The Texan Podcast - 88th Session Kickoff: Energy and the Grid Panel

Episode Date: February 1, 2023

Get a FREE “Fake News Stops Here” mug when you buy an annual subscription to The Texan: https://go.thetexan.news/mug-fake-news-stops-here-2022/?utm_source=podcast&utm_medium=description&utm_campaign=weekly_roundup This panel was about the Texas grid and energy policies. Our senior reporter, Brad Johnson, moderated the discussion between State Sens. Kelly Hancock and Nathan Johnson, and Reps. Jared Patterson and Charles Cunningham. Enjoy this content? Be sure to subscribe for similar podcasts and The Texan’s Weekly Roundup — a podcast released every Friday that brings you the latest news in Texas politics.

Howdy folks, Senior Editor Mackenzie DeLulo here. Welcome to a special edition of the Texans Podcast, where we play back a panel discussion with lawmakers that we hosted at our 88th session kickoff event on January 24th. This panel was on the Texas grid and energy policies. Our senior reporter Brad Johnson moderated the discussion between State Senators Kelly Hancock and Nathan Johnson, and Reps Jared Patterson and Charles Cunningham. We hope you enjoy listening to this conversation, and be sure to subscribe at thetexan.news to always be the first to have an insider's look at Texas politics and policymaking. Hi, everybody. My name is Brad Johnson, senior reporter here at The Texan.

I have the absolute pleasure of presiding over the energy and power grid topic. I know everybody is here for a rip-roaring discussion on that, certainly not just biding time until Lieutenant Governor comes up. But this is an incredibly important panel topic. We have a lot of great panelists here. And so I'll introduce them, and then we'll get into it. Senator Nathan Johnson, Democrat of Dallas. Representative Jared Patterson, Republican of Frisco.

Senator Kelly Hancock, Republican of North Richland Hills. And then Charles Cunningham, Representative, freshman, from Houston, right? Humble. Humble, that's right. I was going to screw up at some point, right? Humble. That's right. I was gonna screw up at some point, right? So this topic is, until about two years ago, almost nobody cared, right? About the power grid, at least. Almost nobody. I'll let you be in that remnant. But then it became painfully obvious that we could not ignore this any longer. That was the 2021 blackouts.

And it opened up what is a very esoteric and complicated debate to an audience that had never really considered this before, myself included. So I've learned a ton, not just on the beat, but listening to these gentlemen talk about this, listen to testimony in committees, 22-hour hearings that you guys had to sit through. And so we're going to get right into it. Senator Hancock, after the storm, the legislature passed a pretty broad array of legislation. Fourteen bills. Fourteen, was it? Wow. The biggest one was SB3. Can you give us a recap?

Or SB2. True, true. Fair enough. But can you give us a recap of what the legislature did at that point and then how we've seen that play out since then? then well let's go back to pre-yuri and so if you go back eight years um when i was lieutenant governor first you know gave me the privilege of chairing business and commerce which is where all these issues came to one of the first things i did as chair of business and commerce was I brought in the head of ERCOT, and I explained to him that I was concerned about the rapid growth of renewables, which I'm not opposed to, but the rapid growth because of what is now up to $380 billion of federal dollars going into renewables, I was concerned about the stability back then

way before anybody was talking about it. And we were looking at it. And I was assured, given assurances. And I bring up SB2 because you've got to recognize that the board of ERCOT prior to Senate Bill 2 were industry participants and therefore had some conflicts of interest in the fact that there's $380 billion of federal funds going out there.

And so that's why I didn't tell anybody what I was going to do on SB2 until I did SB2 at the end, including my staff, because there would have been a lot of money given towards lobbyists in order to kill it, and we were able to get it passed, which gave an independent board, which allows everything to happen after that because it has to get the board approval, and the independent board allows you to make changes you could not have made previously because of the conversations that I'd had eight years ago. So what a lot of people don't realize is that nearly every piece of legislation that was filed prior to URI.

