BILL ANALYSIS

Senate Research Center	C.S.S.B. 2012
88R21078 JXC-D	By: Schwertner; King
	Business & Commerce
	4/3/2023
	Committee Report (Substituted)

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

In the 87th session, the legislature directed the Public Utility Commission (PUC) to develop a reliability program to procure ancillary services on a cost-causation basis. The PUC hired a third-party consultant to scrutinize the state of Texas' electrical grid and recommend reforms to improve our market design. The PUC adopted the Performance Credit Mechanism (PCM), a resource adequacy mechanism to pay generators to be available during times of peak demand. S.B 2012 builds on the attributes of the PCM, but adds clear guardrails to prevent runaway rates and ensure reliability. These guardrails include penalties for generators that do not provide the electricity they commit to, creates a legislative oversight committee to oversee implementation, enhances oversight of voluntary mitigation plans, and caps the net-cost of the program.

(Original Author's/Sponsor's Statement of Intent)

C.S.S.B. 2012 amends current law relating to electricity services and increases an administrative penalty.

RULEMAKING AUTHORITY

Rulemaking authority is expressly granted to the Public Utility Commission of Texas in SECTION 5 (Section 39.166, Utilities Code) and SECTION 6 (Section 39.702, Utilities Code) of this bill.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Sections 15.023(b-1) and (f), Utilities Code, as follows:

(b-1) Authorizes the penalty for a violation of a voluntary mitigation plan entered into under Subsection (f) or of provision of Section 35.0021 (Weather Emergency Preparedness) or 38.075 (Weather Emergency Preparedness), to be in amount not to exceed $1,000,000 for a violation, notwithstanding Subsection (b) (relating to authorizing the penalty for a violation to be in an amount not to exceed $25,000).

(f) Authorizes the� Public Utility Commission of Texas (PUC) to approve the plan only if the PUC determines that the plan is in the public interest. Requires that the voluntary mitigation plan be reviewed at least once every two years and not later than the 90th day after the implementation date of a wholesale market design change. Requires the PUC, as part of the review, to determine whether the voluntary mitigation plan remains in the public interest. Requires the PUC and the person with whom PUC entered the plan to agree to a modification of the plan or the PUC is required to terminate the plan if the PUC determines that the voluntary mitigation plan is no longer in the public interest. Authorizes adherence to the plan to be considered in determining whether a violation occurred and, if so, the penalty to be assessed. Deletes existing text providing that adherence to the plan constitutes an absolute defense against an alleged violation� with respect to activities covered by the plan.

SECTION 2. Amends the heading to Section 39.159, Utilities Code, as added by Chapter 426 (S.B. 3), Acts of the 87th Legislature, Regular Session, 2021, to read as follows:

Sec. 39.159. POWER REGION RELIABILITY AND DISPATCHABLE GENERATION.

SECTION 3. Amends Section 39.159, Utilities Code, as added by Chapter 426 (S.B. 3), Acts of the 87th Legislature, Regular Session, 2021, by amending Subsection (b) and adding Subsections (b-1) and (b-2), as follows:

(b) Requires the PUC to ensure that the independent organization certified under Section 39.151 (Essential Organizations) for the Electric Reliability Council of Texas (ERCOT) power region:

(1)-(3) makes no changes to these subdivisions;

(4)-(5) makes nonsubstantive changes to these subdivisions; and

(6) allocates the cost of providing ancillary services and reliability services procured under this section on a semiannual basis among dispatchable generation facilities, non-dispatchable generation facilities, and load serving entities in proportion to their contribution to unreliability during the highest net load hours in the preceding six months, as determined by the PUC based on a number of hours adopted by the PUC for that six-month period, as follows:

(A) for each dispatchable generation facility, the difference between the forced outage rate of the facility and the forced outage rate of the facility during the corresponding season for the three years prior to the current season, multiplied by the installed capacity of the facility;

(B) for non-dispatchable generation facilities, the difference between the mean of the lowest quartile generation for each non-dispatchable generation facility and the mean generation of the facility; and

(C) for load serving entities, the difference between the mean of the highest quartile of total load and the mean of total load in the ERCOT power region, allocated to each load serving entity on a load ratio share basis.

