The Public Utility Commission of Texas (Commission) plays a vital role in regulating the Electric Reliability Council of Texas (ERCOT) wholesale market, and retail energy markets throughout all of Texas. This article identifies key projects and initiatives at the Commission that are ongoing in 2022 and have a major impact on the electric power grid and energy markets in Texas. The Commission continues to move rapidly as it implements the 2021 post-Uri legislative mandates, and we expect it to continue changing regulations affecting a wide swath of the market and the ERCOT system to bolster reliability. Everyone engaged in the ERCOT market should continue to pay close attention to these reforms. Husch Blackwell is following these key matters at the Commission and represents or advises clients on many of them. We are happy to answer any questions related to any item outlined below.
Winter Storm Uri had a major impact on Texans and their energy markets. The Commission has pursued two major rulemakings in response to Winter Storm Uri and resulting legislation. These resulted in the adoption of new rules in recent months that will significantly affect markets going forward.
Weatherization Phase II (Docket No. 53401)
The Commission issued an order in Docket No. 53401, revising its existing weatherization rule (16 TAC § 25.55). This amendment implements new summer and winter weatherization standards for those entities operating facilities on the ERCOT electric system. The summer related rules will take effect on June 1, 2023, while the winter related rules will take effect on December 1, 2023. The new rule, among other things, will require generation entities and transmission service providers (TSPs) in the ERCOT power region to meet weatherization preparedness standards during both the winter and summer seasons. The new rule will also require ERCOT to conduct on-site inspections of every generation resource and transmission facility in the ERCOT region. Additionally, the new rule requires utilities who do not comply with weatherization preparedness standards to undergo an independent assessment by a qualified professional engineer as a remedial measure.
ERCOT Emergency Response Service (Docket No. 53493)
The Commission issued an order in Docket No. 53493. revising another existing rule (16 TAC § 25.507) to increase the Emergency Response Service (ERS) program budget to $75 million and also allowed ERCOT to exceed this new budgeted amount by up to $25 million for ERS contract term renewals. ERS is a program in which qualified loads and generators are selected and paid to be available for deployment in an electric grid emergency. They provide an agreed-upon number of megawatts (MW) when deployed to help prevent or alleviate an actual or anticipated emergency event. This increased budget allows the special emergency service to be more effective at preventing system-wide load shed of electric customers by providing financial incentive to ERS participants to curtail load during emergency events.
Market Redesign Proposals from E3 and Commission Discussion
The Commission released the findings of the Energy Environmental Economics (E3) report on market redesign alternative and recommendations. E3 evaluated six specific market design options for ERCOT:
- Load Serving Entity Reliability Obligation (LSRO): a system-wide forward requirement for procurement of reliability credits that are allocated to LSEs;
- Forward Reliability Market (FRM): a centrally cleared auction for the forward procurement of reliability credits by LSEs;
- Performance Credit Mechanism (PCM): a requirement for LSEs to purchase performance credits earned by generators on their availability to the system during the hours of highest risk, at a centrally determined clearing priced;
- Backstop Reliability Service (BRS): a system that allows ERCOT to procure backstop resources needed to ensure that a sufficient quantity of generation is available to meet a specified reliability standard.
- Dispatchable Energy Credits (DECs): a system that creates an annual requirement for each LSE to procure credits produced by eligible dispatchable resources.
- DEC/BRS Hybrid: a system that combines the procurement of DECs with a short reliability mechanism in BRS.
E3 proposed implementation of a centralized FRM. The Commissioners discussed the report’s recommendations at the November 10, 2022 Open Meeting. In this initial discussion, none expressed support for FRM. Instead, individual Commissioners expressed support for either PCM, BRS, DECs, or some combination of these. At the November 17, 2022 meeting of the Senate Business and Commerce Committee (which has jurisdiction over the Commission), several members expressed concern about the $460 million annual cost that E3 estimated the PCM would incur, and urged Commissioners to weigh that factor carefully. The Commission has opened a new project for market participants to file comments on the report and market redesign. Those comments are due in Docket No. 54335 by December 15, 2022 at noon. In line with Chairman Lake’s legislative testimony, we anticipate the Commission will vet any such decision with legislative leaders in advance of making a final decision.