If you'll go back in and look at it, ancillary charges, legislation, those things we filed prior to URI happening. And so we had a lot of that ready to go when it occurred, which is why we were able to literally work very rapidly because we didn't start from scratch. We were there ready to go. Then URI happens. I get a phone call. What are we going to do? Give me 24 hours because the financial piece we had to put together, which, again, had huge bipartisan support, allowed companies not only to avoid bankruptcy,

but some that were in bankruptcy forced out of bankruptcy because they had a way of paying their creditors. Literally, everybody working together. What's that? Securitization. Yeah, securitization on doing that. Literally, everybody wanted to work together to address the issue and do what we needed to be done. I can't tell you, both because he's very smart, but I mean, Senator Johnson dug into it and

wasn't afraid to ask questions. You get a lot of people that know all the answers, but don't ask the questions. And Senator Johnson was one willing to ask a lot of questions do a lot of study on his own i'll give the governor credit as well asking a lot of questions it was a space you know you're right nobody focused on until we need to focus on it we felt there was concern years ago that's why we were kind of prepared when all this broke senator johnson you sat through those hearings on the Business and Commerce Committee as well,

and you were appointed to that this time around as well. What do you make of the results of these measures put in place, the operational changes since URI that we've seen changes in the grid on? I think it's been great progress, and I think we have a long ways to go, which is the subject of a different question. I do want to validate something that Senator Hancock said, which were two things, that no one was really paying attention to this stuff,

but he was. In fact, we didn't always agree on it. In my first session, but he clearly knew more than I did, so he was one of the places that I went to with questions, and he was one of the most influential people in all of this stuff as well as many other members sitting through the hearings participating in the hearings shaping all of this stuff see but so the main elements that have been in play for the past two years are the independence of the board the securitization, the weatherization requirements,

which incidentally were recommended very, very, very strongly and even drafted as requirements as far back as 2011, but got softened into just mere recommendations and suggestions. So it didn't happen. It has happened since then. The generators are largely weatherized. The oil and gas companies, it's a more complex equation. There may be some politics involved, but they have also done a great deal towards weatherization. But also of great importance is the mapping of all these facilities. One of the problems we had during the storm, one of the problems we would have again,

is that over time, oil and gas producers and pipelines have relied on electricity to keep their equipment warm during a freeze, but they didn't get any electricity because the generators or the transmission utilities didn't know that their line they were cutting goes to a producer. So they cut off the electricity to the gas so you couldn't send gas, which killed the plant, so you couldn't send electricity to the producer so they couldn't do gas.

And we went into this spiral. That's not going to happen again. There's been a lot of work done on the map. So we are in a way better position than we were a couple of years ago. Are we still vulnerable? Absolutely. We still have demands on the market.

We still haven't quite figured out, or at least we're not speaking together with one voice on what the market reforms should look like. We still don't have a resilient grid. We are vulnerable to people with machine guns shooting transformers, tornadoes, hurricanes, cyber attacks. There's a great deal of work still to be done, but I'm proud of what the legislature was able to do in a mere 80 days last session, and I think we are in a better position because of it. Representative Cunningham, you spent 30 years in the power industry, private sector. Can you talk a bit about what you saw from the inside after URI, after these reforms were implemented on that side of the ledger? Well, I'll be happy to. And I'll actually go back to 2000, 2001, when we actually started

our D-reg. And at that time, we had plenty of power. We did, but we forgot we didn't plan for future power. Generations going offline and things of this nature. And then I want to thank the Senator here because 2011 was real big because when you have a generation plan in Dallas going down and it affects rolling blackouts in Houston, hence the problem. So y'all put the pieces in place. But what we've got now is actually something that's actually working, and I'm just kind of joking when I say this, but I really mean it.

We're flying the plane as we build it, and so that's what we're doing. And so we're doing that not only here in the Senate, here in the legislature, but also with all our TDSPs, our retailers, everybody, as we do this. And we're much better. The plane is still flying, and we're much better with what's been put in place. SB2, SB3, it's working. Representative Patterson, one of the things we've seen come from this additional caution with which we operate the grid, at least until we get the market reforms hammered out, is an increase in cost. You know, more power at longer times costs money. It's just plain and simple. What is the, what do you take from that,

seeing power bill, utility bills go up in response to these operational changes? Well, I think, you know, you look back at the way that, you know, in 1999 in Senate Bill 7, when they, when they dereg the market, you know, what the market was supposed to do. And it was supposed to react to, we have a certain amount of demand that's projected. You know, people are going to supply power to the grid. You're going to get paid for the power that you actually produce. And we're going to go on our way. What was never accounted for was the massive, overwhelming subsidies that would come in from the federal government that would overwhelm our marketplace and our system and build out so much wind power over the course of the next couple of decades that depressed prices in the market

