Texas Gov. Signs Cooperative-Focused Securitization Bill Which Would Force Co-ops Into "Competitive Market" If Co-ops Owing Money To ERCOT Do Not Use Securitization

Texas Governor Greg Abbott has signed SB 1580, a bill which authorizes electric cooperatives to securitize extraordinary costs and expenses (as defined below) from the winter weather event.

As previously reported, the now-effective law provides that the PUC shall require that all market participants (such as co-ops) 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 now-effective law 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."

This provision is ostensibly meant to prod co-ops into using securitization to promptly pay any amounts owed to ERCOT, or subject the co-ops' loads to competitive providers

While the bill does not provide any direct relief to retail electric providers, cooperatives' use of securitization is intended to remove billions of dollars in unpaid charges owed by certain co-ops to ERCOT, and eliminate the need to uplift these amounts to other market participants such as REPs

Charges to finance the securitization would be nonbypassable for any load in the co-op's service area, as described below

"The electric cooperative, its servicer, any entity providing electric transmission or distribution services, and any retail electric provider providing services to a retail customer in the electric cooperative's certificated service area as it existed on the date of enactment of this subchapter are entitled to collect and must remit, consistent with this subchapter and any financing order adopted under this subchapter, the securitized charges from the retail customers and from retail customers that switch to new on-site generation. Such retail customers are required to pay the securitized charges," the adopted law provides

Under the law, "extraordinary costs and expenses" means:

(A) costs and expenses incurred by an electric cooperative for electric power and energy purchased during the period of emergency in excess of what would have been paid for the same amount of electric power and energy at the average rate incurred by the electric cooperative for electric power and energy purchased during the month of January 2021;

(B) costs and expenses incurred by an electric cooperative to generate and transmit electric power and energy during the period of emergency, including fuel costs, operation and maintenance expenses, overtime costs, and all other costs and expenses that would not have been incurred but for the abnormal weather events; and

(C) any charges imposed on the electric cooperative or on a power supplier to the electric cooperative that were passed on to the electric cooperative by the applicable regional transmission organization or independent system operator, resulting from defaults by other market participants of the regional transmission organization or independent system operator for costs relating to the period of emergency.

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