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Winter storm bills still pending in Texas Legislature; regulators await action

Highlights

Weatherization, securitization top issues

PUC advances scarcity pricing change

'A lot of heavy lifting' ahead: chairman

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.

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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."

Storm and energy bill status in Texas Legislature as of May 7
Bill Number
Summary
Status
HB 11
Requires weatherization of electric system
In Senate committee
HB 12/SB 865
Establishes statewide disaster alert system
HB in Senate committee, SB in House committee
HB 13
Creates Texas Energy Disaster Reliability Council
In Senate committee
HB 14
Creates Texas Electricity Supply Chain Security and Mapping Committee
In Senate committee
HB 1520
Securitization of excess gas costs due to storm
Sent to Senate
HB 1672/SB 415
Facilitates transmission and distribution utilities to own battery storage capacity
Both pending on House Calendar
HB 17
No local law to prohibit utility service based on type (e.g., no gas ban on new building)
Sent for governor's signature May 6
HB 2586, SB 1252
Requires independent audit of ERCOT, posted publicly
HB on Senate Calendar, SB in Senate committee
HB 3648
Requires designation of certain gas facilities as critical during energy emergency
Sent to Senate
HB 3749
Requires Public Utility Commission to conduct weatherization inspections
In House committee
HB 3792/SB 1606
Creates Texas Grid Security Commission to identify and harden critical grid infrastructure
HB in House committee, SB on Senate calendar
HB 3916
Removes restrictions on distributed generation up to 2.5 MW in ERCOT
Pending on House Calendar
HB 4492/SB 1580/SB 1757
Securitization of excess electricity costs due to storm
HB approved by House, SB 1580 in House committee, SB 1757 pending on Senate Calendar
HB10/SB 2
Changes qualifications and process of appointing ERCOT board members
HB in Senate committee, SB in House committee
HBs 2506, 2657, 3178, 4167; SBs 1352, 2076
Requires emergency reserve power generation capacity
HBs in House committee, SBs in Senate committees
SB 1579
Securitization of gas customer rate relief
In Senate committee
SB 1782
Securitization of electric utilities' system restoration and weatherization costs
In Senate committee
SB 2142
Repricing Feb. 18-19
In House committee
SB 2154
Increase Public Utility Commission membership from three to five
In House committee
SB 3
Omnibus (emergency pricing, weatherization requirements, gas supply chain mapping)
In House committee
SB 985
Requires weatherization reports to cover events with 1% probability
In House committee
Bill stages: Introduction in one chamber, approved by committee, approved by first chamber, approved by second chamber committee, approved by second chamber, enacted by governor's signature or lack of veto.
Source: Texas Legislature