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Securitization Under New Texas Bill Would Only Be Used For ERCOT Uplift

Texas Sen. Hancock Announces Bill That Provides, "Securitization Pathway For ERCOT Participants"

Slate Of Bills Includes Ban On Real-time Wholesale Pass-Through Retail Electric Products

March 12, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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Update, 4:45 pm ET

The text of SB 1757 has been posted, and the securitization authorized under the bill relates to uplift that would otherwise occur in the ERCOT market

SB 1757 provides, "The purpose of this subchapter is to enable the independent organization [ERCOT] certified under section 39.151 to use securitization financing to fund substantial balances that would otherwise be uplifted to the wholesale market as a result of market participants defaulting on amounts owed after an extreme pricing event."

"Securitization will allow wholesale market participants who are owed money to be paid in a more timely manner, while allowing the balance to be repaid over time at a low carrying cost," SB 1757 states

"The proceeds of the bonds shall be used solely for the purposes of financing default balances that would otherwise be uplifted to the wholesale market," SB 1757 states

"The commission [PUC] shall ensure that securitization provides tangible and quantifiable benefits to wholesale market participants, greater than would have been achieved absent the issuance of bonds. The commission shall ensure that the structuring and pricing of the bonds result in the lowest bond charges consistent with market conditions and the terms of the financing order. The amount securitized may not exceed the present value of the revenue requirement over the life of the proposed bond associated with default balances that are sought to be securitized," SB 1757 states

SB 1757 would establish "nonbypassable default charges" to recover the costs of the financing used for securitization, with such nonbypassable charges, notably, applying to wholesale market transactions

Under the bill, "default charges" means nonbypassable amounts to be charged on all wholesale market transactions administered by the independent organization certified under section 39.151 [ERCOT], approved by the PUC 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 for in the financing order

SB 1757 provides that nonbypassable default charges, "shall be collected and allocated among wholesale market participants on the same basis that they would otherwise be uplifted pursuant to the protocols of the independent organization"


Texas State Sen. Kelly Hancock, Chair of the Business & Commerce Committee, announced a series of bills to address the winter weather event, including SB 1757, which is described as follows: "Protects ratepayers by establishing a securitization pathway for ERCOT participants"

A caption for the bill reads, "Relating to securitizing costs of electric services or electric markets."

Text of the bill was not immediately available on the Texas legislative site

Notably, however, is that Hancock's legislative package also includes a separate bill, SB 1580, which is described as follows: "Protects ratepayers by establishing a securitization pathway for electric cooperatives."

As such, since SB 1580 addresses cooperatives specifically, SB 1757 may address a wider universe of ERCOT market participants, such as retail electric providers (or their QSEs), though, as noted, text of SB 1757 is not yet available and it's unclear what relief the bill will provide.

The co-op bill, SB 1580, states, "The purpose of this subchapter is to enable electric cooperatives to use securitization financing to recover extraordinary costs and expenses incurred because of the abnormal weather events from 12:01 A.M. on February 12 through 11:59 P.M. on February 20, 2021."

The co-op bill, SB 1580, would establish nonbypassable charges to pay the bonds, stating, "A financing order shall include terms ensuring that the imposition and collection of transition charges authorized in the order shall be nonbypassable and shall apply to all customers connected to the electric cooperative's system assets and taking service, whether or not the system assets continue to be owned by the electric cooperative."

Part of Hancock's slate of bills is the previously reported SB 1279, which would provide that a retail electric provider may not offer wholesale indexed products to residential customers

As first reported by on March 10, SB 1279 defines "wholesale indexed product" as meaning, "a retail electric product that includes in the rates charged for electricity a direct pass through of real time settlement point prices calculated for the ERCOT power region."

Hancock's slate of bills also includes the previously reported SB 415 which, as introduced, would allow for TDUs to contract for energy storage for distribution-related service, but prohibit the PUC from authorizing TDUs to own storage. See discussion of SB 415 in our prior story here. As of publication time, no public amendment to SB 415's text had been posted to the extent there has been any change since introduction.

Hancock's slate of bills also includes the following. The description is based on the version of the bill as-filed, unless otherwise noted

SB 1278 - provides that ancillary services costs incurred by the ERCOT independent system operator to address reliability issues arising from the operation of intermittent wind and solar resources must be directly assigned by the ERCOT independent system operator to those resources

SB 1281 - subjects transmission that is not needed for reliability, or included in an adopted CREZ plan, to a comparison of the estimated cost of the transmission project "for consumers" and the estimated cost savings "for consumers" that may result from the transmission project (adding the term "for consumers" to existing statue).

SB 1282 - provides that capital costs incurred to interconnect with the ERCOT transmission system generation resources and electric energy storage resources described by Section 35.152(a), including costs of utility interconnection facilities and all necessary system upgrades, must be directly assigned by the ERCOT independent system operator to the generation resource or electric energy storage resource receiving interconnection service through the facilities.

SB 1579 - creates a securitization pathway for retail natural gas customers & prices (Railroad Commission)

SB 1682 / SJR 62 - text not available; said to propose a constitutional amendment to create the State Utilities Reliability Fund for weatherization improvement projects

SB 1749 – text not available; said to require critical gas infrastructure mapping and improve communication and coordination between natural gas and electric regulators

SB 1750 - said to establish new severe weather preparedness standards and requirements for critical electric and natural gas infrastructure

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