Ancillary Service Redesign
The Commission and ERCOT are redesigning ancillary services markets to provide additional ancillary service products to ERCOT market participants. These include: (1) Regulation Service, a very fast service to deal with second-to-second changes in load; (2) Responsive Reserve Service, also a very fast service that is designed to deal with bigger imbalances than Regulation Service, such as a generator is going off-line; and (3) Non-Spinning Reserves, a slow service with a 10 -30-minute ramp time. Each of these services are procured in the day-ahead market. Further, the Commission and ERCOT are developing a Firm Fuel Supply Service (FFSS) that is expected to provide additional reliability for the market.
Chairman Lake’s Testimony before Texas Legislature
In July of 2022 the Chairman of the Public Utility Commission of Texas, Peter Lake, testified before the Texas Senate regarding the ERCOT market. Chairman Lake focused on the importance of reliability in the market during that testimony and offered some possible market redesign options to meet that goal. These included a dual fuel ancillary services product, extended ancillary services beyond 48 hours, and ORDC adjustments. Chairman Lake also testified before the Business and Commerce Committee on November 17, 2022, as mentioned above.
DISTRIBUTED ENERGY RESORUCES AND DISTRIBUTED GENERATION
With growing technologies in the energy sector, the Commission decided to take a closer look at new rulemakings to address this new technology. Specifically, the Commission opened projects to provide greater market participation opportunities for Aggregated Distributed Energy Resources (ADERs) and Distributed Energy Resources (DERs). DERs are small-scale power generation or storage technologies (typically from 1 kW to 10,000 kW) that can provide an alternative to, or an enhancement of the traditional electric power system. These can be located on an electric utility’s distribution system, a subsystem of the utility’s distribution system, or behind a customer meter. ADERs are an aggregation of numerous individual DERs for purposes of operating and participation in the ERCOT wholesale electricity markets.
ADER Task Force/Pilot Project (Docket No. 53911)
The Commission, led by Commissioners McAdams and Glotfelty, opened a task force comprised of representatives from all ERCOT market segments, as well as a pilot project in Docket No. 53911 to study and propose rules for ADER resources going forward. The task force created a governance document and asked the Commission to take action to facilitate the launch of the pilot program and create a streamlined registration process for ADERs. This pilot project will allow Retail Electric Providers (REPs) to provide ADER products to customers that provide both financial incentives to customers and make a greater amount of aggregated distribution level MWs available for dispatch by ERCOT during emergency events.
DER Project (Docket No. 51603)
The Commission also opened a project to review DERs and determine whether a need exists to adopt rules allowing greater DER market participation. Commissioners McAdams and Glotfelty are also heading up this project. In separate memo filings, they recommended that a rulemaking be opened to address energy storage resources and other resources connecting at distribution voltage. The proposed rule would standardize, clarify, and define the terms by which DERs interconnect to the distribution system and how distribution-level utilities would recover their related interconnection costs.
Prompted by these proposals, the Commission opened two dockets in October 2022 that proposed to adopt technical requirements and interconnection processes for DERs, and prescribe the method by which distribution utilities will recover their related cost of this service. The cost recovery docket is Docket No. 54224 and the technical requirements and interconnection docket is Docket No. 54233. Docket No. 54224 will address cost of service for DERs including whether those costs will include costs in aid of construction (CIAC) for generation entities, whether any costs will be included in the utilities transmission cost of service (TCOS), or whether a separate tariff regime will be used to capture costs from these DERs. Docket No. 54233 will address interconnection and technical requirements including whether these resources will need to be interconnected on dedicated feeders and what reliability role will they play during potential extreme weather events.
Several important contested cases are pending at the Commission or are on referral to the State Office of Administrative Hearings.
