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Texas Senate Committee Advances ERCOT Default, Uplift Securitization Bill Without Changes, Retains Relief For REP Ancillary Service Costs

Floor Amendments To Be Offered, But Committee Leadership Says Their Amendments Won't Exclude Ancillary Services Or Adder Charges

Still Racing Against End Of Session Deadline, Especially As Bill Will Differ From House Under Floor Amendments

Amendment To Separate Cooperative-Focused Securitization Bill Would Force Co-ops Into "Competitive Market" If Co-ops Owing Money To ERCOT Do Not Use Securitization

May 25, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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The Texas Senate Committee on Business & Commerce, for purposes of advancing the bill as session nears its end, has reported favorably without amendments HB 4492 which would create a mechanism for the Public Utility Commission of Texas to authorize the securitization of ERCOT market default and uplift charges related to the winter weather event, including costs of ancillary services

However, Committee leadership, during a meeting in which HB 4492 was reported out, said that amendments will be offered to the bill on the floor

Even so, committee leadership said during a meeting that the intent is, even under the forthcoming amendments, that ancillary service and "adder" charges will be included in the bill in the manner as HB 4492 was passed by the House.

As previously reported, ancillary service costs would have been removed under a proposed committee substitute for HB 4492, which one retail market veteran had said would result in the loss of 20 retail electric providers from the market (see story here)

The forthcoming floor amendments to HB 4492 will use a loan from the state's Economic Stabilization Fund (ESF) to lower the customer impact from securitization, and will also be designed so that a lower interest rate may be obtained

The floor amendments will also seek to disincentivize an entity from availing itself of funds under securitization and exiting the market (essentially using the funds to pay dividends then shutting down the business), by barring such entities from re-entering the market

Additionally, while the bill is to still include costs to ERCOT (and thus market participants) from defaults, due to another bill addressing securitization just for cooperatives (and a House amendment essentially requiring co-ops to make use of securitization or face competition), the ERCOT default costs under HB 4492 would be vastly reduced, since the co-op default costs would be addressed through another mechanism.

Specifically, the House has passed to third reading an amended version of the co-op securitization bill, SB 1580

Describing the changes to SB 1580 via the House amendment process, Senate Business & Commerce committee leadership said that the bill would require cooperatives to be opened to competition if they did not elect to use securitization (addressing one of the previously reported concerns with the House-version of HB 4492 -- that co-ops with captive customers would avoid ERCOT charges through default and socialize such costs under securitization)

It was not clear if this competition provision remains to be added under a forthcoming amendment on third reading, or would be the practical fact of barring co-ops from the ERCOT market if they did not promptly pay any amounts owed to ERCOT (and use securitization) under an adopted House amendment to SB 1580

Specifically, an adopted House amendment to SB 1580 provides that, "The commission shall require that all market participants pay or make provision for the full and prompt payment of amounts owed calculated solely according to the protocols in effect during the period of emergency to the independent organization certified under Section 39.151 for the ERCOT power region to qualify, or to continue to qualify, as a market participant in the ERCOT power region."

The adopted House amendment to SB 1580 provides that, "If a market participant has failed to fully repay all amounts calculated solely under the protocols in effect during the period of emergency of the independent organization certified under Section 39.151 for the ERCOT power region, the independent organization shall report the market participant as in default to the commission. The commission may not allow the independent organization to accept the defaulting market participant's loads or generation for scheduling in the ERCOT power region, or allow the defaulting market participant to be a market participant in the ERCOT power region for any purpose, until all amounts owed to the independent organization by the market participant as calculated under the protocols are paid in full."

SB 1580 is still subject to a third reading in the House, and Senate concurrence or a conference committee (though the Business & Commerce committee leadership said that the House floor amendment was adopted to address Senate concerns, so concurrence may be likely), and is racing against the end of session

As previously reported, as passed by the House, HB 4492 includes the following definitions:

"Default charges" means nonbypassable amounts to be charged on all wholesale market transactions administered by the independent organization certified under Section 39.151 for the ERCOT power region, approved by the commission under a financing order to recover qualified costs, that shall be collected by the independent organization, its successors, an assignee, or other collection agents as provided by the financing order.

"Load-serving entity" means a municipally owned utility, an electric cooperative, or a retail electric provider.

"Period of emergency" means the period beginning 12:00 a.m., February 12, 2021, and ending 11:59 p.m., February 20, 2021.

"Qualified costs" means a default balance resulting from the period of emergency that otherwise would be or has been uplifted to other wholesale market participants, together with the costs of issuing, supporting, and servicing bonds and any costs of retiring and refunding existing debt in connection with the issuance of the bonds.

"Uplift charges" means charges for reliability deployment price adders and ancillary services costs in excess of the commission's system-wide offer cap that were uplifted to load-serving entities on a load ratio share basis due to energy consumption during the period of emergency. The term includes only uplifted amounts and does not include amounts that were part of the prevailing settlement point price.

Under HB 4492 as passed by the House, the PUC may adopt a financing order to recover the costs of a substantial default or uplift balance of qualified costs resulting from a significant pricing event on making a finding that such financing is needed to preserve the integrity of the wholesale market and the public interest

As passed by the House, Nonbypassable default charges must be collected and allocated among wholesale market participants using the same allocation methodology described in the protocols of the independent organization, as they existed on March 1, 2021. The rate associated with the nonbypassable default charges must be assessed on all wholesale market participants, including market participants who are in default but still participating in the wholesale market, and must be based on updated transaction data to prevent market participants from engaging in behavior designed to avoid the nonbypassable default charges.

As passed by the House, nonbypassable uplift charges must be allocated to all load-serving entities on a load ratio share basis, excluding the load of entities that have opted out under the process described below

As passed by the House, the PUC shall develop a process that allows a load-serving entity and any customer whose demand is greater than one megawatt and is served by a retail electric provider to opt out of the uplift charges by paying in full all invoices owed for usage during the period of emergency. Load-serving entities and individual customers that opt out may not receive any proceeds from the uplift bonds.

As passed by the House, a financing order shall include terms ensuring that the imposition and collection of default or uplift charges authorized in the order shall be nonbypassable, other than uplift charges paid under the opt-out process

Under the bill as passed by the House, all load-serving entities that receive offsets to specific uplift charges from the independent organization under this subchapter must adjust customer invoices to reflect the offsets for any charges that were or would otherwise be passed through to customers under the terms of service with the load-serving entity, including by providing a refund for any offset charges that were previously paid

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