88th LegislatureEnergyTexas Senate Loads PUC Sunset Bill With Grid Priorities as Legislative Insurance Versus House

On the floor this week, the Texas House approved Senate Bills (SB) 7 and 2627 — the former a combination of Electric Reliability Council of Texas (ERCOT) market tweaks, and the latter a loan program for the construction of dispatchable power plants — but tacked on a good number of amendments to one.

SB 7 would establish a “firming requirement” that generators, namely wind and solar,  supplement their main units with backup power; create another pricing market for auxiliary power plants, called a “Dispatchable Reliability Reserve Service”; and add guardrails for another market program, the Performance Credit Mechanism (PCM), with a $1 billion annual cap.

That bill made it through clean with no amendments added.

When laying the bill out, Rep. Todd Hunter (R-Corpus Christi) put on a show describing the flurry of industry interests that have lobbied on the bill — especially as it relates to the PCM and its cap.

He specifically highlighted two strange bedfellows on the bill: the Texas Oil and Gas Association and the environmentalist Sierra Club.

Nearly all of the floor dialogue on SB 7 focused on the PCM and its cap, though the arguably more controversial facet of the bill is its firming requirement — in theory a cost or fee levied at renewable generators to compensate for increased power costs when those sources don’t produce.

The House’s version provides for a less prescriptive firming requirement than that which passed the Senate.

The PCM and its cap is an especially touchy subject between generators and industrial users — the industry members who lie on diametrically opposed sides of the electricity service ledger. 

SB 2627 would create a zero- or low-interest loan program to subsidize the construction of natural gas power plants with a completion bonus. The percentages between the two chambers varied — the Senate’s passed version laid out a zero-interest loan for up to 75 percent of a power plant’s construction and a completion bonus worth up to 20 percent of that construction cost — and amendments in the House altered their version even more.

One amendment by Rep. Rafael Anchía (D-Dallas) cut in half the loan repayment period to 10 years. Another raised the interest rate to 5.2 percent, the current metric set by the Federal Reserve Bank of New York. Anchía’s third tweaked the bonus from a flat $100,000 per megawatt (MW) of capacity constructed to a tiered scale based on the timeliness of completion.

A final amendment by Rep. Jared Patterson (R-Frisco) precludes generators from receiving both the loan and the bonus and requires the Public Utility Commission (PUC) to establish performance standards for recipients of this funding.

Senate Joint Resolution 93, the paired constitutional amendment that’d create the Texas Energy Fund from which these loans will be divvied out, also passed, clearing the 100-vote hurdle in the House by three votes.

There’s no specific line item for that program’s cost yet, but the Senate’s budget included a $10 billion appropriation to a similar bill that stalled out in the House; SB 2627 is a second attempt at that program.

While there certainly are elements between the two versions that need consolidation between the chambers — something that will likely be done in a legislative conference committee — the passage of these reforms in the House is a good signal for a final agreement.

The chances of these Senate priority bills were not clear-cut at the session’s midway point. A medley of other energy priority bills from the Senate, much less contentious than the first two, all passed as well.

But after the House’s votes, the Senate decided to take out a little insurance policy on their slate by tacking many of them onto House Bill (HB) 1500, the sunset review bill for the PUC and ERCOT.

The sunset review in Texas is a process by which the Legislature must analyze state agencies and offices, make adjustments to their charters, and authorize an extension every 12 years — though sometimes the extension is shorter than that.

The House passed HB 1500 by Rep. Justin Holland (R-Rockwall) a month ago and it waited for Senate action until this week; PUC and ERCOT sunset reviews were moved up two years to 2023 after the 2021 blackouts sparked a total reconsideration of the two entities.

In a Monday evening hearing, the Senate Business & Commerce Committee — whose chair is Sen. Charles Schwertner (R-Georgetown), the author of many of the priority grid bills — loaded up the sunset bill with language from other filed and passed bills.

In closing on the bill — which was voted out of committee 11 to 0 — Schwertner, like Hunter, also took a swing at the horde of lobbyists swirling around the issue.

“This was in the face of a massive onslaught of lobby effort,” Schwertner said, commending the House for its passage of the bills, “full of cartoon-type one-pagers to sway the vote with half-truths.”

The committee laid out 25 amendments, all withdrawn for the time being but ready to be added if need be, that would place various bills in the PUC’s renewal. Sunset bills are frequently affixed with previously dead legislation by members hoping to revive their bills.

Another reason that strategy was taken is that one-subject rules — the parliamentary requirement that bill language address only one subject of law — do not apply to sunset bills.

Some of the amendments included making the ERCOT grid’s Independent Market Monitor more independent from the PUC; changing PUC terms from six years to two; eliminating renewable energy credits; establishing a mandate that half of all new generation in ERCOT be dispatchable; prohibiting PCM-receiving generators from shuttering their plants for five years; creating an allowance for interconnection projects; multiple kinds of retail and residential demand response services; and more.

Another amendment bars the PUC from adopting its PCM plan, one that lacks a cap, without input from the Legislature through either of its proposals. Sen. Mayes Middleton (R-Galveston) added one that prohibits offshore wind farms from connecting to the ERCOT grid. He is one of many opposing a proposed offshore wind farm off the coast of Galveston in the Gulf of Mexico.

Schwertner was clear these amendments are a just-in-case measure pending what the two chambers can hammer out on specific legislation.

The Senate chairman was complimentary of the House, and the sunset bill’s author returned the favor.

“Last night, Chairman Schwertner and the Senate B&C Committee advanced HB 1500 out of committee with significant changes,” Holland told The Texan. “I’d like to thank Chairman Schwertner for his open and honest communications with myself and other House colleagues as we work toward a Legislature-based solution to the policies surrounding the PUC agency.”

“He has been an honest broker to work with throughout the process. I look forward to continuing our work together in these closing days of session to arrive at a solution that both chambers, House and Senate, can be confident in sending to the Governor for his signature.”

Because of the blackouts, this PUC sunset review has been among the most anticipated in recent memory. And the Senate is using it to hedge its bets, buying a legislative insurance policy in case certain bills fall through the cracks.

Tuesday is the Texas House’s final day to pass Senate bills on second reading and the upper chamber’s last day to pass all legislation on the floor is Wednesday. After that point, everything will be about either concurring on opposite chamber amendments or settling the differences in conference committees.

Also on the docket for Tuesday is the “sunset safety net” bill, HB 1620, a provision that extends by two years the life of all agencies currently up for review — a literal “safety net” in case the Legislature cannot get a specific review bill across the finish line before sine die. The Senate will likely consider that bill and if it wants more leverage, could remove the PUC from it, requiring that HB 1500 get across the line — lest a special session be triggered before the agency expires.

Though the two chambers appear close on power grid reforms, the issue is a set of legislative Russian nesting dolls — multi-layered and deeper than one might expect.