made it to where the generators couldn't compete, couldn't make money. And at the same time, you're building wind power generators way out in West Texas and having to spend billions and billions of dollars on transmission lines to get West Texas generated electricity all the way into the Dallas Metroplex or all the way into Houston or to the load centers. And so what you saw over time was as natural gas prices really curtailed after 2008 and electricity prices followed, the TDSB side of the bill kept going up because we're building out all this massive transmission infrastructure from way way out in west texas instead of right around the corner where the natural gas power plant is so all of that's going on and then we have winter shore murie and i think the biggest thing that we

did as a legislature that was maybe the best thing that happened is that i feel like we didn't overreact in a way that we could have legislatively and come in and really scrap the whole market. Now we'll get to whether or not the PUC is doing that, you know, in a moment, but I feel like we didn't do that. But what we did do is give them the tools that they needed to better react to weather, to better react to the intermittency of renewable power. And those things do cost money. You know, it costs money to have a more reliable grid. It costs money to operate more conservatively. One of the tools that they use are the ancillary market, making sure that we have enough power and reserves and on standby. As they procure more of those, it costs more because there's only so many resources to go around, right?

So has the cost been worth it? Well, we hit 11 new all-time peak demand records in the last year, and we didn't have a blip on the grid. Some people would say that's worth it. But what I would caution you to say is that you can't build out the grid for every conceivable act of God that could possibly ever happen because none of us could afford a power bill. I mean, none of us could afford it if we're able to do that. So we've got to figure out where that reasonable line is and keep going down the road. Well, and to that point, and that's the resiliency factor. we talk about capacity all the time and we're going to talk about it today but we exactly what representative patterson

said we will never ever have a perfectly secure grid that's available in every scenario and so we need to have some backup plans we can talk about that later too what and let me address because you talked up about transmission we addressed transmission last legislative session we gave it a business model you know maybe one of the only guys still running a business in the Senate but I do have a business that I run our eyes were important so what we did with transmission rather than making it a political battle whether we decide to increase your transmission bill 40% it's 40% of your bill pays for the crest line right now and do that again so it's 80%

of your bill we passed legislation that says you've got to meet a formula if if generation is low cost enough to justify building the transmission lines to get it to the end user, then we build the transmission lines. So we were able to pass that as well, which was something we filed way before URI. And they're in the process of doing that because of congestion down in Houston area. In order to lower the cost to there, there was a cost justification to build transmission to address that and get lower cost generation into the marketplace. I suppose we'll just jump right into it now.

We've already kind of alluded to it enough, but last week the Public Utility Commission adopted kind of a tentative plan to move forward with the performance credit mechanism, which in layman's terms is essentially financial rewards for generators that produce during times of high-grid stress. And it's levied after the fact rather than based on forecasts beforehand. Representative Patterson, you were quite critical when this came out. I should add that the PUC also said they'll kind of wait for legislative input. That was a little vague. I'll take the bet that a majority of 181 people

can't design an electricity market, but we'll see what happens. It'll be quite a task these next five months, won't it? But you were critical of the decision the PCM found some ways that it's lacking. Can you explain your thoughts on that? Yeah. So, you know, I'm a free market guy. And I think that the state of Texas back in 99 set up a free market, you know, that worked pretty well until the federal government came in and got so heavily involved. But I think it was working pretty well.

Certainly didn't have, you know, no challenges at all. But as a professional in this industry for almost two decades and understanding how other markets other than ERCOT that aren't energy-only markets, that have very prescriptive, very administratively heavy regulations around the procurement of capacity, it scares me to death to think that even more administrative muscle is going to be shown in our market. Look, there's already a lot of administrative influence in how things are done in Texas, in our market. We like to say that we don't have a capacity market, which we don't technically, but we have a lot of

administrative, you know, the price cap for power, what a generator can earn, that goes up and down administratively, and it's changed multiple times over the last decade and a half. And from 9,000 to 5,000. Yeah, but before that, it was 3,000 to 9,000, and then back to 5,000. That's all administratively done. You've got an ORDC, operating reserve demand curve, that shifts. And what that does is that tells generators basically when they're entering into scarcity pricing so that they can get paid more money for what they're generating quicker so that in theory that would bring them on quicker. But all of these administrative pieces that they do, those don't

give long-lasting good price signals to investors to come in because as soon as they can give it to them administratively, they could just as easily take it away. So on the PCM model specifically, number one, even the own study that they commissioned didn't even recommend this model, mainly due to the complexity of it. We're the ninth largest economy in the world. We're 30 million people and growing, and they want to put in something that's never existed in any other electricity market in the world.

