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Update: Texas Committee Language For "Capacity" Market Protections Against Gentailers Posted

Would Mandate New Collateral Requirements To Ensure No Uplift From Non-payment By REPs In Any Reliability Program

Includes Direction On Cost Allocation Of A/S To LSEs

Dispatchable Generation Mandate Not Applied To REPs Set To Pass Senate

April 4, 2023

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Copyright 2010-21
Reporting by Paul Ring •

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The text of a revised committee substitute (committee report) for Texas SB2012 has been posted

As previously reported, the committee report includes language that ostensibly only allows the PUC to adopt a performance credit mechanism (PCM) or similar program if certain protections are met.

Among these protections under the committee report are:

• "the terms of the program and any associated market rules do not assign costs, credit, or collateral for the program in a manner that provides a cost advantage to load serving entities who own, or whose affiliates own, generation facilities;"

• "generators who receive credits may not self-arrange credit exchanges with any affiliated competitive retail electric providers;"

As noted, the bill has been described as placing guardrails in any PCM implementation if PCM is implemented by the PUC. The bill's fiscal note says, "S.B 2012 builds on the attributes of the PCM, but adds clear guardrails to prevent runaway rates and ensure reliability."

However, the bill interestingly applies these guardrails to, "a reliability program for the ERCOT power region that requires the purchase of capacity credits earned by generators to support a reserve margin mandate."

Specifically, the bill uses the narrow term "capacity credits". While most legislators have described the PCM as a capacity market, the narrow language, and lack of the term performance credit, could develop into an issue, particularly if the PCM market were changed such that capacity were not part of the calculation or procurement, etc (and only MWh and now MW were used)

The original draft of the bill had simply used the term "credits", with the term not preceded by the term "capacity", and it had also made clear that the prohibited program included any program based on generator availability

Specifically, below is a comparison of the text under each version of the bill:

Original SB2012

"The commission may not adopt a reliability program for the ERCOT power region that requires the purchase of credits earned by generators based on generator availability during times of high demand and low supply at a centrally determined clearing price unless the commission ensures that..."

Committee Report for SB2012

"Under Section 39.159(b), as added by Chapter 426 (S.B. 3), Acts of the 87th Legislature, Regular Session, 2021, or other law, the commission may not adopt a reliability program for the ERCOT power region that requires the purchase of capacity credits earned by generators to support a reserve margin mandate unless the commission ensures that..."

While the change may be meant to allow a dispatchable energy credit program, subject to another bill's requirements, the language could narrow the protections against gentailers under any eventual PCM market if PCM is designed in such a way as to not include "capacity credits".

The bill would also require the PUC to adopt new collateral requirements, ostensibly applying to LSEs and well as generators, as part of any reliability program meeting the definition above (e.g. PCM)

Specifically, the PUC may only adopt PCM if, "secured financial credit and collateral requirements are adopted for the program to ensure that other market participants do not bear the risk of nonperformance or nonpayment[.]"

As previously reported, the committee report drops the proposed 20% market share cap on REPs, but does retain a market share reporting requirement as follows:


(a) Each retail electric provider that offers electricity for sale shall report to the commission: (1) its annual retail sales in this state; (2) the annual retail sales of its affiliates by number of customers, kilowatts per hour sold, and revenue from kilowatts per hour sold by customer class; and (3) any other information the commission requires relating to affiliations between retail electric providers

(b) The commission by rule shall prescribe the nature and detail of the reporting requirements. The commission may accept information reported under other law to satisfy the requirements of this section. Information reported under this section is confidential and not subject to disclosure if the information is competitively sensitive information. The commission shall administer the reporting requirements in a manner that ensures the confidentiality of competitively sensitive information.

With respect to other matters, the committee report provides that the PUC, in fulfilling its mandate to establish requirements to meet the reliability needs of ERCOT and to determine the quantity and characteristics of ancillary or reliability services necessary to ensure appropriate reliability during extreme heat and extreme cold weather conditions and during, times of low non-dispatchable power production in the power region, shall, among other things, "allocate[] the cost of providing ancillary services and reliability services procured under this section on a semiannual basis among dispatchable generation facilities, non-dispatchable generation facilities, and load serving entities in proportion to their contribution to unreliability during the highest net load hours in the preceding six months, as determined by the commission based on a number of hours adopted by the commission for that six-month period, as follows ... [text concerning assignment to generation]; and (C) for load serving entities, the difference between the mean of the highest quartile of total load and the mean of total load in the ERCOT power region, allocated to each load serving entity on a load ratio share basis."

This cost allocation only applies to an LSE that has participated in the ERCOT market for at least one year, including a load serving entity whose parent company or affiliate has participated in the ERCOT market for at least one year.

With regard to the safety net allowing TDUs, as well as now munis, co-ops and competitive generators, to compete to build backstop generation if determined needed by the PUC (see yesterday's story for background), the committee report removes any thresholds in terms of the PUC determining whether such generation is needed, and if so, how much shall be built (in other words, no specific MW targets).

The committee report now more broadly provides that, "If the commission determines that dispatchable generating capacity sufficient to ensure the reliability and adequacy of the regional electrical network is not installed in the ERCOT power region, the commission shall select entities to install new dispatchable generation capacity...," with no specific mandates for the trigger, or amount of capacity to be built

Dispatchable Generation Program

The Texas Senate is set to pass S.B. No. 2015, which requires, "Any power generation company, municipally owned utility, or electric cooperative," to have 50% of their generation be dispatchable, or to purchase dispatchable credits to reach the 50% requirement, if the PUC determines that dispatchable generation may provide less than 55 percent of all new generating capacity installed in the ERCOT power region after January 1, 2024.

The program does not impose a dispatchable energy credit purchase obligation on retail electric providers

The bill, after a second reading, was passed to engrossment but procedurally a third reading and final vote could not occur today


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