Texas Bills Would Burden Renewable Generation

Mayer Brown - Energy Forward

Mayer Brown - Energy Forward

The Texas House of Representatives and Senate are considering three similar, but not identical, legislative drafts that could impose substantial grid charges directly on renewable generation businesses. 

House Bill 4466, which is scheduled for hearing on April 8, would require the Public Utility Commission of Texas (PUCT) to require the Electric Reliability Council of Texas (ERCOT), the state’s internal market operator, to directly assign to the renewable projects themselves the costs of ancillary services that ERCOT incurs (including standby backup, and reactive power) to address renewable energy-related reliability issues. Senate Bill 1278, which was favorably voted out of the Senate Business & Commerce Committee on April 7, would command the PUCT to require intermittent resources to purchase ancillary services and replacement power to manage net load variability. 

Companion legislation (Senate Bill 3) that passed the Senate and was referred to a House committee on April 7 contains language that is similar to Senate Bill 1278 and would also impose other changes on the ERCOT market. 

Important terminology used in and the application of both the House and Senate bills are unclear, although either bill would be highly unfavorable to renewable generation generally. With respect to the House bill, there is no mechanism specified for the PUCT to determine what, if any, “reliability issues” arise out of the operation of renewable generation. With respect to the Senate bill, the concept of “net load variability” is not defined. Neither bill would be self-implementing: each would require the PUCT to conduct rulemaking or similar proceedings, which the PUCT would be required to conclude with the issuance of orders by January 1, 2022. ERCOT would then be required to develop implementing tariff provisions. 

If the legislation were retroactive, it would effectively shift costs of Winter Storm Uri to wind and solar (rather than creating a capacity market, dealing with the inability to deliver natural gas and therefore operate gas-fired projects; addressing weatherization issues; etc.). However, it is far from clear that Texas constitutional law permits the adoption of a retroactive ratemaking regime of this nature. 

Renewable trade groups have widely spoken out against all three bills. The U.S. Partnership for Renewable Energy Finance, whose members are affiliated with the American Council on Renewable Energy, have asked the governor and lieutenant governor of Texas and the speaker of the Texas House to reject all three, declaring that they undercut previous investment decisions and erode investor confidence and neither enhance electric reliability nor lower consumer costs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Mayer Brown - Energy Forward

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