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Updated: Texas Senate Passes Bill To Pay All Generation Based On Actual Cost During Emergencies (Not Just Capping Offers And Allowing Generators To Be Paid A Market Clearing Price)

Details On Wholesale Index Product Ban, Other New REP Obligations

Bill Requires Intermittent Generation To Purchase "Replacement Power" & A/S

(Earlier): Texas Senate Passes Bill Prohibiting Wholesale Index Plans

March 29, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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Update, 9:00 pm ET

Text for the engrossed version of Texas bill SB 3 has been posted

The bill now moves to the House

Most notable is that the engrossed version changes the revisions to the ERCOT offer cap and scarcity mechanism, and, under the text, would price all generation during an emergency based on each specific generation unit's cost (rather than capping a generator's offer to cost, but with market clearing pricing still being used based on the marginal offer)

The engrossed bill, reflecting amendments, states that generators shall be paid based on their "actual costs" during an emergency. This would appear to terminate market-clearing pricing. However, the bill may need a clean-up, because reference is still made to an "emergency pricing program cap", which suggests an offer cap, which would only be needed if generators were making market-based offers (and paid the market clearing price), rather than being compensated based on actual costs. If the new "actual cost" language is meant as a safe harbor, to allow market clearing prices up to an emergency offer cap but with any generation which has verifiable costs above the cap made whole, the bill needs to be clarified, as it could be read as requiring that all generators are paid only their actual costs during an emergency, which could be well-below the emergency offer cap

Specifically, SB 3 provides that the PUC by rule shall establish an emergency pricing program for the wholesale electric market, with the following provisions

• The emergency pricing program shall compensate generators based on their actual costs of generation during the time of the emergency.

• The emergency pricing program shall take effect if the high system-wide offer cap has been in effect for 12 hours within a 24 hour period after initially reaching the high system-wide offer cap. The commission by rule shall determine when the emergency pricing program shall cease.

• The emergency pricing program may not allow an emergency pricing program cap to exceed any nonemergency high system-wide offer cap.

• The emergency pricing program may include a true-up after the operating day.

• The price of ancillary services may not exceed 150 percent of any high system-wide offer cap or emergency pricing program in effect at the time.

• Any wholesale pricing procedure that has a low system-wide offer cap may not have the low system-wide offer cap exceed the high system-wide offer cap.

• The commission [PUC] shall review each system-wide offer cap program adopted by the commission, including the emergency pricing program, at least once every five years to determine whether to update aspects of the program.

Retail Provider Issues

SB 3 retains, without change, the provision that a retail electric provider may not offer a wholesale indexed product to a residential or small commercial customer, with "wholesale indexed product" defined as, "a retail electric product in which the price a customer pays for electricity includes a direct pass-through of real-time settlement point prices determined by the independent organization certified under Section 39.151 for the ERCOT power region."

The bill does not define the term small commercial customer

The engrossed bill does not include a provision from the originally filed bill which would have banned all variable retail electric rates, and which would have limited retail electric providers to serving customers under fixed rates, for all customer classes.

The engrossed bill requires REPs to provide information to customers concerning information on involuntary load shedding procedures and the availability of critical care customer designations as follows:

An electric utility providing electric delivery service for a retail electric provider, as defined by Section 31.002, shall provide to the retail electric provider and the retail electric provider shall periodically provide to the retail electric provider's retail customers together with bills sent to the customers:

(1) the electric utility's procedures for implementing involuntary load shedding initiated by the independent organization certified for the ERCOT power region;

(2) the types of customers who may be considered critical care residential customers or critical load according to commission rules adopted under Section 38.075;

(3) the procedure for a customer to apply to be considered a critical care residential customer or critical load according to commission rules adopted under Section 38.075; and

(4) reducing electricity use at times when involuntary load shedding events may be implemented.

The commission by rule shall require each retail electric provider to:

(1) provide to the provider's customers clear and understandable information about the requirements for voluntary load shedding participation before the provider accepts a customer's agreement to volunteer to participate in voluntary load shedding;

(2) inform the provider's transmission and distribution utilities whether the retail electric provider serves customers willing to voluntarily participate in load shedding during an energy emergency; and

(3) coordinate with the provider's transmission and distribution utilities regarding the potential total amounts of electricity that may be available if voluntary load shedding is needed.

The engrossed bill drops a proposed definition for "Critical care residential customer" and instead provides that the term, "has the meaning assigned by commission rules."

Additionally, the bill would require retail electric providers to develop emergency operations plans that are subject to review by the PUC. Under the bill, the PUC shall require a REP to file an updated emergency operations plan if the PUC finds that an emergency operations plan on file does not contain adequate information to determine whether the REP can provide adequate electric services.

Ancillary Service, Replacement Power Procurement Obligation For Intermittent Generation

SB 3 requires that the PUC, "shall require intermittent generation resources in the ERCOT power region to purchase ancillary services and replacement power sufficient to manage net load variability."

Other Issues

The bill provides that the PUC by rule shall require each provider of electric generation service to implement measures to prepare the provider's generation assets to provide adequate electric generation service during a weather emergency according to reliability standards adopted by the commission.

The bill includes various weatherization requirement for certain natural gas facilities as well


* This is a breaking news alert. This page will be updated as more details become available

The Texas Senate today passed SB 3, which, according to Lt. Gov. Dan Patrick, "prohibits wholesale index plans."

The bill was amended on the floor prior to passage. Text for the amendments and the engrossed version of the bill were not immediately available.

The committee substitute version of the bill provided that a retail electric provider may not offer a wholesale indexed product to a residential or small commercial customer

As more fully discussed in our prior story (see details here), the committee substitute version of the bill also revises the ERCOT scarcity pricing mechanism to include a cost-based offer cap under emergency conditions, and for REPs to make customers aware of load shedding procedures and the opportunity for voluntary load shed

Per Patrick's office, SB 3 includes the following (as noted, more specific details will be available once engrossed text is posted)

• SB 3 requires the weatherization of all generation, transmission and natural gas facilities and pipelines in the Texas supply chain and includes a penalty of up to $1,000,000 per day for companies that fail to comply.

• SB 3 prohibits wholesale index plans.

• SB 3 requires mapping of the power supply chain.

• SB 3 establishes a power outage alert system to ensure Texans are properly notified of when power demand may exceed supply.

• SB 3 directs the Texas Department of Emergency Management (TDEM) to categorize winter storms the way that hurricanes are categorized.

• SB 3 requires utility providers to defer bill collections during an extreme weather emergency and to work with customers to establish payment schedules.

• SB 3 ensures a more reliable electric grid by requiring renewable energy sources to have backup plans to fill in the gap of any energy they fail to provide during critical periods.

• SB 3 formalizes the Texas Energy Reliability Council (TERC) and its duties ensuring the state’s natural gas and electric reliability needs are met.

• SB 3 establishes a state energy plan advisory committee to create a state energy plan.

• SB 3 directs the PUC to create an emergency pricing mechanism.

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