02/07/2025

Texas needs up to $33 billion in new, improved power lines. Who should foot the bill?

Houston Chronicle | Claire Hao | Feb. 6, 2025

Texas needs up to $33 billion in new, improved power lines. Who should foot the bill?

Everyday residents and small businesses could end up paying for much of the $30 billion-plus in new and upgraded long-distance power lines needed largely to support more data centers, oil and gas electrification and cryptocurrency miners.

Almost half of those investments are required in just the Permian Basin, according to a plan for the region approved by state regulators last fall that is estimated to cost approximately $13 billion.

Texas needs new power lines because the current electric grid “has really become fully utilized,” Pablo Vegas, CEO of the Electric Reliability Council of Texas, said at a Tuesday meeting of the grid operator’s board. In the coming years, electricity demand is expected to surge, especially as Big Tech companies race to build data centers to develop artificial intelligence technologies. 

Transmission lines, the “superhighways” of the grid, are considered a public good. Thus, transmission costs are paid for by all Texas electricity consumers on their monthly electricity bill over decades.

OUTGROWING OUR GRID: Why Texas needs 3,000 miles of new power lines, more than the distance driving cross country

The allocation of those costs, however, is not uniform. Large industrial users can reduce their electricity consumption at strategic times to “very much reduce or even avoid their transmission charges,” said Olivier Beaufils, an ERCOT specialist at Aurora Energy Reseach, an energy consulting firm.

“That means the rest of the costs gets higher for everyone else,” he said. 

Industrial facilities are the leading reason Texas needs an estimated $30.8 billion to nearly $33 billion in transmission investments, according to a recent ERCOT report. Yet these sectors could shift much of the costs to other consumers, such as households and small businesses.

Examining how transmission costs are allocated is a priority for the Senate Business and Commerce Committee, which handles power grid issues, as lawmakers convene in Austin over the next several months. Sen. Charles Schwertner, chair of the committee, said in a January interview that he believes industrial consumers are “gaming the system, to an extent.”

“It’s crucial and important that we protect residential consumers from, in particular, large industrial (electricity users) that are increasing costs disproportionately to the rate of population growth,” Schwertner said. 

ERCOT spokesperson Trudi Webster said the organization would support state regulators in reevaluating transmission cost allocation, “as the grid is rapidly changing.” 

Rising electrical bills

Many Texans already struggle to afford their electricity bills. In fact, Texas’ residential consumers pay a “disproportionate” rate compared to business consumers, Benjamin Barkley, chief executive of the state’s consumer representative division, told lawmakers at a Tuesday hearing. 

According to Department of Energy data, the average cost of electricity in Texas in 2024 was approximately 15 cents per kilowatt-hour for residential consumers, 9 cents per kilowatt-hour for commercial businesses and 6 cents per kilowatt-hour for industrial users, Barkley said.

Electricity demand from Texas’ industrial users has grown 250% in the last ten years, compared to less than 25% among small businesses and residential consumers, Barkley said, Yet, between 2023 and 2024, residential rates rose by 4.5%, while industrial rates only increased 1.9%, he said. 

In Texas, transmission and distribution utilities maintain and build power lines and then ask the Public Utility Commission of Texas for rate increases to recover their costs. Those increases appear in the “TDU” portion of the consumers’ electricity bill. 

Transmission costs make up 30% to 40% of the average customer’s electric bill each month; the rest is mostly dependent on the cost of generating electricity. Utilities are set to charge consumers more for higher disaster recovery costs and for plans to strengthen their systems against extreme weather exacerbated by climate change. Ensuring there is enough power supply in the state has also added costs. 

Even more rate hikes are likely for the over $30 billion of necessary transmission investments. PUC spokesperson Ellie Breed said the agency doesn’t have an estimate for how much those charges could be. 

Texas’ last large-scale transmission build-out, known as the Competitive Renewable Energy Zone project, cost $7 billion. It was expected to add several dollars to the residential customer’s monthly bill, a PUC spokesperson told the Texas Tribune in 2013 when the project was finished.

Return on investment  

The electric power industry is quick to point out that the 2013 CREZ transmission project enabled low-cost wind power to displace higher-cost resources such as coal. This saved consumers an estimated $31.5 billion in wholesale power prices between 2010 and 2022, according to the Texas Comptroller.

Now, another massive build-out of transmission is needed to reduce bottlenecks on the grid, which cause hundreds of millions to billions of unnecessary costs per year. 

New infrastructure could also unlock hundreds of billions in potential economic investment, advocates say. The Perryman Group, an economic research firm, found in an October study that Texas would need to invest $12.7 billion to generate $160 billion in economic growth.