You know, I think that's a big risk to take, you know, as a policymaker. But it's the administrative piece of how they're actually going to come up with the rules, how they're going to pick who the winners and losers are in the market. You know, I think that there are simpler answers out there. I think that the study showed that. And I could probably go on, and I certainly don't want to hog the time for the panelists, but

from my perspective, I want the least amount of administrative actions taken in the market. I want the market to dictate what we do and what we provide. Senator Johnson, as I said, you sit on the Business and Commerce Committee. That committee, chaired by Senator Charles Shortner, put out a letter before session started that said, you know, we have quite a few concerns about the PCM. Not only that, but also the PUC acting without legislative input. After seeing what the PUC adopted, what do you think about this broad general plan right now?

Let's start with the letter. The letter went out and it said exactly what you said. We have, if you look at the language of the letter, we are concerned that. We heard testimony that. And the upside of it being being we're not sure that Any of these is the right plan particularly there was a reference to the PC of the performance credit mechanism Rewind to two years ago when we were working on all this stuff. It was the hope it was the expectation I think of everybody that some number of months six months twelve months eight surely 18 months after session

There would be a consensus among energy experts, among environmental experts, generators, massive consumers, pipelines, everybody in this space would have studied this and we would all say, aha. In fact, we're going to hire some consultants, some experts that are going to deliver us the answer and we'll all go, bingo. And that we wouldn't have this hand wringing that we're experiencing right now about which direction we should go. That's what we all thought.

When we get back into September of this past year, we weren't there yet. And so the letter indicates on the part of all of us who signed it, I'm not sure we're ready to pull the trigger on anything just now. Now, the PUC has been looking at this. They've been wanting to move forward with this for a

long time, they felt like it was the right time, there's political forces in the middle of all of this, but I've never seen a more mushed-mouth resolution or vote on anything. It just said we think this is the right thing, we're gonna get started, but legislature go ahead and override us if you feel like it. So I think we've got an open invitation here to keep considering all of the options. I am not here today to be decidedly in favor of or against a performance credit mechanism, a forward reliability mechanism,

or any other kind of LSERO to start throwing acronyms around, or backstop reserve service, or uncertainty ancillary service product, or any of the other millions of things that we could possibly come up with because they're super complex and there's about 700 pages of comments submitted by everybody in the industry. I think we need another 60 days or so, but I think it's important for the

investment community and the gigantic economy that we live in, as Representative Patterson was explaining, that the legislature be on the same page as the PUC, as the same page as the players in this space. And we need to get there quickly. I think it might be useful. I'm not worried that we're undermining the whole market. I want to make a couple notes about the nature of this market. I don't think it's a free market. I do believe it's a private market and private market forces.

And I think that it is superior to having a big state controlled market because we can move more quickly and incentivizes innovation and all the good things it does. But it's inordinately contrived. And I think some of the things that scare Representative Patterson scare me, too. But it's not the whole market. This FRM thing or the any of the other acronyms we're playing with PCM. It's a market within a market. Is it going to work? I don't know.

Is it going to upend everything? I don't think that's the problem. The problem is if it's not the answer, then we've missed the thing that is, and I think we need to spend a little more time on it. Senator Hancock, Senator Johnson alluded to the broader political forces pushing the PUC. Governor Abbott put out a letter about a week before the PUC acted on this and said, basically, get going. We don't need to wait for the legislature. You've been considering this for a while. And they have, 18 months, right?

Does this issue put the governor at odds with the legislature on deciding what the heck to do with this very complex market redesign effort i think the governor's position is we have a limited amount of time and whatever we do is going to take some time and we need investment sooner rather than later. I think we're good for three maybe four years, Jared I think you'll agree. Which means we and anything we pass anybody that's passed any legislation knows it's a year before it's implemented and so it was hey keep moving we got time constraints in order to keep this grid whole if there's something better we'll go to something better but we're going to do something and i think that was kind of the charge and you know one of the things we just talked

you know we kind of number one what did the consultants come back with a plan that everybody hated, LSE. I will commend the governor on his appointments. They were diverse, they were experts, and they each had their own level of expertise. One brilliant in finance, one brilliant in policy, one brilliant in transmission, one brilliant on the consumer side. And when they were told come up with a solution,