(b-1) Provides that Subsection (b)(6) applies only to a generation facility or load serving entity that has participated in the ERCOT market for at least one year, including a load serving entity whose parent company or affiliate has participated in the ERCOT market for at least one year.

(b-2) Provides that Subsection (b)(6) does not apply to electric energy storage.

SECTION 4. Amends Subchapter D, Chapter 39, Utilities Code, by adding Sections 39.1595 and 39.1596, as follows:

Sec. 39.1595. RELIABILITY PROGRAM. (a) Prohibits the PUC under Section 39.159(b), as added by Chapter 426 (S.B. 3), Acts of the 87th Legislature, Regular Session, 2021, or other law, from adopting a reliability program for the ERCOT power region that requires the purchase of capacity credits earned by generators to support a reserve margin mandate, unless the PUC ensures that:

(1) the cost to the ERCOT market of the credits does not exceed $500 million annually;

(2) credits are available only for dispatchable generation, excluding load resources and electric energy storage;

(3) the cost of credits is assigned to generation facilities and load serving entities according to Section 39.159(b)(6), as added by Chapter 426 (S.B. 3), Acts of the 87th Legislature, Regular Session, 2021;

(4) the program includes appropriate penalties for a failure to perform during a reliability event caused by factors within the reasonable control of the generator, including a requirement for a generator to buy back credits that the generator sold but for which the generator did not provide the required capacity;

(5) the independent organization certified under Section 39.151 for the ERCOT power region begins implementing real time co-optimization of energy and ancillary services in the ERCOT wholesale market before the program is implemented;

(6) all elements of the program are initially implemented on a single starting date;

(7) the terms of the program and any associated market rules do not assign costs, credit, or collateral for the program in a manner that provides a cost advantage to load serving entities who own, or whose affiliates own, generation facilities;

(8) generators who receive credits are prohibited from self-arranging credit exchanges with any affiliated competitive retail electric providers;

(9) secured financial credit and collateral requirements are adopted for the program to ensure that other market participants do not bear the risk of nonperformance or nonpayment;

(10) qualifying generators do not receive credits that exceed the amount of generation bid into the forward market on an individual resource basis; and

(11) the wholesale electric market monitor has the authority and necessary resources to investigate potential instances of market manipulation by program participants, including financial and physical actions, and recommend penalties to the PUC.

(b) Provides that this section does not require the PUC to adopt a reliability program that requires an entity to purchase capacity credits.

(c) Requires the PUC and the independent organization certified under Section 39.151 for the ERCOT power region to consider comments and recommendations from a technical advisory committee established under the bylaws of the independent organization that includes market participants when adopting and implementing a program described by Subsection (a), if any.

(d) Requires the PUC, if the PUC adopts a program described by Subsection (a), to require the wholesale electric market monitor to submit to the PUC and the legislature, not later than January 1, 2029, a report on the costs and benefits of continuing the program. Provides that this subsection expires September 1, 2029.

Sec. 39.1596. GRID RELIABILITY LEGISLATIVE OVERSIGHT COMMITTEE. (a) Defines "committee."

(b) Provides that the Grid Reliability Legislative Oversight Committee (committee) is created to oversee the PUC�s implementation of Section 35.004 (Provision of Transmission Service), Sections 39.159 and 39.160 (Wholesale Pricing Procedures), as added by Chapter 426 (S.B. 3), Acts of the 87th Legislature, Regular Session, 2021, and Section 39.1595.

(1) three members of the senate, appointed by the lieutenant governor;

(2) three members of the house of representatives, appointed by the speaker of the house of representatives;

(3) the chair of the committee of the senate having primary jurisdiction over matters relating to the generation of electricity; and

(4) the chair of the committee of the house having primary jurisdiction over matters relating to the generation of electricity.

(d) Provides that an appointed member of the committee serves at the pleasure of the appointing official.

(e) Provides that the committee members described by Subsections (c)(3) and (4) serve as presiding co-chairs.

(f) Provides that a member of the committee is prohibited from receiving compensation for serving on the committee but is entitled to reimbursement for travel expenses incurred by the member while conducting the business of the committee as provided by the General Appropriations Act.

(g) Requires the committee to meet at least twice each year at the call of either cochair and to meet at other times at the call of either co-chair, as that officer determines appropriate.

