Week Ending June 4, 2021

Texas Legislature Passes Measures, More Steps May Come in Special Session

This Article Appears as Published in Foster Report No 3352
Texas Legislature Passes Measures, More Steps May Come in Special Session

The Texas Legislature approved several bills dealing with the effects of the winter storm that paralyzed much of the state, though a special session is expected to be called by Governor Greg Abbott later this year, giving lawmakers a chance to approve additional measures.

The bills sent to Abbott for his signature as the legislative session ended May 31 (SB 2, SB 3, HB 4492 among them) include steps to pay off debt owed by gas utilities and electric cooperatives, have power plants and natural gas systems prepare for winter and reform the management of the Electric Reliability Council of Texas (ERCOT). The latter measure also adds two commissioners to the state Public Utility Commission (PUC), besides giving appointment of ERCOT board members to a panel named by the governor, lieutenant governor and speaker of the house, with ERCOT board membership reduced from 16 to 11.

The debt legislation would allow gas utilities and electric cooperatives to issue bonds backed by the state so that charges would be added to customer bills to pay back the bonds over a longer period of time than a typical rate case. The securitization provisions enable about $4.5 billion in ratepayer-backed bonds for gas utilities and $2 billion for electric cooperatives, along with $800 million in bonds for companies to pay off debts owed to ERCOT.

Those measures will add costs to consumer bills for extended periods, and state lawmakers were criticized for adding a financial burden to consumers who endured power outages, water outages, death and exorbitant costs for energy during the mid-February storm. Lieutenant Governor Dan Patrick was among those saying he hopes Abbott will call a special session to allow the Legislature to approve some form of financial relief for consumers.

Abbott is expected to call a special session of the Legislature, which adjourned at midnight May 31, to address several items apart from energy legislation that were not passed during the regular session.

Depending on the timing of a special session, members of the Texas Senate and House of Representatives may have the benefit of a report from FERC and the North American Electric Reliability Corp. (NERC) on the cause of the events. Officials from NERC and FERC have said they hope to have an initial joint analysis completed by the end of summer.

The winter storm and its fallout on the energy and water systems left more than 100 dead in Texas, sent cooperatives and retail electricity providers into bankruptcy, imposed massive bills on consumers and affected pipeline operations that continue to be the subject of filings and complaints at FERC. Numerous analysts have examined the lack of winterization at natural gas and power generation facilities in Texas, despite a warning from NERC and FERC following blackouts and gas outages in the Southwest 10 years ago. Why those recommendations weren’t carried out, who was responsible for the lack of coordination among the gas and power sectors in Texas and other elements are expected to be addressed in the joint report from NERC and FERC.

The winterization requirements in SB 3 were touted as a major step to avoid a repeat of what happened in February 2011 and February 2021. They require generation owners and gas companies to take steps to have facilities able to withstand extreme weather, though the legislation only requires gas facilities identified as “critical” by regulators to take such steps.

In the aftermath of the storm, it was noted that many gas companies could have filled out a short PUC form to be deemed “critical” during emergency conditions and not lose power during utility blackouts but failed to do so. As a result, some gas-fired power plants that had taken winterization steps were without gas supplies because gas could not reach the plants due to actions, or lack of action, from upstream gas suppliers.

Much of the political heat in Texas has been focused on ERCOT and the PUC. Many ERCOT board members resigned, and among the odd reactions in the state is that ERCOT board members living outside the state were viewed as a liability. The ERCOT and PUC reform legislation has a state residency requirement for ERCOT board members to be selected by the panel appointed by political leaders.

That is a mistake, a collection of former PUC members said in a recent report. ERCOT has a “hybrid” board right now, made up of stakeholders representing different segments of the power sector and five unaffiliated directors. ERCOT board membership should not be subject to “political screening” and the board should contain some members outside of Texas to provide expertise and insight from a broader perspective, the former PUC members said.

The report is from six former members of the PUC, with commissioners and staff from both political parties giving their views on what should be done to avoid another disaster in the state. The members – Pat Wood, Robert Gee, Judy Walsh, Brett Perlman, Becky Klein and Alison Silverstein – were at the PUC before the 2011 outages, with Wood and Silverstein at FERC in the chairman’s office from 2001 to 2005.

Members of the Texas Railroad Commission, which oversees that natural gas sector, the Texas Reliability Entity, which is responsible for grid reliability and compliance with NERC standards, the PUC and NERC bear responsibility for energy reliability. “If Texas is to mitigate future energy system disasters and restore our state’s reputation, we must do more than just tighten governance on ERCOT and the PUC, weatherize power plants, patch the electric market, and reform some utility and retail practices,” the former PUC members said.

The June 3 report lists several recommendations, with meaningful enforcement of weatherization measures for gas production and pipelines included.  Among the more notable suggestions is to study the potential benefits and costs of adding high-voltage transmission between ERCOT and its neighboring grid systems. The limited connections right now have kept ERCOT outside of FERC jurisdiction for market purposes, though FERC does have grid reliability authority over ERCOT.

The former PUC members said Texas needs external entities to review and act upon grid reliability compliance and weatherization requirements.

They also said Texas needs to improve energy efficiency measures to reduce demand on the power grid, with updated building codes and enhanced efficiency programs for utilities to benefit homeowners and multi-family housing units.

The report recommends better power grid outage management from electric utilities, enhanced demand response, requirements for industrial and commercial customers to be able to reduce load remotely, improved demand forecasting by ERCOT, mandating all critical facilities have two days’ worth of backup power available.

Another report, commissioned by generation owner Vistra Corp., was done by London Economic International LLC to examine the effects of the actions by ERCOT and the PUC that kept power prices at the maximum level of $9,000/MWh for several days in February. That May 28 report examined what real-time prices in ERCOT would have been in the absence of PUC orders mandating maximum prices – which was done to try and incent generators to operate and which were the subject of possible revocation by the PUC and the Legislature – and ERCOT carrying out those orders.

London Economics found that between about 10 p.m. February 15 and 9 a.m. February 19, energy prices would have averaged $2,404/MWh if not for the PUC orders setting them at $9,000/MWh.

The three members of the PUC who approved those orders have left the agency in the wake of the storm and the political fallout in Texas, with Abbott appointing Peter Lake as chairman and Will McAdams as commissioner over the past few months. The bill passed that addresses the PUC increases the number of PUC commissioners from three to five.

Many of the bills passed right before the Legislature adjourned were sent to Abbott and are awaiting his signature.

By Tom Tiernan ttiernan@fosterreport.com

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