they all came up with different solutions. And they are all hard-headed. And I'm friends with them all. And part of the struggle through this 15 months was getting them to continue talking and discussing. You've all got different ideas. You're all hell-bent on getting your idea done. And where we landed was the PCM. It wasn't, I mean, I guess you could say

it's contrived. It was basically forced into, no, you all have to reach agreement. Ideally, we would love for all of you to come to the same deal. I agree with Jared on the PCM, however. They came to the PCM, right? Somehow, I don't think anybody thought it would be unanimous. It was unanimous. I take note of that because they're smarter than I am, and this is their job. We as a Senate confirmed them because we felt like they were experts in the field. I tend to listen to experts when they're given a task.

But I have the concerns. But what we do know this last year is management of the grid was entire state some certainty, some confidence, and we produced at a very high level. We had reserves constantly at a high level. Actually, the worst day we had was July 13th. I know that because I was getting a new kidney on that day and the governor and I were on the phone. And the lights were on, right? The lights were on.

Hopefully the anesthesia was, too. Yeah, I was more concerned than normal. Let's put it that way. I don't like them tying all that stuff together with the lights out. You know, is there a better plan? There may be, but this is what the experts that the governor appointed, that we confirmed as a Senate, came up with. I do think we need to back off some things.

I will tell you, when they collapsed the ORDC, which pushed more money into the market for generators to build, they didn't build. I was concerned. And I said, but there's no accountability here. You know, I will say this on moving forward is we meet every two years. This starts going the wrong direction. And I think if they move forward on this, then they need to back off on some of the other management tools, especially that they use this time around that were because this is a market within a market and says in this design not to force people to produce capacity or not to shift uh the risk from the generator to the consumer you're going to pay for this whether

you need it or not it is a voluntary we're not going to force you in you come in if you want to which means all players can come in which is part of sp3 technology neutral so you had to thread the needle we know technology is not neutral when it comes to reliability but somehow we had to write something technology neutral to improve our reliability and this I see this as potentially based on the rules 100% the rules which is all legislation comes down to the rules threading the needle of not being technology neutral, which means we're not telling you you can't play renewables,

but it's highly risky for you to play in this. And then it creates a market within a market is probably the easiest way to describe it, as Senator Johnson pointed out. But I think we go forward if we reduce some of the strong-handed management that we did in order to give everybody confidence over the last 12 months. That's such an important point. I don't want that to be lost because if you don't know, like if you're not an expert on the grid, you may not follow what Senator Hancock is saying there, but there's a lot of, when he said heavy handedness, there's a lot of what I

called administrative movement in the market that generated a lot of money through costs that everyone paid on their electricity bill. So raised a lot of costs. And security. Yeah, absolutely. Security has a price. Yeah, that's right. And it worked. It worked. I mean, 11 new all-time peak demand records. California, 60% of our peak demand, they have a grid across state lines. They had rolling blackouts this summer. We didn't, okay? So it worked, but are we going to keep those same super conservative measures in place, those costly measures in place, and tack on something on top of it? Or as you were saying, are we going to back those off and then place whatever else is on top? That's a

very, very big point. President Cunningham, I'm curious your thoughts on the PCM. Specifically, though, does this, in your mind, provide enough financial incentive for companies to build more dispatchable power? That's been the name of the game this whole time, right, on this market redesign. State officials have said it constantly. Does that provide, and in this entire ERCOT market is based on financial incentives. Everything is. Do you think that if this is adopted, the industry will see enough incentive to invest more in mainly natural gas generation to further shore up the power grid? Well, obviously the PUC thinks so, even though they paid for a consultant that gave them another plan. And I would just, you know, ask myself,

if I have a plan that has risk in it, would I risk my money? And so I've got a concern, just like my colleagues up here have said, there's a concern here with the risk factor involved in this. And once again, it's like, who is actually going to benefit? Because the bottom line is, you know, you've got your generation, you've got your TDSP, you've got your retailers, you've got your oil and gas, but who's looking out for the public? And that's supposed to be the PUC. And I don't know if they understand that that P stands for public. And so the question would be, yes, you've got a plan. And I'm so glad that the Senate has already kind of pumped the brakes on it, that you can do what you want.

