Around the Texas Capitol: From electricity to tax revenue, a summer of records

Around the Texas Capitol: From electricity to tax revenue, a summer of records

Return to August 2022 newsletter

Around the Texas Capitol:
From electricity to tax revenue, a summer of records

By Lauren Fairbanks, Shayne Woodard and J Pete Laney
TAD Governmental Affairs

 Texas has many hot summer days ahead, and, with less than three months until the November general election, campaign trails are starting to heat up across the state as well.

While most state House and Senate seats were determined in the primaries, there are still a handful of “swing” districts to keep an eye on. It remains to be seen if any other House or Senate incumbents will ultimately lose their reelection bids, but your Texas Association of Dairymen governmental relations team is monitoring those races closely.

On the statewide level, the big-ticket race is the gubernatorial race between Gov. Greg Abbott (R) and Beto O’Rourke (D). Some polls show O’Rourke narrowing Abbott’s margin of victory, but none have projected he will oust the Governor. Since 1994, every statewide elected office has been held by a Republican and, while the state’s demographics are shifting, it doesn’t appear there will be any major changes to leadership statewide, or in the Texas House and Senate.

Texas electric grid sees record(s) demand

With extremely hot temperatures still blasting the state, ERCOT saw record electricity demand in July. Throughout the month, ERCOT, the state’s grid operator, issued conservation appeals several times, calling on Texans to curb power use in the afternoon as record demand put stress on the grid. The entire state of Texas is experiencing some of the hottest months recorded since the late 1800s, and 2022 is on track to be the hottest summer on record. In addition to a hotter than anticipated summer, the state could be experiencing 8% growth in electricity demand in less than a year, according to one Public Utility Commission (PUC) commissioner. These factors are playing a role in a record-breaking summer on the demand side. Since May, 30 peak energy demand records have been broken, including monthly records, weekend records and all-time records.

And for the first time in Texas’ grid history, demand exceeded 80,000 megawatts for a moment shortly after 4:30 p.m. on July 20. It also marked the 11th time this summer that demand broke the all-time record. Before this year, the previous record was set on Aug. 22, 2019, with 74,820 megawatts used. That record was first broken June 12 of this year, a trend that is expected to continue throughout August and September.

ERCOT’s Seasonal Assessment of Resource Adequacy (SARA) report had projected that peak demand on the hottest day of summer would probably reach around 77,300 megawatts, but forecasters did not anticipate temperatures to get close to where they were during the record heat logged in 2011. The extreme heat scenario for this summer estimated that demand could reach above 81,000 megawatts. Forecasters originally gave that scenario a 5% chance of happening.

Texans and elected officials alike are watching the state’s grid closely and hoping that the PUC and ERCOT’s new grid reliability and efficiency efforts will be enough to keep the lights – and air conditioning – on for the remainder of the summer. This is an issue that will certainly bring more policy proposals in the next legislative session in 2023.

Another record: the state’s budget surplus

Preparation for the 2023 session and interim committee hearings have continued after a brief hiatus in July. And legislators welcomed news from Comptroller Glenn Hegar mid-July that increased the Certification Revenue Estimate (CRE). Hegar revised the CRE upward, increasing his November estimate of general revenue-related (GR-R) funds available for certification by $13.75 billion, for a record projected fiscal 2023 surplus of a whopping $26.95 billion. And that number likely will climb even higher by the time the legislative session starts in July.

As a result, the state will have $149.07 billion in GR-R funds available for general-purpose spending for the 2022-23 biennium, Hegar said in a July 14 letter to state leadership and accompanying infographic. The ending balance does not account for any 2022-23 supplemental appropriations the Legislature may make. This revised estimate includes a net decrease in projected GR-R spending of $1.5 billion, yet it is mostly driven by tax revenues that rebounded strongly in recent months after being suppressed by the pandemic in the previous biennium.

Many tax revenue categories reached their highest collections on record, and this fiscal year has experienced the largest one-year increase in total tax collection, as compared with the prior fiscal year, in Texas history. He also noted inflation is a significant contributing factor as to why we have seen record tax collections in sales tax and other revenues over the last year. The rate of economic growth is anticipated to slow.

As you can see from this report, activity is ramping up in Austin and isn’t likely to slow until closer to the holidays later this year. The TAD team continues our outreach efforts in Austin on behalf of Texas dairy farmers. The Texas dairy industry has a great story to tell, and we are grateful to play a small role in educating both elected officials and the public about the continued growth and positive economic impacts the industry continues to see.

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