For economic development to thrive, many things have to go right. The basic finances must make sense, but you also need a regulatory environment that encourages economic activity, a pool of available workforce with the necessary skills, and more.
Increasingly, stakeholders are citing two infrastructure issues as key components of future economic success in the Austin region and in Texas, as a whole. Ample supply of electric power and water are critical determinants of whether projects are possible and where they can happen.
Assessing The Problem
A Feb 13th, 2025, report from ERCOT projects that by 2027, Texas will face an 8.3% shortfall in power generation during peak demand. By 2029, that deficit could exceed 32%. This trend isn’t new information, which is why the Texas Legislature made a large investment in building new generation in 2023 and is projected to make that same investment this session (2025). It’s also why large power users are facing a variety of proposals to regulate “behind the meter” generation.
Water also presents a problem for the state, both separate from and intertwined with the electric generation issue. Water shortages threaten agriculture production, which is an economic issue in addition to a food supply problem. Electric generators rely on water for cooling. Without sufficient water supply, they face shutting down out of an inability to produce power. Industries across Texas require water for their own production processes in addition to their needs for the power that runs their equipment. And, of course, we individually need water for drinking and other personal uses. The enormous level of water need is why stakeholders estimate that Texas needs $154 billion over the next 50 years to meet the state’s water supply and infrastructure needs. Further, there’s an estimated $110 billion gap between that need and the existing funding structures.
Why Now?
Crisis often brings attention to critical issues. For water and energy, the two primary obstacles are supply and delivery infrastructure–– ensuring resources are available and that the systems delivering them are in sufficient and in suitable condition.
Severe Power Outages
Winter Storm Uri in 2021 was the historic moment for the state’s power grid. Past storms had revealed deficiencies in different parts of the system but were often limited to specific areas of the state. Uri’s broad impact, affecting half of the state’s population, highlighted systemic problems rather than local ones. Two years later, in February of 2023, Austin faced a prolonged outage from Winter Storm Mara. In contrast to Uri, the effects of this storm were largely limited to Austin because the storm impacted the infrastructure of the city rather than affecting generation assets.
Impacts on Water
Winter Storm Uri is most associated with prolonged power outages, but it also impacted water systems around the state. The exceptionally low temperatures combined with their longer than usual duration caused a lot of damage to infrastructure. Water mains and other water delivery systems froze and ruptured, leaving 15 million Texans without potable water, or any water. Where supply is concerned, Texans have become accustomed to this problem. Limitations on lawn watering and other conservation restrictions are practically the norm because many communities have lived in drought conditions for years at a time on a revolving basis. Water is unique, though, in the sense that problems typically aren’t as acute and noticeable as power outages. They happen in smaller increments and stretch over longer periods of time because short-term solutions are often easily found to bridge those pain points. The common perspective is that “as long as water comes out when you turn on the tap, people don’t think there’s a problem.” Without serious intervention in the system, stakeholders believe that it won’t be long before Texas faces either a serious water emergency or has to fight an economic decline while trying to course correct on decades of neglecting water investments.
Legislation From Previous Sessions
The state made major infrastructure investments in 2023, allocating $5 billion in dispatchable electric generation via the Texas Energy Fund, and $1 billion in water funding through the Texas Water Fund. Both of these funding streams are used for revolving, low-interest loan programs. On the electric side, the loans are focused on supporting the building of new dispatchable energy generation facilities. In addition to the $5 billion loan program, other legislation requiring a minimum percentage of generation be from natural gas and discouraging reliance on renewables (by increasing restrictions on permitting new projects, for example) were also passed. In 2021, following winter storm Uri, the legislature implemented weatherization requirements on generators. Those requirements have been credited with helping the state avoid disasters in subsequent years.
For water, the $1 billion for loans was partially aimed at developing new water supply, but funding is also dedicated to helping replace aging infrastructure. So far, infrastructure replacement funding has been focused on smaller, and often more rural, communities.
Expected Legislation for 2025
The Legislature seems poised to make significant funding contributions to both power generation and water infrastructure, alongside regulatory changes affecting large energy consumers.
On Jan. 29, the Lieutenant Governor announced his priority bills, which featured some significant infrastructure items:
- Senate Bill 1 – Senate’s Budget for Texas
- Allocates $5 billion to the Texas Energy Fund and $2.5 billion to the Texas Water Fund.
- Senate Bill 6 – Increasing Texas’ Electric Grid Reliability
- Senate Bill 7 – Increasing Investments in Texas’ Water Supply
Four days later, Governor Abbott delivered his State of State speech and listed seven emergency items, including investing in water infrastructure.
The $2.5 billion for water in SB 1 is half of the $5 billion Senator Charles Perry (Lubbock) has been saying publicly he wants to see invested as a one-time funding item. In addition to that one-time funding item, Sen. Perry also plans to propose a bill that dedicates $1 billion every year to water programs from state revenues. It seems the Senator also has plans to create a water pipeline program to develop a state-wide water network of some sort. That bill hasn’t been filed as of March 5th, but he discussed these concepts in a recent interview with the Texas Tribune.
Right now, the Senate’s plan puts another $5 billion into the Texas Energy Fund to advance the building of dispatchable generation throughout the state. Meanwhile, Senator Phil King (Weatherford) filed SB 6 on Feb. 13th, which contains significant regulations on how large loads are connected to and interact with the grid. The bill had a committee hearing on Feb. 27th and was left pending while stakeholders continue negotiating the language. Some major provisions of the filed bill are:
- Minimum transmission rate that must be paid by loads behind-the-meter with on-site generation
- Prior approval from PUCT for any existing generator who wants to remove megawatts from the ERCOT market to serve behind-the-meter load
- Requiring certain generators who remove load from ERCOT to resupply the grid in times of short supply
- Additional fees for large load connections to study the impact of their connection (helping PUCT track the actual load demand and confirm large load users)
- Creating a mechanism for large loads to come off the grid (voluntarily or by demand) during times of shortage
Summary
Available power and water are crucial elements of a thriving economy and the ability of communities to facilitate the economic development that will drive their future. While the state has made large investments in both infrastructure areas in recent years, there is much more that needs to be done. The 2025 session looks promising in those regards, with $2.5 billion proposed for water and $5 billion for electric generation. Additional proposals on long-term funding mechanisms and regulatory plans are less clear right now. However, those discussions carry potentially significant impacts for how these infrastructure issues impact economic development efforts in both the short and long-term horizons. As part of Opportunity Austin’s five-year strategic plan, investing in infrastructure is critical to sustaining the high quality of life that attracts job-creating investments and ensures the region’s continued economic success.
