Spring Legislative & Regulatory Report

Share this article:

By Taylor Kilroy, TPPA Regulatory Counsel

In this report:

• Governor Abbott Appoints Lake and McAdams to PUC
• Defaults at ERCOT and Uplift
• ERCOT Report on Causes of Generator Outages and Derates
• PUC Action on System-Wide Offer Cap
• PUC Rule-making on Filing Requirements

Governor Abbott Appoints Lake and McAdams to PUC

On April 1, 2021, Governor Abbott appointed Will McAdams to the PUC for a term set to expire September 1, 2025. McAdams was the President of the Associated Builders and Contractors of Texas. Prior to that role, McAdams staffed multiple Texas Legislators, including Speaker Bonnen and Senators Hancock, Schwertner, and Fraser. McAdams also served in the United States Army.

On April 12, Governor Abbott appointed Peter Lake to the PUC for a term set to expire September 1, 2023.  Governor Abbott also named Lake as Chair. Lake served on the Texas Water Development Board since 2015, including as Chair since 2018.  Prior to that, Lake worked at Lake Ronel Oil Company and VantageCap Partners.

Both Chairman Lake and Commissioner McAdams were confirmed by the Senate, and the PUC held its first open meeting with this new panel on May 6.

Defaults at ERCOT and Uplift

The February extreme winter weather event created financial turmoil for many market participants. Brazos Electric Power Cooperative, Griddy Energy, and Just Energy have all filed for bankruptcy. ERCOT was short-paid nearly $3bn. ERCOT’s calculation of shortpayments as of April 30 is reproduced below.

The list above includes cooperatives, generators, and REPs.  At this time, no MOU has short-paid ERCOT.

ERCOT has entered into payment plans with two entities – Hanwha Energy USA Holdings Corp and Bulb US LLC. Bulb has paid off its outstanding balance, and the payment plan with Hanwha (which still covers a ~$50m balance) is set to be paid off by the end of the year.

ERCOT has also acknowledged that it will not begin the uplift process until after the legislative session, in hopes that one of several securitization or financing bills become law.

Both the City of Denton and CPS San Antonio have filed lawsuits against ERCOT, alleging, among other claims, that the default uplift process represents an unconstitutional granting of public funds and an unconstitutional lending of city credit. These cases remain ongoing.

ERCOT Report on Causes of Generator Outages and Derates

On April 6, 2021, ERCOT released its preliminary report on the causes of generator outages and derates, asserting that both during the event as a whole and during the most extreme operating hour, a majority of the outages and derates were due to weather related issues.

However, this conclusion was based on calculating outages based on nameplate capacity, which can significantly overestimate the derate levels of wind and solar, which do not often operate at nameplate. Several stakeholders raised concerns about whether this report was a mischaracterization, up to and including calls for its retraction.

On April 28, ERCOT presented a supplemented report on the causes of generation outages, with more granular information on fuel type. In developing the supplement, ERCOT backcasted the amount of wind and solar that would have been available during the event, with outages tracked against that revised number. As expected, particularly for wind, the supplement shows a dramatically smaller wind and solar outage amount.

ERCOT’s slide showing these revised numbers is reproduced below.

PUC Action on System-Wide Offer Cap

During the February extreme winter weather event, the PUC suspended the mechanism where the high system wide offer cap of $9,000 per MW and per MWh (HCAP) would be set to the low system-wide offer cap of the greater of $2,000 per MW and per MWh of 50 times the Katy hub price for natural gas, referred to as the Fuel Index Price (the LCAP). During the February extreme winter weather event, gas prices spiked, which could have resulted in a LCAP greatly exceeding the HCAP due to the FIP multiplier.

At the PUC’s next regularly-scheduled Open Meeting, held on March 3, 2021, the PUC lifted that suspension, allowing the LCAP to go into effect. The PUC did, however, note concerns with the viability of the LCAP going forward, requesting that PUC Staff open a project to elicit comments.

TPPA submitted comments on March 19, arguing that 1) the PUC should ensure that the low cap would not exceed the high cap of $9,000 per MWh, 2) the PUC should not adjust the LCAP upwards beyond its current $2,000 per MWh value, and 3) to the extent that the PUC believes further changes are necessary, it should only adopt those after a full stakeholder process.  Other commentators agreed with the need for both LCAP reform to ensure that it could not exceed the HCAP as well as a measured approach for any other changes.

At the PUC’s April 7 Open Meeting, the PUC appeared to agree with the tenor of these comments, asking that the PUC staff initiate a rule-making to remove the FIP multiplier and replace it with a make whole provision. On April 29, PUC Staff filed a draft proposal for publication, the first step in a rule-making. A hearing is currently scheduled for June 10, but it will be cancelled unless a request for the hearing is made by June 3.

PUC Rule-making on Filing Requirements

On April 23, PUC Staff opened a new project, Project 52059, Review of Commission Filing Requirements. TPPA understands that this project is intended to make permanent one of PUC’s first actions during the pandemic – suspending rules requiring physical copies be filed, which has been broadly popular.

For any questions regarding this report, please contact Taylor Kilroy at tkilroy@tppa.com.