Texas PUC approves new ETI generator but rejects hydrogen capability

Commission Counsel’s Memo

Commission Counsel filed a memo recommending numerous revisions to the Proposal for Decision (PFD), primarily non-substantive but also clarifications regarding the PUCT’s policy toward findings associated with the Texas Parks & Wildlife Department.

Open Meeting Discussion

Chairman Lake noted that this is a big item with a lot of moving pieces. He suggested that the cost Is something that would be challenging in this inflationary environment, adding that, due to the Inflation Reduction Act, this should not be delayed.

Commissioner Cobos, the PUCT’s representative to Midcontinent Independent System Operator (MISO), noted that the Commission must weigh certain criteria to determine whether the certificate is necessary. She believed that the Commission’s review of the application hinges upon whether there is a need for additional service in the ETI service area. After weighing these factors, she concluded that the Orange County Advanced Power Station (OCAPS) is needed and would lower costs for consumers in the long run. She noted that the primary driver for the project is the deactivation of Sabine 1 and 3, vintage plants that are approximately 60 years old. She also noted that Sabine 4, which is 50 years old, has experienced a lot of forced outages in the past and this could put reliability at risk in the ETI service area. Commissioner Cobos suggested that the load growth forecast for ETI, particularly industrial load growth, is also an important factor to consider.

Commissioner Cobos stated that hydrogen has great potential in Texas and commended Entergy for being progressive. However, she questioned whether the addition of hydrogen would be in the best interest of ratepayers at this time. She did not believe there was evidence indicating hydrogen would be cost competitive with natural gas. She suggested that the dual fuel capability could actually increase emissions from the plant. She concluded that Entergy could come back in the future and amend its Certificate of Convenience and Necessity (CCN) when circumstances change.

Commissioner Cobos supported the addition of a cost cap, which she believes would be important in protecting ratepayers. She noted there is strong precedent with the SWEPCO Turk plant and Entergy’s Montgomery County Power Station. She suggested the need to strike a balance between building a new, efficient, reliable plant and protecting ratepayers from significant costs and risks. She noted Entergy’s proposed cost cap was $1.58 billion but, because she opposed the hydrogen aspect and transmission facilities, this would be deducted and result in a cap of $1.388 billion, including interest and a contingency reserve. However, she recommended a $1.588 billion cost cap to allow headroom for market escalation, supply chain issues, etc. She noted that Entergy would still have to prove prudent, just and reasonable costs up to that cap.

Finally, Commissioner Cobos recommended that, even though Entergy is a non-ERCOT utility, not subject to the PUCT’s weatherization requirements, she would recommend requiring the plant to meet the standards associated with Winter Storm Uri.

Commissioner Glotfelty noted that in 2010 the US Department of Justice started an investigation of Entergy’s transmission practices, which facilitated Entergy’s joining MISO. Although ETI is not a competitive market, Entergy has an obligation to serve and provide affordable, reliable electricity. Commissioner Glotfelty stated that although he would like for it to be, joining the RTO is not an issue in this case.

Commissioner Glotfelty stated that the most compelling argument for him is the need for additional voltage support in the southeastern part of ETI’s service territory. He believed that adding the plant is valuable for reliability and economics, however, he believed the hydrogen component is “ahead of its time.” He noted that blending hydrogen currently results in higher cost and higher emissions, although this could change in the future. He concurred that this could be amended in the future as circumstances change.

Commissioner Glotfelty asserted that Entergy’s RFP was not competitive, with no ability to modify it. He opposed the cost cap but added that the Commission could discuss costs again prior to the plant going into rates.

Commissioner McAdams believed that hydrogen technology is not ripe today and should be deferred to another proceeding where the Commission could better evaluate its capabilities.

Commissioner McAdams stated that if there is a need for the plant, the PUCT should expedite satisfying that need. He was concerned about modifications to the order that would delay the plant, wanting to provide flexibility with regard to costs in a high inflation environment. For this reason, he supported a cost cap of $1.588 billion.

Commissioner Cobos reiterated that Entergy’s estimate for natural gas-only was $1.48 billion.

Commissioner Jackson wanted Entergy to be able to build the plant and have flexibility to do what they need to do in this industrial part of Texas. She suggested that many of the benefits that come with reliable power supply go beyond just the cost of generating power to include jobs and business. She was not in favor of a cost cap, adding that the Commission could evaluate the costs in the future. She added although there was recent precedent for a cost cap but this was not something the PUCT traditionally did. She was in favor of the heat rate guarantee and implementing the ERCOT weatherization standard.

Commissioner Jackson addressed the hydrogen issue, noting that Entergy advocated hydrogen for reliability. She believed that this would be a perfect area for hydrogen to be considered, due to existing pipelines and hydrogen producers, with ideal storage for dual fuel. She noted that Public Utility Regulatory Act (PURA) §37.56(c)(4)(E) shows that this is something the legislature clearly wants the PUCT to consider. Commissioner Jackson supported the inclusion of the hydrogen capability as being innovative, cheaper to add at this point, and a unique and optimal opportunity.

Chairman Lake stated there is tremendous potential for hydrogen and Texas is very well-suited to be a leader in that. He stated that if the federal government is going to push for zero [carbon] emissions, reliable hydrogen is an outstanding candidate. However, he wants to see more in-depth analysis of the true benefits and costs before passing those costs on to ratepayers. While he agreed with hydrogen’s potential, he did not “believe this docket is the right time and place.”

Commissioner Cobos agreed with the potential benefits of hydrogen but felt that the costs are likely to come down over time. She expressed concern about adding those costs at this time, adding that, like solar, the costs are likely to come down over time and the Commission needs to ensure that the application it approves today is in the best interest of the public and ratepayers.

Commissioner Glotfelty suggested that the cost component most affected by inflation would be labor, adding that recent federal initiatives to increase infrastructure would put pressure on the finite labor market, making future labor costs difficult to predict.

Commissioner Cobos noted that, as a consumer advocate, she supported a cost cap, however, she agreed with the other commissioners in wanting the plant to go forward.

Chairman Lake summarized the Commission’s discussion, that the plant is needed and does not need to be delayed for consideration of any new federal legislation. He believed the majority of the Commission felt the hydrogen component was not needed at this time but wholeheartedly encouraged Entergy to come back in the future with more data or analysis, more forward-looking insight into the economics and emissions so the Commission could lay the groundwork for a hydrogen future in Texas. Chairman Lake directed the cost cap be removed from the Proposal for Decision (PFD) given the extraordinary inflationary environment. However, he noted that the Commission will be watching closely to ensure that consumers are getting an efficiently built, economic asset for their ratepayer dollars. Finally, the Commission required a weatherization standard consistent with the ERCOT Coastal Zone.

The Commission approved the PFD, including revisions consistent with the Commission’s discussion.

Background

Entergy Texas, Inc. (ETI) filed an application with the Public Utility Commission of Texas (Commission) seeking to amend its certificate of convenience and necessity (CCN) for approval to construct, own, and operate the proposed 1,215-megawatt (MW) Orange County Advanced Power Station (OCAPS), at its existing Sabine Power Station site in Bridge City, Texas.

OCAPS would be able to co-fire up to 30% hydrogen by volume upon commercial operation, and upgradeable to support 100% hydrogen operation in the future. The estimated total cost of construction and interconnection increased from $1.19 billion at the filing of the application in September 2021, to $1.58 billion at the hearing in June 2022.

In their Proposal for Decision (PFD), the Administrative Law Judges (ALJs) recommended approving the application without the hydrogen component and imposing certain conditions, including a cost cap.