Houston — Texas lawmakers had on May 7 more than 30 bills pending, designed to address the deadly mid-February winter storm that left about 4 million customers without electricity for various periods across four days, and state regulators are awaiting lawmakers' decisions before advancing eight storm-related projects.
Most of the bills pending in the Texas Legislature can be placed in eight categories:
- Six bills provide some form of securitization -- i.e., bond issuance -- for the financial impact on electric or gas customers or suppliers.
- Six bills require the establishment of emergency reserve power generation capacity.
- Four focus on weatherization of electric and gas facilities, but one of the securitization bills also funds weatherization.
- Four bills focus on identifying critical infrastructure in the electricity supply chain and protecting that infrastructure from power outages, and three of these bills create commissions to accomplish that task.
- Three bills change the qualifications and process of filling seats on the Public Utility Commission of Texas or the Electric Reliability Council of Texas Board of Directors.
- Two bills establish a statewide disaster alert system.
- Two bills facilitate utilities contracting for battery storage.
- Two bills require an independent audit of ERCOT to be released publicly.
One of the remaining two bills would require wholesale power repricing for the period from Feb. 18 through 9 am Feb. 19, when ERCOT was in emergency alert but not in rotating blackouts, that is likely procedurally barred from enactment. During that period, wholesale power prices were at the $9,000/MWh systemwide offer cap. Supporters of the legislation want prices to return to whatever the market would have borne.
The other bill would prohibit a local government from banning an energy service based on the type of resource, and this bill has passed, awaiting Governor Greg Abbott's signature. This bill would, for example, keep local governments from banning the installation of natural gas distribution lines to a new residential neighborhood.
Scarcity pricing proposal
On May 6, the PUC had its first meeting with its new members, Chairman Peter Lake and Commissioner Will McAdams. They approved for publication in the Texas Register a scarcity pricing rule change for which the process began under Lake's predecessor, Arthur D'Andrea.
Under existing rules, the systemwide offer cap stands at the estimated $9,000/MWh value of lost load until the peaker net margin hits $315,000, considered three times the cost of new entry for a hypothetical natural gas-fired peaking generator.
The peaker net margin is a calculation of how much net revenue a hypothetical natural gas generator might have earned in a year, given real-time power prices and spot gas prices, and ERCOT crossed that $315,000 threshold on Feb. 17. The cumulative PNM was $731,608 as of May 6.
Once that threshold is passed, rules called for the $9,000/MWh "high systemwide offer cap," or HCAP, to fall to the "low systemwide cap," or LCAP, which is the higher of either $2,000/MWh or 50 times a fuel index price chosen by ERCOT. In February, ERCOT used Argus' assessment of the spot natural gas price at the Katy Hub. Argus' price is confidential, but S&P Global Platts' assessment at Katy Hub on Feb. 17 was more than $359, which would have set the LCAP at almost $18,000/MWh.
Therefore, the PUC under then-Chairman DeAnn Walker suspended the scarcity pricing rule and set the systemwide price at $9,000/MWh for the duration of the emergency.
The proposed rule approved for publication on May 6 does away with the "50 times FIP" aspect of scarcity pricing and instead sets the LCAP at $2,000/MWh, and instead requires ERCOT to "reimburse entities for any actual marginal costs in excess of real-time revenues" during an event when the systemwide offer cap is set to the LCAP.
The PUC has scheduled a public hearing about the proposed scarcity pricing rule change for June 10, and McAdams said he hopes the new rule would provide an effective market signal for the peak cooling demand months of July, August and September.
"We need to be able to provide certainty to the markets when we can and approach these signals in a systematic way," McAdams said. "The rule as proposed by staff, I believe, provides that certainty for the market in the near term and protections, fundamentally, for consumers, going into the summer of 2021. I believe that it helps smooth out over the long term some of the distortions that were experienced during the winter event."
Lake said publishing this rule is "one step in the process," but it "provides a clear resolution to a very acute issue."
'A robust list' of issues
Without discussion, the PUC also approved a request for a proposal to conduct an external audit of the February winter event.
The PUC took no action on other rulemakings and investigations, including weatherization rules, wholesale index products, electric-gas coordination and the designation of critical loads, but PUC Deputy Executive Director Connie Corona said members of her staff are in talks with experts, each other and stakeholders about those issues.
"And then there's the Legislature, whatever comes of that," McAdams said.
Lake said: "It's an opportunity to write a new chapter for the PUC and all its stakeholders. ... It's a robust list, and we have a lot of heavy lifting in front of us."