Unpacking House Bill 1500

On May 29, 2023, the next to last day of Texas’ 88^th Legislative Session, the Legislature passed House Bill 1500, commonly called the Public Utility Commission (PUC) Sunset Bill. It builds on work done in the electric utility industry in Texas since Winter Storm Uri in February 2021. The bill becomes effective on September 1, 2023.

For anyone not familiar with the sunset process, it is, essentially, a governance process where the state is required to review the continued existence and mission of state agencies, unless they are designated to exist by the state constitution. If an agency remains useful it is continued; if not, it is terminated, or, sunset. In 2023, both the Texas PUC and the Office of Public Utility Counsel (OPUC) underwent sunset review, both remaining in existence.

However, the bill does much more than continue the PUC and OPUC, which is does into 2029.  It contains numerous administrative, governance, and substantive sections. HB1500 contains seemingly circular references from one subsection to another, or separates the specific directions regarding a given topic by tens of pages. The bill also requires, or clarifies requirements for, numerous reports, and repeals seven sections of state code, most from the Utilities Code or Public Utility Regulatory Act (PURA).

Let’s unpack it, with a nod to noting rulemakings and orders that the PUC is required to open and issue, respectively.

Repealed Sections

Frist, what went? The most notable repeal, because it’s a substantive section and it requires multiple changes to remove reference to it throughout the PURA, is section 39.904, Goals for Renewable Energy. This section set a target of having 10,000 MW of installed renewable energy by 2025. Renewables installed on the Electric Reliability Council of Texas (ERCOT) grid surpassed this goal years ago. Although this section is repealed, the PUC must conduct a (required) rulemaking to facilitate the Renewable Energy Credit (REC) Program that was in section 39.904(b), and to phase out the REC program such that it terminates on September 1, 2025. Another repealed subsection, 39.916(g), is associated with REC’s as well.

Of the other five repealed sections, four remove reporting requirements, including both the PUC Scope of Competition Reports for the electric and telecommunications markets. However, as will be discussed, below, the new report requirements in HB1500 cover similar content.

The last repeal, subsection 39.918(k), removes the expiration date for the overall section 39.918. Additionally, in PURA 39.918, the term “widespread power outage” has been redefined as “significant power outage” with additional specificity added to what qualifies under that definition and parameters for the use of mobile generation during a significant power outage.

Administrative Changes

HB1500 specifies several administrative requirements for PUC commissioners, how the agency will be run, and how it will act, including:

·      Establishment of a training program for PUC commissioners and development of a commissioner training manual. Commissioners must complete the training by December 1, 2023.

·      Development of a PUC agency-wide communications plan for communication with the public and utility market participants.

·      Specification of penalties for violations of Voluntary Mitigations Plans (VMP), which are plans agreed between the commission and generators with significant market share to alleviate market power. The subsection also requires that the VMP be reviewed every two years and modified or terminated if it’s no longer in the public interest.

·      A requirement for generators to provide Service Interruption Notifications to disclose the reason for any unplanned outage to ERCOT. ERCOT then has to post this reason within three days of the generator being back in-service. Required Rulemaking. (PURA 35.0022)

·      A requirement for the PUC to consolidate transmission line CCN proceedings that share a common end point.

·      Unless it is during an urgent emergency, the commission and commissioners are restricted from issuing verbal directive to Regional Transmission Organizations (RTO’s), including ERCOT. Instead, they are required to act through contested cases, rulemaking, memorandums, or written orders. If they do issue a verbal directive, they’re required to follow-up with written documentation within three days. A required rulemaking will provide guidance on which types of directives will be considered appropriate for different types of actions., and what qualifies as an emergency.

·      A bar to prohibit the PUC from restricting the Independent Market Monitor’s (IMM) interactions with the Legislature.

·      Section 13 of the Texas Water Code was also amended by HB1500 to limit the term of an emergency order issued by the commission to 360 days, and specifies conditions for renewal. (WC 13.4132)

Governance Changes

In addition to the administrative change(s), above, HB1500 also codifies governance changes for both the PUC and ERCOT. These include:

·      A requirement to allow public comments at the beginning of each PUC open meeting. This has been the practice of the commission, but now it is a requirement.

·      Addition of language clarifying commission approval of ERCOT’s bylaws, ERCOT protocols, and ERCOT enforcement actions.

·      Requirement of two PUC commissioners to serve on the ERCOT Board of Directors, in a non-voting capacity, and stating how commissioners will be rotated through this role.

·      Creation of a legislative oversight committee to be made up of representatives and senators. The Grid Reliability Legislative Oversight Committee will oversee the implementation of bills that have been passed by the 87^th and 88^th Legislative Sessions to reform the electricity market.

Substantive Changes

Now, let’s examine the meat of the legislation.

·      Allocation of generator interconnection costs - Required Rulemaking. Additions to section 35.004 (Provision of Transmission Service) require the commission to create a rule that sets a reasonable allowance for transmission utility costs to interconnect new generation, for generators that sign a Standard Generator Interconnection Agreement (SGIA) after December 31, 2025. Any costs for interconnection that exceed this allowance are required to be paid by the interconnecting generator. This allowance has to be reviewed at least every five years. The bill requires this rulemaking to be completed 180 days after HB1500 is effective.