“That's a pretty good rate of return for our investment infrastructure,” Ray Perryman, the firm's CEO, told reporters in an October call. 

The industry is “really looking at those costs to make sure that they're fair and are equal, but also that we're able to make the investments in infrastructure so that we can attract businesses and residents to the state of Texas,” he said. 

In recent years, Texas has already been approving $3 billion to $4 billion of transmission projects per year, ERCOT’s Vegas said Tuesday. In comparison, the $30 billion-plus of proposed transmission lines would be for the next five to six years, equating to approximately $5 billion to $6 billion per year. 

“It's not a radical step up from what we are already used to developing,” Vegas said.

How cost allocation works

Still, the over $30 billion of potential transmission line investments has spurred the industry to reconsider a long-standing method of allocating costs known as four coincident peak, or 4CP. 

This mechanism divvies up transmission costs based on how much electricity is used during four time periods: the 15-minute periods of highest electricity demand in each of the months of June, July, August and September.

For some large electricity users, such as crypto mines, data centers, manufacturers and big-box stores, their transmission costs for the entire next year are based directly on their own 4CP usage, according to Austin energy consultant Doug Lewin. Everyone else’s costs are based on how much all other customers of the local electric utility used during those 4CP times; in other words, everyday residents can’t reduce their own costs by reducing their individual 4CP usage.

For example, in 2023, customers of Houston-area electric utility CenterPoint Energy accounted for approximately 25% of electricity demand during those 4CP times. That means 25% of statewide transmission costs that year were spread out among CenterPoint’s customers — excluding those large industrials measured on their own 4CP usage.

Originally, 4CP was designed to incentivize large customers to reduce electricity consumption during the hottest summer months, so less transmission capacity would have to be built, said Aurora Energy Reseach’s Beaufils.

But in recent years, the time of greatest concern for outages on the ERCOT grid is no longer when Texans are using the most electricity, as there’s plenty of solar energy to meet that demand. Instead, risk has shifted to sunrise and sunset when there’s a lack of solar capacity. 

Meanwhile, large industrial users have gotten very good at reducing electricity usage during those four 15-minute periods to cut their transmission costs, Beaufils said.

Growing sectors respond

Dan Diorio, senior director for state policy at the Data Center Coalition, a trade group for that industry, pointed to the Virginia Legislature’s December study on the sector’s impact in that state, the country’s largest market for data centers. The study found that current rates appropriately allocated costs to customers responsible for incurring them, including data centers.

“In the industry, we are committed to paying our full cost of service,” Diorio said. 

The Virginia study also concluded that data centers’ increased energy demand would increase costs for all customers, in part because “transmission will need to be built that would not otherwise be built.”

Lee Bratcher, president of the Texas Blockchain Council, a crypto industry association, said the group supports reforming 4CP. 

“We strongly feel that the answer is not to try to ban any kind of (electricity user), but rather to develop incentives for the build-out of transmission that allows us to utilize our electrical generation capacity more efficiently,” Bratcher said. 

In a January email statement, Todd Staples, president of the Texas Oil and Gas Association, pointed to the $27.3 billion in state and local taxes and state royalties paid by the oil and gas industry in 2024 as a sign of the sector's support of Texas' public infrastructure.

“Many examples exist where new transmission has been built to meet fast-growing residential, community and commercial needs where all ratepayers are responsible for the costs,” Staples said. “Diverting from this accountable ratepayer system or failing to consider an industry’s long-term economic contributions to the state could erode Texas’ open-for-business reputation.” 

Potential reforms

The independent watchdog for ERCOT has endorsed reforming 4CP for years; the PUC’s staff concurred for the first time in September, according to Lewin. 

One option to reform 4CP could be to go to a 12CP system, which would peg transmission costs to how much electricity a large industrial facility uses during the time of greatest electricity demand each month, said Schwertner, the senator chairing the committee focused on grid issues. That would make it more difficult to avoid transmission costs, while preserving some of the benefits of avoiding grid strain.

Another option could be to add a surcharge on the bills of certain large electricity users, dependent either on the industry or how much electricity the customer uses, he said. 

The Senate Business and Commerce Committee is also considering measures that cap or limit the percentage of transmission costs that can be passed onto smaller consumers, according to a December report. 

But Thomas Gleeson, chair of the PUC, cautioned lawmakers on Tuesday that changing 4CP — a complicated, technical function that’s existed in the Texas electricity market for nearly 30 years — shouldn’t be done in haste. 

Many large electricity users looking to move to Texas have “expressed to me a willingness to pay for some of the transmission,” he said.