Go to Texas regulators and use California as an example of anything, and you’ll get a deep eye-roll. Talk to Californians about the Texas open electricity market and get reminded of what Enron “did” to California in the early 2000’s. For all the philosophical differences, in the last 8 months, both states have suffered crippling power outages with profound human and economic consequences.

But it’s not just the weather that’s extreme; it’s the regulation in both states that have left each vulnerable. We now know that Texas under-regulated power providers by not ensuring that their natural gas plants and wind turbines were weatherized for winter, that Texas’s deep independence streak has kept its electricity market largely disconnected - literally - from its neighbors; and that the “wild wild west” nature of the Texas market has left a lot of customers with $5,000 to $10,000 electric bills.

We also know that California’s over-regulation of demand response sources meant that a large potential release valve could not be fully pulled when neighboring states stopped exporting power due to their own record demand for air-conditioning. Instead, California repeatedly asked companies and residents to “pretty please” use less power, hardly a market-based solution.

Here are a few must-need changes in both states:

Open up markets to distributed resources that can flexibly manage demand:

• Micah Kotch writes in TechCrunch that we should embrace the impact that distributed energy resources (i.e. rooftop solar, batteries, demand response) can have on the grid.
• But California’s proposed decision on emergency reliability favors procuring more natural gas supply without taking significant action to reduce the many regulatory barriers that the state currently puts on demand response.
• Caps persist in Texas as well where the emergency demand response program has an arbitrary spending limit and utilities have weak incentives to invest in demand reduction.

Invest in efficient forms of electric heat and update efficiency standards:

• 62% of new homes built in Texas use electric heating, which triggered a lot of the demand spike in February.
• Texas will need to invest in more efficient forms of electric heat, including cold weather air-source heat pumps and geothermal heat pumps. Expect more communities like Whisper Valley outside Austin that use geothermal for all their heating/cooling needs.
• Texas will need to update its energy efficiency standard. It is ranked #29 by ACEEE’s state scorecard. California ranks #1.
• Fun Fact:  Despite California being a vocal climate leader, today 95% of its new single family homes use natural gas for heating! Expect those numbers to decline precipitously as the state moves to electrify everything and put strain on the winter grid.

Protect customers from exorbitant bills and pay them to curtail:

• Texas has provided emergency relief to thousands of customers who were gauged by their electric provider during the crisis, but broader market reform is needed.
• California regulators have blocked proposals that would provide new incentives for consumers to buy smart thermostats; they have also proposed a new emergency program to pay customers who use less power during a crisis (great), but it seems designed more for public relations than results (not great).

4 Big Policy Decisions to Watch:

1. California’s impending Final Order in its Emergency Reliability proceeding comes out on ~March 25th.
2. The Texas legislative session will rage until May 31st and will reshape the future of the market; follow Doug Lewin’s twitter feed for the play by play.
3. FERC announced on 3/14 that it would both allow demand response to fully participate in distributed aggregations and launch a Notice of Inquiry (NOI) that could further transform the demand response market.
4. The Biden Administration Infrastructure package could include provisions to spur more investment in climate tech, including distributed resources.