The U.S. economy has had little to celebrate since the 2008 financial meltdown and the recession that followed. One bright spot in the gloomy picture, however, is Texas. The rest of the nation could turn to the Lone Star State as a model for dynamic growth, as a close look at employment data shows.

Vital to the economic health of Texas is that people are moving to its cities in droves. Eight of the 15 fastest-growing large U.S. cities and towns for the year ending July 1, 2012 were in Texas, according to population estimates released by the U.S. Census Bureau. A trend reflecting a growing population and expanding economy—the total energy consumption in Texas has risen by an average of 2.2% annually since 1960.

Texas produces and consumes more electricity than any other State, and leads the Nation in wind-powered generation capacity, surpassing California.  Despite large net interstate electricity imports, the Texas Interconnect power grid is largely isolated from the integrated power systems serving the eastern and western United States, and most areas of Texas have little ability to export or import electricity to and from other States.

De-Regulation of Electricity in Texas

Electricity deregulation in Texas was the result of Texas Senate Bill 7 on January 1, 2002. As a result, most Texas power customers can choose their electricity service from a variety of “Retail Electric Providers” (REPs). Electric Reliability Council of Texas (ERCOT)-an independent system operator for the region manages the flow of electric power to 23 million Texas customers —representing 85% of the state’s electric load. ERCOT is a membership-based 501(c) (4) nonprofit corporation and is subject to oversight by the Public Utility Commission of Texas and the Texas Legislature.

While retail choice has delivered tremendous benefits to consumers, it has created competitive pressures that have kept electricity prices for consumers low while getting the most advanced services. For example, Texans can opt for 100% renewable electricity from Green Mountain Energy.  However, the increasing population and economic growth in Texas continues to increase electricity demand. So while Texans have had access to cheap and competitively served electricity for almost a dozen years, the current free market structure is no longer sustainable.

Residential and small commercial customers make up 75% of summer peak demand primarily due to air conditioner load. Texas per capita residential use of electricity is significantly higher than the national average due to the high demand for air-conditioning during hot summer months. Even though ERCOT made it through the heat wave, which was about 1,100 megawatts lower than its all-time peak, changes are likely coming to the energy-only market, it has already raised its market cap to $5,000 per megawatt-hour in 2013, and that will rise again to top out at $9,000 per megawatt-hour in 2015. Most other areas of the country have a far lower market cap, $1,000 to $2,500.

What should Texas do?

While Texas is moving in the right direction with its expansive wind industry and smart grid development like the Austin’s neighborhood smart grid test-bed, Operative Reserve Demand Curve (ORDC) or demand response should be a first line of defense. Various retailers and utilities such as Austin Energy, Reliant, Green Mountain Energy and TXU are experimenting with residential demand response.

Demand Response Program—Case Study of University of Texas at Arlington

In broad terms, demand resp­onse programs give us the abi­lity to voluntarily trim our electricity usage at specific times of the day (such as peak hours) during high electricity prices, or during emergencies (such as preventing a blackout). Such programs are becoming an integral component of the evolving smart grid infrastructure. It provides the ERCOT market with valuable reliability by preserve system reliability, enhancing competition, mitigating price spikes, and encouraging the demand side of the market to respond better to wholesale price signals. Such voluntary incentive programs help reduce excessive strain on the energy grid during times of peak demand, which helps to prevent rolling brownouts. Large companies are taking advantage of demand response programs because they offer an additional revenue stream and cost savings by managing electricity more strategically. University of Texas at Arlington participates in three such programs:

1. An emergency interruptible load service program,
2. A commercial load management program, and
3. A peak shaving program that provides incentives to program participants that are willing to reduce their usage for 15-minute intervals between 3:30 p.m. and 5:15 p.m. during June-September, summer peak demand period.

The UT Arlington campus spans 420 acres and includes more than 100 buildings. The University has added 1.2 million square feet of learning environment over the past five years through the construction or renovation of more than a dozen buildings. Based on a five-year term, the expected net cash flow for a two-megawatt reduction commitment is expected to be $153,000 per year.

Everything is bigger in Texas—So is the challenge!

The electric grid in Texas has fared well so far this summer. ERCOT was able to meet its highest peak yet for 2013 (which was about 1,100 megawatts lower than its all-time peak) when the region topped out at 67,180 megawatts on August 7, 2013. Large commercial and industrial customers may want to increase their participation in such demand response programs to hedge against being exposed to the potential high prices during the hottest days of summer.

As the saying goes, “Everything is bigger in Texas.” While it may sound clichéd, it is right on the money when it comes to describing the Lone Star State’s energy challenges in the coming years.