response to last month’s outages. The money would be better spent on the winterizing of existing facilities — precisely the sorts of investments that were not made over the past 20 years in order to keep the cost of electricity low.
The Texas Tribune explains the dilemma Texas has created for itself this way. When demand for power is high, the price for power increases and companies that can supply electricity to the grid make more money. The more cheaply a power plant can generate electricity, the higher the profit margin when it sells to the wholesale market. On the other hand, weatherizing a generating facility so it is able to operate in extreme cold or heat requires a big upfront investment that may create only a small return in Texas.
Berkshire Hathaway says its proposal to add generation capacity would be more cost effective than winterizing existing facilities. Chris Brown says his company’s new natural gas plants would be winterized and maintain seven days of natural gas storage on site to ensure they could operate during an emergency. Of course, Berkshire Hathaway wouldn’t be doing this if it didn’t think the rate of return on its investment would be higher than it could get elsewhere.
A Gaggle Of Lobbyists
The Texas Tribune reports that Berkshire Hathaway Energy has hired eight lobbyists in Austin to drum up support for the company’s plan at a cost of more than $300,000, according to records filed with the Texas Ethics Commission. One of those lobbyists is Allen Blakemore, a Houston political consultant who serves as a top strategist to lieutenant governor Dan Patrick. Company executives have also met privately with legislative leaders, including the Lieutenant Governor and House Speaker Dade Phelan. Governor Greg Abbott is on record as supporting weatherization programs over building new generating capacity. His office did not return a request for comment from the Tribune.
Lobbying is a polite, socially acceptable form of bribery. The ostensible purpose is to educate lawmakers on issues of concern to voters, but there is often an unspoken quid pro quo that goes like this: vote for this proposal and we won’t forget you when your next election campaign needs money. Texas politics are some of the most convoluted of any state and it is hard to keep track of the players and the backroom deals. A few years back, Elon Musk and Tesla spread plenty of cash around in an attempt to overturn the dealer franchise law in Texas, but came up short when the votes were tallied.
Not everyone in Texas is a fan of Warren Buffett either, so there’s no telling how this particular charade will play out. The deadline for filing proposed new legislation in Texas this year is long past so any new initiative like the one Berkshire Hathaway is proposing will have to be tacked on to one or more existing proposals. That could become a messy process indeed.
What About Tesla & Energy Storage
Remember a few years ago when the electrical grid went down in South Australia and Elon Musk swooped in to offer one of the first grid-scale storage batteries in the country to stabilize the grid? That facility, popularly known as the Hornsdale Big Battery (it has since gotten even bigger) was installed on time and on budget. Since it began operations, it has performed beautifully and even generated significant profits for its operator, Neoen.
Tesla is now fully invested in Texas, with its new Gigafactory going up in Austin and its space flight center on the Gulf of Mexico near the Mexican border. Far be it from us to tell Elon what to do, but if there was ever a golden opportunity to demonstrate to Texas how a modern resilient grid beats an old fashioned gas-fired grid, this is it. Yes, a Tesla subsidiary is constructing a 100 MW battery near Galveston, but Texas is a really big state. It will need far more storage capacity than that. What say you, Elon?