And Senator Hancock is right. We've got four years, you know, good. I mean, we're still building, you know, infrastructure, and that's what we need. I think we need a balance, though, when we talk about renewables. You know, to Mr. Patterson's point, I mean, it's out there in West Texas. So we've got issues. And everybody knows that the wind doesn't always blow and the sun doesn't shine. Mr. Patterson's point, I mean, it's out there in West Texas. So we've got issues. And everybody knows that the wind doesn't always blow and the sun doesn't shine.

So, you know, let's pump the brakes on that. One other thing before we go. Go ahead. When we look at everything, I'm kind of wondering, why are we not talking about nuclear? Okay. I mean, we've come a long way now. We can build it smaller. We can dispose of the waste a lot easier. I mean, where is that at in the conversation?

We are. I've had a lot of conversations with generators on that and trying to move forward. You know, obviously national, the federal government has a lot to do with it. And when we talk about new generation look it's a different day nobody knows what technology is going to come out in 10 years people want to turn in their investment we are i say a free market it's free as you're going to find in the world when it comes to generation it's a market but no longer are they going to build a huge plant and wait 30 years they don't want a 30-year payout they're They're afraid of anything more than a 10-year payout. So that's why we're talking, in my opinion,

what we have to move forward with, unless the feds want to make it easier to put in a nuclear plant and many nukes, which we could put throughout the line, which would help with the securitization, I mean, help with protecting the grid and transmission, you wouldn't have to put it all out in West Texas. You could move it along, which would help with protecting the grid and transmission. You wouldn't have to put it all out in West Texas. You could move it along, which would help management of the grid. So we've had those conversations. I've had them with some of the top electric guys in the state and have for the last four years. But the feds need to help us on that.

But peaker plants and batteries, because you can put them in. In fact, LCRA came out today announcing a pretty large investment in generation. And I think when I talk about we'll be back every two years, if we move forward and we don't come up with anything better with better accountability, we as legislators are going to have to hold the generators accountable. Look, we've moved this direction. We collapsed ORDC to give you more money to build generation. You didn't do it. You know, we adopted a market redesign to create more revenue, to encourage you to build generation. You better do it. And if not, we've got to come back here in two years and start over. So whatever we come up with, we've got to be accountable

to make sure those that we're relying on and that we're acknowledging, okay, you need investment to offset the $380 billion of federal dollars to renewables, we're willing to work with you, but you better produce. And kudos to Phil Wilson, LCRA, coming out and saying, we're putting our money where our mouth is, and they've already announced. You mentioned nuclear,

and there was actually just a breakthrough on fission, right? Well, it... Never mind. Okay. Now... It costs... It takes more energy to produce that than what you were getting out of it. It is a long way from being able to use for civil use.

The press loves it. Yeah. And a little shout out, because one of the reasons I'm doing this is, you know, over the last two years, especially since you're here, I've talked to a lot of media. How many, I would say two people really attempted to get to know this and were capable of actually doing an interview. And so Connie Bryan, I mean, that's one of the reasons I'm here is I'm like, no, I'm going to do that. He at least knows how to ask questions and understand some of the answers. And so, and I'm telling you, across the state of Texas, you know, there's not many, two that I found. Well, thank you. Thank you.

It's a very complicated topic, and, you know, you guys do everything you can to learn learn it and it's my job to do the same so and you did good art I mean your articles were more accurate than any other article in the state of Texas thank you thank you I want to actually you know what we'll just jump into ESG we don't have time for anything else and as Senator Johnson said backstage we got've got to hit ESG. I've been told that. Last session, the legislature passed SB13, which directed state pension systems and the comptroller to remove money from investment companies that, quote, divest from fossil fuels. And there's a huge debate over

what that actually means, what that entails. There was a very long state affairs committee hearing in the Senate in December. And the word fiduciary responsibility was thrown around a lot. BlackRock was there. Vanguard, I think, was there. State Street, Vanguard did not go. Senator Johnson, what do you think is coming down the pike this session on ESG, which is environmental, social governance? It's all about investments. What do you think is coming? My biggest hope is that the answer to that question has not yet been decided. My hope is that this whole train slows down.