·      Circuit Segmentation Study - PUC Order Required. Each transmission and distribution utility (TDU) is required to perform a study of how their system can be sectionalized and segmented to equitably rotate outage while maintaining protection to critical facilities. They also must assess the feasibility of breaking critical loads out onto smaller circuits to allow more flexible management, including consideration of critical facilities with back-up power and whether back-up power allows greater outage management flexibility. The study should include time lines and costs. Utilities are required to report their findings to the commission by September 1, 2024, with the commission completing its review by the following March. (PURA 38.078)

·      Power Region Reliability and Creation of New Dispatchable Reliability Reserve Service (DRRS) – PUC Order Required. The commission is required to order ERCOT to create this new Ancillary Service (AS) product in both the day-ahead and real-time markets. ERCOT will determine the quantity to be procured and develop criteria for qualification to participate in the product. Per PURA 39.159, DRRS participants are required to be capable of running for four hours, be available within two hours of dispatch, and be able to make changes, if asked, in less than an hour. This new product is intended to result in reduced use of Reliability Unit Commitments (RUC). The deadline for implementation for of this product is December 1, 2024.

·      Generation Reliability – Potential Rulemaking. Generators that sign a SGIA after January 1, 2027 are required to operate their portfolios to be available for dispatch during times of highest reliability risk, and must begin to demonstrate this capability by January 1, 2028. Owners and operators are allowed to supplement their portfolios with contracted resources, as necessary. The commission is allowed to enforce penalties, however, units on planned outage or unavailable due to transmission outages will not be penalized. (PURA 39.1592)

·      Cost Allocation of Reliability Services – PUC Order Required. ERCOT must work with its Technical Advisory Committee (TAC) to evaluate allocation of the costs of AS, including DRRS, on a semi-annual basis in proportion to unreliability during times of high reliability risk due to low reserves, to generation and LSE’s, and determine whether it would result in net savings to consumers (when compared to allocating all cost to load). They also may consider other methods identified by the commission. The PUC must report the findings to the Legislature by December 1, 2026. (PURA 39.1593)

·      Reliability Program – Potential Rulemaking/Potential PUC Order. The commission is prohibited from requiring customers or LSE’s to purchase credits (such as the Performance Credit Mechanism) that support a required reserve margin or capacity or reliability requirement unless it ensures that fourteen criteria are met. Essentially, the commission may move forward with a reliability or credit program or, may not. If a reliability program is created, generators who are compensated for participation would be prohibited from removing their units from service during their term. Additionally, before any implementation of this type of program the PUC is to order the IMM and ERCOT to provide information on the costs and benefits of the program and to report that to the Legislature. If the program is implemented this would become a biennial report. (PURA 39.1594)

·      Renewable Power Requirements – Potential Rulemaking. The commission may opt to establish requirements for renewable generators to have reactive power control capabilities or other technology to reduce reliability impacts. (39.9111)

·      REC program – ERCOT is required to establish and administer a trading program for voluntary REC’s. (PURA 39.9113)

·      Pricing Study – ERCOT and the PUC are required to study whether cost reductions would occur for the residential and small consumer sectors, and LSE’s, from alternative pricing structures, including limitations of generator prices, a pay as bid mechanism, or retaining a single market clearing price. The results are to be reported to the Legislature by December 1, 2025. (Uncodified – Section 52 of HB1500).

Reporting Requirements

In addition to those that are part of the “meat”, above, several reporting requirements were included in HB1500. The following bullets list the general content, frequency, and entity required to make the report. The bill does include greater specificity as to the content of most of these reports, so section references are included.

·      Biennial report regarding improvements to utility regulation and recommendations for legislation for electric, telecommunications, water, and sewer, as well as the Scope of Competition in the electric and telecommunication markets. Due by January 15^th, every odd year. (PURA 12.203)

·      Annual report from PUC to Legislature about market manipulations and actions taken to address them. Due by December 1^st, annually. (PURA 39.1515)

·      Report on dispatchable and non-dispatchable generation facilities, from the PUC to the Legislature, which includes information of costs of backing-up generation to provide firm power and facilitate transmission of electricity to load. Due by December 1^st, annually. Certain portions of the report are not required until December of 2024. (PURA 39.1591)

·      The Electric Industry Report is a biennial report from the PUC to the Legislature. It will identify transmission and distribution constraints, and summarize key findings of other required reports. Due by January 15^th, every odd year. (PURA 39.166)

·      A conflict-of-interest report is due from the commission and ERCOT to the Legislature. Due date and frequency not specified. (PURA 39.167)

·      A report from Retail Electric Providers (REP) regarding retail sales is required to be submitted to the PUC. A rulemaking is required to specify the report’s requirements. Due date and frequency not specified. (PURA 39.168)

·      The PUC and ERCOT are required to provide a report to the Legislature regarding transmission and generation capacity and identify whether additional capacity is needed. Due by December 31^st, every even year. (PURA 39.9112)

In closing, 2023’s HB1500 continues work to reform the electric utility industry in Texas, and its provisions will influence the industry and market. It, and other targeted bills, have set the stage for substantial work in the electric industry for the next two years.

**Grid Monitor is here to save Market Participants and Professionals valuable time keeping up with the 29 or so rulemakings presented at the 7/11/23 Legislative update workshop.