BILL ANALYSIS

C.S.H.B. 3970

By: Darby

State Affairs

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Recent ERCOT forecasts have predicted record growth for electricity demand, with much of the growth driven by large load customers. A 2025 study from the Nicholas Institute for Energy, Environment & Sustainability at Duke University found that by leveraging large load flexibility, new large loads can be interconnected more quickly while reducing the need for premature investment in power plants and transmission lines. The bill author has further informed the committee that aligning regulations to incentivize flexible loads and new co-located generation provides Texas with the opportunity to enhance grid reliability, reduce costs, and foster continued innovation within ERCOT.

C.S.H.B. 3970 addresses the rapidly growing electricity demand in ERCOT by creating an expedited interconnection pathway specifically for large, flexible loads. The bill establishes two qualification pathways that provide for the installation of behind-the-meter generation that is capable of serving full load requirements or the commitment to a minimum 10-year flexible load agreement allowing curtailment during grid stress.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the Public Utility Commission of Texas in SECTION 1 of this bill.

ANALYSIS

C.S.H.B. 3970 amends the Utilities Code to require the Public Utility Commission of Texas (PUC) by rule to establish a program to provide an expedited process for the interconnection of large loads. The bill sets out the following provisions relating to the program:

· the program must require the interconnecting electric cooperative, municipally owned utility, or transmission and distribution utility and ERCOT to give priority in the interconnection queue to a large load for which a retail customer has received approval for expedited processing over any other large loads;

· if applicable, the generation interconnection application for the large load's behind‑the‑meter generation must be processed in parallel with the large load;

· the program must require a large load to qualify for expedited interconnection processing by bringing in-service, not later than the 180th day after the interconnection date, behind‑the-meter generation that is registered with ERCOT and capable of serving the full load requirement of the customer;

· as an alternative to the preceding requirement, a large load may qualify for expedited interconnection processing if the load is a facility with an aggregated peak demand at a single site of more than 75 megawatts by doing the following:

o providing to the interconnecting entity all data regarding, and posting all required financial security for, the load; and

o being subject to a contract or agreement with ERCOT to establish the load as a flexible load for a minimum period established by the PUC, which must be at least 10 years;

· a large load that qualified for expedited interconnection may choose the following:

o if authorized by ERCOT and the relevant electric cooperative, municipally owned utility, or transmission and distribution utility, to contract with a vendor approved by the relevant cooperative or utility or by ERCOT to perform all studies required by the relevant cooperative or utility before the approval of the interconnection application; and

o if authorized by the relevant electric cooperative, municipally owned utility, or transmission and distribution utility, to procure equipment required for the interconnection in accordance with technical specifications provided by the relevant cooperative or utility and to construct interconnection facilities in accordance with technical and other requirements of the relevant cooperative or utility; and

· the program may provide that studies required by an electric cooperative, municipally owned utility, or transmission and distribution utility before the approval of an interconnection application for a flexible load may evaluate the load as non-firm.

C.S.H.B. 3970 requires demand reductions from flexible loads that receive expedited processing and are removed from the system through the utilization of behind-the-meter generation during an energy emergency alert to be counted toward any obligation of the electric cooperative, municipally owned utility, or transmission and distribution utility to shed load. The bill requires the PUC to impose an administrative penalty on an owner or operator of a large load that is approved for expedited interconnection processing but does not comply with the requirements of the bill's provisions.

C.S.H.B. 3970 defines "behind-the-meter generation" as a new generation facility on the retail customer's side of the meter capable of serving the full load requirement of the retail customer and "flexible load" as a load operated by a retail customer who is obligated by contract or agreement in the ERCOT market to reduce the load or power the load exclusively with back-up generation at the direction of ERCOT or as required to protect the integrity of the ERCOT grid.

EFFECTIVE DATE

September 1, 2025.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 3970 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

Both the substitute and the introduced set out provisions relating to a program for an expedited interconnection process of large loads and both set out requirements generally applicable to their respective program. However, the substitute requires the PUC by rule to establish the program, whereas the introduced required the PUC by rule to require ERCOT to develop and implement the program. Additionally, the substitute and the introduced differ with respect to program eligibility in the following ways:

· the introduced provided for a program applicable to operators of large loads who agree to cease consuming energy from the power grid through deployment of behind-the-meter generation when directed to by ERCOT and limited the program's availability to large loads that are a facility at a single site with an aggregate peak power demand that exceeds a demand threshold, established by ERCOT, of at least 75 megawatts unless ERCOT determines that a lower threshold will better ensure reliability in the ERCOT power region; whereas

· the substitute instead provides two ways in which a large load may qualify for expedited interconnection processing, as follows:

o the program must require a large load to qualify by bringing in-service by a specified deadline behind-the-meter generation that is registered with ERCOT and capable of serving the full load requirement of the retail customer; and

o the program may, in the alternative, qualify a load that is a facility with an aggregated peak demand at a single site of more than 75 megawatts by:

§ providing to the interconnecting entity all data regarding, and posting all required financial security for, the load; and

§ being subject to the applicable contract or agreement with ERCOT to establish the load as a flexible load for a minimum period, established by the PUC, of at least 10 years, with "flexible load" defined as a load operated by a retail customer who is obligated by either contract or agreement in the ERCOT market to reduce the load or power the load exclusively with back-up generation at the direction of ERCOT or as required to protect the integrity of the ERCOT grid.

The substitute accordingly revises the introduced version's definition of "behind-the-meter generation" to specify that the facility must be capable of serving the full load requirement of the retail customer.

With respect to prioritization under the program, the introduced and the substitute differ as follows:

· both versions require ERCOT and the relevant cooperative or utility to give priority in the interconnection queue to an applicable large load, but the substitute specifies that the large load is given prioritization over any other large loads, whereas the introduced did not include this specification; and

· the substitute does not include the provision of the introduced that provided for prioritization of interconnection applications based on a participating large load agreeing to offer the energy generated by its behind-the-meter generation to the power grid at times directed by ERCOT or reduce its energy consumption from the power grid to a minimum level established by ERCOT.

Whereas the introduced required that the generator interconnection application for the large load's behind-the-meter generation be, if applicable, processed in parallel with the load interconnection application, the substitute requires that generator interconnection application to be, if applicable, processed in parallel with the large load.

The substitute conditions the choice to procure equipment and construct interconnection facilities in accordance with technical specifications and other requirements of the relevant cooperative or utility on that cooperative or utility authorizing such choice, whereas the introduced did not include this condition.

Whereas the introduced required the program to provide that studies required by a cooperative or utility before the approval of an interconnection application for a participating large load may evaluate the load as non-firm, the substitute authorizes the program to provide for such studies but with regard to an interconnection application for a flexible load.

The substitute includes the following provisions absent from the introduced:

· a requirement for the demand reductions from flexible loads that receive expedited processing and are removed from the system to be counted toward any obligation of the cooperative or utility to shed load; and

· a requirement for the PUC to impose an administrative penalty for noncompliance on an applicable owner or operator of an approved large load.