(h) Provides that Chapter 551 (Open Meetings), Government Code, applies to the committee.

(i) Requires the committee to submit a report to the governor, lieutenant governor, speaker of the house of representatives, and legislature not later than December 1 of each even-numbered year. Requires that the report include an update on the progress of and issues related to the PUC's implementation of the laws under the committee's oversight as provided by Subsection (b).

SECTION 5. Amends Subchapter D, Chapter 39, Utilities Code, by adding Section 39.166, as follows:

Sec. 39.166. RETAIL SALES REPORT. (a) Requires each retail electric provider that offers electricity for sale to report to the PUC:

(1) its annual retail sales in this state;

(2) the annual retail sales of its affiliates by number of customers, kilowatts per hour sold, and revenue from kilowatts per hour sold by customer class; and

(3) any other information the PUC requires relating to affiliations between retail electric providers.

(b) Requires the PUC by rule to prescribe the nature and detail of the reporting requirements. Authorizes the PUC to accept information reported under other law to satisfy the requirements of this section. Provides that information reported under this section is confidential and not subject to disclosure if the information is competitively sensitive information. Requires the PUC to administer the reporting requirements in a manner that ensures the confidentiality of competitively sensitive information.

SECTION 6. Amends Chapter 39, Utilities Code, by adding Subchapter O, as follows:

SUBCHAPTER O. CONSTRUCTION OF DISPATCHABLE GENERATION FACILITIES FOR RELIABILITY

Sec. 39.701. CAPACITY EVALUATION. (a) Requires the PUC annually to determine whether there is dispatchable generating capacity sufficient to ensure the reliability and adequacy of the regional electrical network installed in the ERCOT power region.

(b) Requires the PUC to select entities to install new dispatchable generation capacity under Section 39.702 if the PUC determines that dispatchable generating capacity sufficient to ensure the reliability and adequacy of the regional electrical network is not installed in the ERCOT power region.

(c) Requires the PUC to discontinue any reliability program described by Section 39.1595 in operation on the date of the second determination, if the PUC determines in two consecutive years that dispatchable generating capacity sufficient to ensure the reliability and adequacy of the regional electrical network is not installed in the ERCOT power region.

Sec. 39.702. CONSTRUCTION OF DISPATCHABLE GENERATION FACILITIES FOR RELIABILITY (a) Defines "entity."

(b) Requires the PUC, notwithstanding any other law, after a determination under Section 39.701(b), to select entities through a competitive bidding process to install a sufficient amount of new dispatchable generation capacity to address the projected shortfall determined under Section 39.701.

(c) Requires that costs incurred by an entity under this section related to the provision of additional dispatchable generation be allocated to load-serving entities on a load-ratio share basis through administrative charges assessed by the independent organization certified under Section 39.151 for the ERCOT power region on load-serving entities following a cost recovery proceeding before the PUC. Requires the PUC by rule to adopt procedures for an entity to recover the entity's costs incurred in installing a dispatchable generation facility that are similar to procedures used under Section 36.214 (Recovery of Generation Investment by Non-ERCOT Utilities).

(d) Requires the PUC to find that the generation facilities are used and useful to the entity in providing service for purposes of this section, regardless of the extent of the entity�s actual use of the facilities, if the PUC selects an entity to install new dispatchable generation capacity under this section.

(e) Requires a transmission and distribution utility that installs dispatchable generation capacity under this section to register as a power generation company, notwithstanding any other law.

(f) Requires the PUC to waive the requirements of Section 39.154 (Limitation of Ownership of Installed Capacity) for a generation facility installed under this section.

SECTION 7. (a) Makes application of the changes made to Chapter 15, Utilities Code, by this Act prospective.

(b) Requires the PUC to implement the changes in law made by this Act to Section 39.159(b), Utilities Code, as added by Chapter 426 (S.B. 3), Acts of the 87th Legislature, Regular Session, 2021, not later than September 1, 2024.

(c) Requires the PUC to make the first determination required by Section 39.701(a), Utilities Code, as added by this Act, not later than the fourth anniversary of the date a program described by Section 39.1595, Utilities Code, as added by this Act, is implemented.

SECTION 8. Effective date: September 1, 2023.