Winter Storm Notices of Violation
In December 2021 and January 2022, the Commission’s Executive Director issued Notices of Violation (NOV) to nine generation entities for failure to timely submit Winter Weather Readiness Reports (WWRR) to ERCOT in accordance with 16 TAC § 25.55. These NOVs cited the Commission’s statutory authority to assess penalties of up to $1,000,000 per violation, per day for violations of weather emergency preparedness rules. As a result, the NOVs proposed that each generation entity be assessed significant penalties ranging between several hundred thousand to millions of dollars for failing to meet the WWRR deadline. All nine NOV respondents filed Requests for Hearing, but the proceedings have all been abated for settlement negotiations with PUCT Enforcement Staff. Recently, the PUCT Enforcement Staff filed settlement agreements with four of these respondents, which with Commission approval will resolve those NOVs with agreed administrative penalties ranging from $100,000 – $200,000. One of the settlement agreements was approved by the Commission at the 10/20 Open Meeting; the three others are pending approval.
Oncor Rate Case (Docket No. 53601)
On May 13, 2022, Oncor filed a base rate application (for its electric delivery rates) with the Commission in Docket No. 53601 requesting that its cost of service be increased from $5.56 billion to $5.81 billion. Oncor claims it needs to increase its revenue requirement because it has made significant investments in its transmission and distribution system since December 31, 2016. This would result in an overall rate increase of about $250.69 million, representing a 4.5% overall cost of service increase. This would result in an 89.3% rise in costs for primary service over 10 kW at distribution line level, 43.9% increase in costs for primary service over 10 kW at substation level, and an 11.2% increase for residential customers. Oncor has proposed to increase its return on equity from 9.8% to 10.30%. This docket went to hearing from September 26 to October 5, 2022. Reply briefs were submitted on or before October 28, 2022.
Center Point Wholesale Distribution Service Tariff (Docket No. 53606)
CenterPoint filed an application for approval to amend its Wholesale Transmission Service Tariff for service at distribution voltage in Docket No. 53606. This would largely apply to the use of CenterPoint’s system by DERs. If approved, the amended tariff would include a $57.14 per month customer charge, a $175,97 per month metering charge, and a $2.334540 per billing kVA charge. The Parties in the docket filed a joint motion for interim relief (approving interim implementation of CenterPoint’s requested tariff) and to abate the docket on November 10, 2022, while the Commission proceeds with the DER rulemakings.
AEP Wholesale Distribution Service Tariff (Docket No. 53267)
AEP filed an application for approval of a new Wholesale Distribution Service Distributed Generation Energy Storage Tariff in Docket No. 53267. If approved, the new tariff will charge customers a $7.35 per month customer charge, a $126.87 per month metering charge, a $3.112 per kW billing demand distribution system charge, and a $ 0.423685 per kW billing demand Distribution Cost Recovery Factor (DCRF) charge. The docket is currently scheduled for a Hearing on the Merits on April 26-27, 2023, but has been abated by agreement of the parties while the Commission’s DER rulemakings proceed.
OTHER IMPORTANT HAPPENINGS AT THE COMMISSION
Outside of the important proceedings above, the following additional initiatives are important projects that are ongoing at the Commission.
ERCOT Subchapter N Debt Obligation Order (Docket Nos. 52322 and 52710)
The Texas Legislature enacted a bill to amend PURA Chapter 39 to add subchapters M and N that authorized financing mechanisms to provide funds to help ERCOT and market participants meet their debt obligations after Winter Storm Uri. An agreement was struck among market participants and ERCOT to create a debt financing mechanism to pay for the uplift balance and reasonable costs of implementation. Accordingly, the Commission issued a Debt Obligation Order in Docket No. 52322. The debt financing order requires a special purpose entity to issue bonds, and the proceeds from those bonds are used to pay the ERCOT uplift balance, and ERCOT will assess uplift charges to pay for the bonds. In the companion Docket No. 52710, the Commission issued an Order on September 29, 2022 for the first quarterly true-up in compliance with the Commission Debt Obligation Order in Docket No. 52322. Quarterly true-ups will be reported in Docket No. 52710 on a going forward basis.