And let me ask you all to think a minute. If the concern is that financial managers with whom the state of Texas entrust billions of dollars in pensions are making decisions on some basis other than financial returns, I share the concern. And if you want a bill that insists that they look only at things that affect financial returns,

I'll co-author the bill. And if you in fact want to say, and if you're taking ESG factors into consideration, they better have a material effect on the financial return over the relevant time horizon. But as presented so far, I think this is big government with a capital B and a capital G and we ought to let private markets be private markets. It's difficult to convince anybody that you are for the free flow of private capital only when you like where the capital is flowing. It's difficult to convince me that you've got your best financial returns in mind if you're going to ban somebody from investing in renewables when the federal government is offering 100 billion dollars in renewables or a European country requires you to sign agreements along the lines of ESG and you're going to sign it and say

the caveat but I'm not going to compromise my returns. If there's something bad going on, there's some very simple rules we could pass. But in an environment where we rail against high property taxes, we are forcing large financial institutions out of the bond market, raising the cost of bonds, which are going to be paid off with local property taxes. So we have to slow down and ask ourselves, what principles are important to us? And if we act on these, are we going to compromise those? I don't see how much we're gaining here to come to the rescue of an industry that frankly isn't asking for our help They're doing fine. In fact, most fossil fuel companies are heavily invested in renewables most of them are very cognizant of

governmental policies of social policies like labor. And if you are in the investment industry, you damn well better be taking those things into consideration. So I think we're on really dangerous territory here at risk of violating principles of limited government and raising taxes and interfering with private markets and substituting political ideology, not even our own political judgment, but political games in place of private fiduciary decisions by people charged with earning a return. I don't think we ought to go down this road any further. I think we ought to scale it back. Senator Hancock, do you agree or disagree? Well, let me give you a different perspective.

Let's pretend that you have somebody who's in the chemical distribution and has a mid-sized chemical distribution company whose supplier is in Germany supplying oil and gas chemistry who, because they sell product all around the world, has to have an ESG plan and they tell you that if you want to be their distributor, you too will have ESG plan in place.

Or let's take that same chemical distributor whose customer happens to be an oil and gas service account who services the oil and gas industry that says, I know we've been buying from you for years, but we've told you the last three years, if you don't sign up for this ESG plan and start working towards that, that we can no longer purchase oil field chemicals to be used in the oil field from you. It would be great if I were wealthy enough that I could tell them to take a hike, but this year I wasn't able to tell them to take a hike but this year i wasn't able to tell them to take a hike so because of their fiduciary responsibility both to their stockholders they want to see them move

in this direction it's about 30 of them but it's their stockholders but for the other one that's based in germany uh was in my office this week and we. In order to do business in certain countries they have to have something in place. It's a pain in the butt. I don't, I'm not big enough to assign it to somebody. You attach umpteen jillion different documents to it. We didn't perform well. You know my sustainability plan is to make money so that I can retire one day. That's my sustainability plan. I mean, frankly, that's the way it is.

And I'm in the chemical business. I mean, I'm like, what do you want me to do? You know, quit. So, I mean, we don't perform well. But my fiduciary responsibility to make sure I maintained a supplier that we were doing significant dollars with and maintained a customer that we were doing significant dollars with and maintained a customer that we're doing significant dollars with my decision was this sucks I don't want to do it but sign up representative Cunningham um I want to come to you on this next and then

we'll conclude with the representative Patterson. At that State Affairs Committee hearing, a guy named Bud Brigham, he owns an oil and gas operating firm out in Midland, I think. He testified that his financier, the bank he was using, told him he had to sign this, essentially a political statement

about whether it's climate, various other things that are very much up for debate, especially between you guys and the legislature. They wanted him to sign that as a condition of providing him the loan he needed. I'm not sure how frequent that is happening, but given your experience in the industry, have you heard of any examples about similar types of financing requirements from whether it's banks or insurance companies, anything like that? You know, I have not, and being recently retired.

But I can tell you, as I listen, and I'm listening to my senator on the end, and then I'm listening to Senator Hancock, you know, my position has always been that I'm opposed to anything that's going to affect oil and gas. And so, but our job now is to listen and, you know, to see what's best for the state and what's best for Texas, you know, for the economy. But I have not heard that, but right now I'm still sitting on the,

I'm opposed to the LSGs. And let me just add, I'm not opposed to oil and gas industry. You want to build another pipeline, I'm good with that. Natural gas has done miracles for the state of Texas. I really am. I just don't think this is a place. I didn't say you would.

