Texas lawmakers pass emergency pricing, weatherization, oversight body changes

In a flurry of last-minute activity, Texas lawmakers approved eight power-sector-related bills in time for the May 31 regular session deadline, affecting scarcity pricing during emergencies, weatherization of gas and power facilities, and bodies overseeing the state's power grid.

The work was designed to address issues arising during and after the deadly mid-February winter storm that left about 4 million Texas power customers in the dark. Twenty-three other bills were left dead in committee, but 16 of those had their issues addressed in one of the bills that have been signed into law or await Governor Greg Abbott's signature.

Most of the power grid's systemic and market changes were included in Senate Bill 3, "relating to preparing for, preventing, and responding to weather emergencies and power outages; increasing the amount of administrative and civil penalties."

Senate Bill 3 details

The legislation that emerged from the conference committee and was passed by both houses May 30 establishes an emergency pricing program to take effect if the $9,000/MWh "high systemwide offer cap" has been in effect for 12 hours in a 24-hour period, ensuring generators are reimbursed for reasonable, verifiable operating costs that may exceed the emergency cap.

The Electric Reliability Council of Texas' existing scarcity pricing rules requires the HCAP until a "circuit-breaker" threshold is reached —when a hypothetical gas-powered plant has accumulated profit of $315,000, three times the estimated cost of new entry.

Once that threshold is reached, the "low systemwide offer cap," which is the higher of either $2,000/MWh or 50 times the current spot fuel index price, is to be used. During the mid-February winter storm, the "50-times-FIP" LCAP would have topped $17,000/MWh, but the PUC instead suspended the rules to set the cap at $9,000/MWh through the end of the energy emergency.

Giuliano Bordignon, a power market analyst at S&P Global Platts Analytics, said the emergency pricing program cap "introduces some uncertainties around price spikes, as its cap is not allowed to exceed the nonemergency high system-wide cap."

"Furthermore, the low non-emergency system-wide cap is not allowed to exceed the high system-wide cap, making the high system-wide cap the de facto maximum price that a generator can capture in the wholesale market," Bordignon said June 1.

Senate Bill 3 also included the following provisions:

• Weatherization of electricity generation facilities and gas facilities to supply electricity generation, with penalties for noncompliance
• Designation of certain natural gas facilities as critical infrastructure
• Notification to electric customers about load-shedding procedures
• Establishment of the Texas Energy Reliability Council
• Registration for distributed generation at the level of the local utility with penalties for noncompliance
• Creation of a power outage alert
• The setting of emergency preparedness standards for water utilities

'Major' changes

The bill's requirements that the Public Utility Commission of Texas set "winter resource capability qualifications" such as on-site fuel storage, dual-fuel capability, or firm fuel supply arrangements, and that the Texas Railroad Commission set weatherization requirements for facilities that directly serve gas-fired power plants are "major" changes, Bordignon said.

"[The] cost to weatherize the gas supply chain might ultimately be reflected in higher gas prices for power plants," Bordignon said.

Senate Bill 3's language provides for the mapping and designation of certain gas facilities as critical infrastructure that should not be curtailed in an energy emergency, but House Bill 3648, which also passed, focuses more exclusively on such gas facilities as critical infrastructure.

Another newly approved piece of legislation is Senate Bill 415, which facilities transmission and distribution utilities to own battery storage capacity. This matter became controversial because such facilities are forbidden from owning generating facilities, and batteries are regularly used as both a supplier and a consumer of electricity.

Other bills approved by the Legislature in the regular session's waning days include three measures for the issuance of ratepayer-backed bonds to spread out excessive power and natural gas costs over a longer time, to reduce the immediate consumer impact.

Oversight shakeup

Finally, two other bills address the qualifications and choice of people to serve on the Public Utility Commission of Texas and the Electric Reliability Council of Texas Board of Directors.

Senate Bill 2154 increases the PUC membership to five from three, with the governor appointing all five with the advice and consent of the senate. The qualifications list deletes the requirement that all nominees "be well informed and qualified in the field of public utilities and utility regulation," but adds that the nominee must be a Texas resident.

The new bill does require that at least two of the commissioners be well informed and qualified in public utilities and utility regulation.

This law has in the past counted in the professional category of required experience only those with at least five years as a practicing attorney or certified public accountant, but the new bill adds "professional engineer" to this category.

With an effective date of Sept. 1, Senate Bill 2 makes big changes to ERCOT's Board of Directors. Instead of 16 members dominated by people elected by different segments of the market — investor-owned utilities, independent power marketers, independent generators, municipal utilities, large industrial energy consumers, electric cooperatives, independent retail electric providers, commercial energy consumers — all of the new ERCOT board's members would be either ex officio or one of eight members selected by a three-member selection committee appointed by the governor, lieutenant governor, and speaker of the Texas House of Representatives. All ERCOT board members must be Texas residents.

The eight members picked by the selection committee must have executive-level experience in finance, business, engineering, trading, risk management, law, or electric market design. No more than two of these members may be employed by an institution of higher education.

The bill also provides for compensation to board members but imposes restrictions to avoid conflicts of interest.

Two of the ex-officio members — the PUC chairman and ERCOT's CEO — are to be nonvoting. The third, representing the Office of Public Utility Counsel, would be a voting member. OPUC, by law, represents the interests of residential and small commercial consumers.