Large Flexible Load Task Force
In March 2022, ERCOT issued a Market Notice establishing an interim process for the reliable interconnection of large flexible loads (greater than 75MW), typically bitcoin miners, to the ERCOT grid. Beginning in April 2022, ERCOT formed the Large Flexible Load Taskforce (LFLTF), a non-voting body comprised of ERCOT stakeholders, that reports directly to the ERCOT Technical Advisory Committee (TAC). The LFLTF has met monthly since April to develop policies related to planning, markets, operations, interconnection, market rules, Nodal Protocol Revision Requests (NPRR), and ERCOT Planning Guide amendments. Presently, ERCOT is working on draft NPRRs and Planning Guide revisions that will be circulated to stakeholders at the next LFLTF meeting in January 2023. The LFLTF will likely recommend a process for integrating large flexible loads into the ERCOT system sometime in Q1 2023.
Revisions to Consumer Benefits Test in 16 TAC § 25.101 (Docket No. 53403)
The Commission opened a rulemaking to amend 16 TAC § 25.101 regarding a consumer benefits test for economic transmission projects in compliance with Senate Bill 1281. This would not affect transmission projects justified for reliability purposes. Instead, this implements the legislative requirement to modify the test by which “economic projects,” those projects justified by cost and congestion savings, are evaluated. The Commission issued a Proposal for Publication (PfP) of the rulemaking on August 26, 2022. The PfP proposes amending the rule to: (1) establish a congestion cost savings test for evaluating economic transmission projects; (2) require the Commission to consider historical load, forecasted load growth, and additional load seeking interconnection when evaluating the need for additional ERCOT reliability transmission projects; (3) provide exemptions to the Certificate of Convenience and Necessity (CCN) requirements for certain transmission projects; and (4) require ERCOT to conduct a biennial assessment of the ERCOT power grid’s reliability and resiliency in extreme weather scenarios. The Commission has not yet adopted the rule.
Grid United Certificate of Convenience and Necessity Application (Docket No. 53758)
Grid United filed an application for a CCN to interconnect a high voltage direct current (HVDC) facility from El Paso Electric’s (EPE) service territory into the ERCOT transmission system at the Lower Colorado River Authority’s Bakersfield Switching Station. This transmission line would allow for the import of power into, and export of power out of, ERCOT via EPE’s transmission system. ERCOT and multiple transmission and distribution utilities have intervened in the docket. Currently, parties are proposing lists of issues to the Commission for consideration in a preliminary order.
Market Participant Qualifications and Reporting (Docket No. 52796)
The Commission issued a PfP on September 29, 2022, regarding repealing and replacing the rules governing market participant qualifications, and adopting requirements for renewing a entity’s registration or certification annually. The PfP would amend the registration and certification rules, 16 TAC §§ 25.105, 25.107 and 25.109, and also amend related reporting and notice rules, 16 TAC §§ 25.30, 25.485, and 25.495. The proposed amendments to §§ 25.30, 25.485, and 25.495 would shorten the time allowed for entities to respond to complaints from 21 days to 15 days. The proposed replacement rules would, if adopted, increase the information that power marketers and power generation companies (PGCs) must submit, disallow certain individuals from controlling REPs and PGCs, and increase the financial requirements to become (and continue operations as) a REP. Public comments on this rule are due by November 14, 2022, and reply comments are due by December 1, 2022.
Emergency Operations Plan Rule (Docket No. 53385)
The Commission adopted 16 TAC § 25.53 which requires the filing of an Emergency Operations Plan (EOP) in Docket No. 53385 by each electric utility, transmission and distribution utility, PGC, REP, and electric cooperative. Entities must annually update information in their EOP no later than March 15 of every year beginning in 2023.
Please contact Husch Blackwell LLP’s energy regulatory team if you have any questions about these Texas regulatory developments.
 The version of 16 TAC § 25.55 at the time of NOV issuance has since been amended to implement the Commission’s “Phase 2” weatherization rules which encompass weatherization requirements for all seasons.
 16 TAC § 25.55(d)(2)(D).
 Application of Oncor Electric Delivery Company LLC for Authority to Change Rates, Docket No. 53601, Application at 15 (May 13, 2022).
 Application of Oncor Electric Delivery Company LLC for Authority to Change Rates, Docket No. 46957, Final Order at COL No. 10 (Oct. 13, 2017).
 Docket No. 53601, Application at 1632.
 Application of AEP Texas Inc. for Approval of a Wholesale Distribution Service Distributed Generation Energy Storage Tariff, Docket No. 53267, Application at 7-8 (Feb. 24, 2022).