I'm just saying. I can beat that. About 50% of our revenue comes from oil and gas. But it's a private market. If you don't want to sign it, don't sign it. Go to another bank. If I say no, they go to another distributor. You know, the customer, in a heartbeat, trust me,

they can find a lot of people to sell them product. And they're still going to service the oil and gas industry. That's what they do. That is, they're a service business. You know, it is a business's decision to do it. And, yeah, I mean, that bank, I'd go find another bank. You know, but we don't know what situation each business is in. And, Kelly, the irony is that the main company that's managed to be on the blacklist,

I think they've got $235 billion invested in the Texas oil and gas industry. That BlackRock you're talking about? Or is it 107? I'm sorry. I'm off by $100 billion. It's a lot of money. I don't think they're intentionally tanking at something where they invest at that scale. I think, you know, a lot of times I think the general public and even us, we get caught up in this red versus blue back and forth.

I said this wouldn't be a partisan panel. Right, right, right. I just mean in general. But I think the most important color, you know, is green for a lot of people. And I think that what has happened is that while we are arguing red versus blue from a policy perspective, the only thing maybe that Congress has mastered is that it really doesn't matter about the policy in terms of writing a law. What matters is how do we incentivize through the tax code what we want to happen. And so they don't pass a law that hurts the oil and gas industry. They pass tax code changes that so wildly incentivize this other end that it destroys the oil and gas industry. Street, this far left takeover of Wall Street, where they are not acting, in my view, in accordance with the fiduciary responsibility to their shareholders to do what's best for them.

They're acting so that they can virtue signal to the market so that they can say, oh, look, we're a good company for all these other reasons. And then you got this jack wagon that just went bankrupt or whatever here recently in the crypto thing who had a higher score than ExxonMobil, who's been around forever. How in the world does that happen? And what goes back to is who's making the money? It's the green party, not meaning the green party,

but the money party that is making it. And it's the big banks in Wall Street that are screwing all this stuff up. And it's because Congress can't pass a policy that works for anybody. They just enrich all these other people, and they're skimming all this money off the top. And meanwhile, we're over here getting hurt because we can't keep up.

And these small businesses, they don't have a real choice in the market. They're getting beaten down into doing this stuff. That's what drives me crazy. Well, Mr. Patterson, I just want to just add to your right, but let's not take the banks out of it because they're part of the problem. Well, and I will tell you, as someone who's had, I mean, literally, I told them no three years, and finally they threatened me, and it's millions of dollars.

But it's contagious. I mean, they force you to go to the next level. So we've got to do something. I'm not sure what the answer is because it's not going to – this is a snowball that is horrible for our economy, and it's one of the things I don't want a fully regulated grid because if you look around the world, all those political decisions on other

countries grid is killing them right now because it we can't be forced into doing what doesn't work and so i don't mind signing and you know for my business because i have to in order to not lose money so but don't expect me to change my business practice from focusing on taking care of my employees, taking care of the environment. Yes, trust me, I don't want a chemical spill. But bottom line, making money. I got to say, we had a historic moment.

Jared, I've never, ever heard anybody refer to the far left takeover of Wall Street. I think that should be noted. The biggest coup no one's talking about. Remarkable assertion. Look, California does this kind of crap. They go in there and they make companies sign pledges or they divest from them. Do we want to be like California? Do we want to be the mirror opposite of them? Because that's all we're doing. We're being the mirror opposite of California. It's like your dad says don't wear a mohawk, so you get a mohawk.

Let's run our own businesses. And if we really do want to address this, there's some very simple things the state of Texas can do. We have the power. Our plant administrators have the power to issue investment guidelines to any company that we do business with and say, don't do this. Don't invest in ESG funds. Don't use these algorithms. Don't sign those accords. We can put that in there right now without a bill. We can also exercise our own

votes instead of giving a proxy to the financial managers. If we don't like how they're voting, we take the vote ourselves. We don't need to do this big government routine. We just need to exercise the powers we already have, and we can have whatever investment procedures are consistent with the priorities of this state. Well, this was a very good panel. Sorry to cut you guys off. I know you could again go for many, many hours.

But you know what? You'll have a chance to do that in committees this session. Thank you all for being here. Up next we have Lieutenant Governor Patrick in about 10 minutes. So let's all thank the panelists. show, give us a shout on Twitter. Tweet at The Texan News. We're so proud to have you standing with us as we seek to provide real journalism in an age of disinformation. We're paid for exclusively by readers like you, so it's important we all do our part to support The Texan by subscribing and telling your friends about us. God bless you, and God bless Texas.