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The House State Affairs Committee met on March 8 to hear invited testimony only on the from the following agencies: Department of Information Resources, Electric Reliability Council of Texas, Office of Public Utility Counsel, Texas Broadband Development Office, and Texas Ethics Commission. The committee then had invited testimony only concerning the wholesale market design of the Texas electric grid.

 

This report is intended to give you an overview and highlight the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Chair Hunter – Will take invited testimony only today; written public comments can be submitted through the portal until the end of this hearing
  • Chair Hunter – Following agency presentations we will continue discussion on how to improve reliability of the Texas grid

 

Agency Presentations

Texas Broadband Development Office

Greg Conte, Director BDO

  • Office developed a statewide broadband plan with a broadband map
  • Adopted rules last month for the broadband program
  • Will be the clearinghouse for state/federal broadband funding opportunities
  • HB 1505 created pole replacement program and a fund solely to support that program; March 2022 rules for this program, applied for funding through the U.S. Treasury; at a stand still
  • Treasury previously noted a standalone pole replacement would not be eligible for the Coronavirus Capital Project Fund
  • Have applied for federal funding of 5 separate programs: $363.8m for BOOT and Treasury has approved
  • 4 other programs including pole replacement program are pending; totaling $500.5m
  • Are certain eligibility requirements for these broadband programs; BDO recently published a notice of funding availability for the BOOT program
  • Funding for the BEAD program and Digital Equitable Act under the IIJA
  • NTIA has not told Texas how much they are to receive under BEAD program, but estimate Texas will receive $2-4b; of the total, have been awarded $5m
    • Are stipulations and a cost-share requirement
  • Digital Equity Act; have received $3.1m to develop a plan for this with a due date of December 1
  • Will be BOOT applications early April and refreshing Broadband Development Map
  • Anchia – This is a massive undertaking; how is your staffing level?
    • Currently have 4 FTEs plus myself plus some contracted work
    • Hope to have capacity building
  • Anchia – Any additional FTE requests?
    • Have additional 18 FTE request
  • Anchia – Have feedback on broadband map? Like excluding/including certain geographies
    • Does not require ISPs to provide data; if they do not, cannot participate in the program; 60% participation rate
  • Anchia – Why only at 60%? Barriers to giving BDO feedback?
    • May have been a large ask for smaller ISPs; asked them to submit data in same format as they do to the FCC
  • Anchia – Offer technical assistance to smaller ISPs?
    • Yes; have a technical guidance document; only one satellite company participated out of the three out there
    • Followed-up and some did not get back to us and some said they did not see themselves participating in the program itself
  • Anchia – Continue to pay through USF for landlines in underserved areas? Does it make sense to use USF fund for this older technology?
    • Have to meet needs where we can
  • Anchia – Will meet Women and Minority Business goals? Would like to see what those goals are
    • Do not have that information today
  • Anchia – State versus federal funds?
    • $5m frontloaded state funds for BDO; funding awards will almost be exclusively federal
  • Anchia – Will that state $5m be reimbursed?
    • No
  • Turner – IIJA funds? Require fair labor practices criteria and optional labor standards; made a decision on if they will implement those optional labor standards?
    • Somewhere between $2-4b
    • No, are still working on development of the workforce development plan
  • Turner – When is than plan due?
    • Due August 28 of this year
  • Turner – Process of that decision making process?
    • Discussion of the Comptroller and BDO; will have public participation
  • Turner – Would optional labor standards be the same of state/federal? Want to ensure we have the highest standards irrespective of the source of funding
    • If there is flexibility, will explore those options
  • Raymond – What would it cost to get broadband across the state? Asked this a few months ago, want to have a more exact number
    • Do not have the exact number; will depend on type of technology
    • Fiber to every home could cost up to $13b; other technology could cost less
  • Raymond – HB 9 contemplates cost at $5b; thoughts?
    • Is in additional to the federal funds
  • Raymond – Takes $3.1m to develop a plan?
    • Yes, but any funds can be rolled back into implementation itself
  • Chair Hunter – Does rural definition include coastal? Need to know if I need to make a new category
    • Can get back with you on that
  • Chair Hunter – Committee needs to be completely informed; ask that you provide the information requested by members

 

Department of Information Resources

Amanda Crawford, Executive Director DIR

  • Overview DIRs functions and funding structure; only receive GR for cybersecurity
  • 200 FTEs and 600-800 contractors working at any given time
  • Since 2019 DIR has $35m a year in GR to the state for a total of $141m
  • Generated additional $17m through existing programs
  • Number one priority is protecting individuals’ private information and of the state’s systems
  • System blocks 1b intrusion attempts a day
  • SB 475 data security bill strengthen agency data management practices; created Tx-RAMP and created RSOC pilot; is additional funding request to expand RSCO to UT Austin and UTRGV
  • 50% increase in online purchases and 35% of purchases were though historically underutilized businesses; out of state utilization has grown 129%
  • Data center services program has grown to 521 participants and have a 95% customer satisfaction rate
  • Anchia – Surprised you didn’t mention recent sharing of personal information concerning Texas.gov and drivers’ licenses; DPS said it was a DIR problem
    • Is a Texas problem; was not a cybersecurity incident, was fraud
    • Need to figure out what the root cause is
  • Anchia – Do we know what the root cause is? Know the full extent of this incident?
    • Agencies are responsible for their applications and settings around those applications
  • Anchia – Is it unfair to say this is a DIR problem?
    • Is a shared problem between DIR and the agency
  • Anchia – Cannot discuss what happened? Is not public information?
    • Cannot as this is an active investigation
    • Breech of constituent information not based on state systems; through that information criminal actors had information DLs and state IDs
  • Anchia – What controls were not in place?
    • Were multiple controls in place, the issue is one of those controls were compromised; were able to fool the system you were who you said you were
  • Anchia – Still do not know the full extent of the fraud?
    • Is a question for DPS
  • Chair Hunter – Want DIR and DPS to contact each member of this committee so we can get an update next Wednesday
  • Raymond – Is about Texas.gov driver’s license renewals; were able to answer people’s security questions
    • Was a highly funded fraud organization
  • Raymond – Need to balance security with convenience
  • Turner – In a Texas Tribune article a DIR spokesperson said state agencies had the opportunity to have additional safeguards in place like zip code or CVV authentication, but did not choose to put them in place
    • Believe both or one were not in place at the time; can get you a list of what we have done since that incident
  • Turner – Do you not have the ability to tell agencies what to put in place; why would it be the other agencies’ decision?
    • Do not have centralized IT, are about best practices recommendations
    • Now if any state agency who does not want to require these options, state agency head will have to write a letter to me to explain why they do not want this
    • Had pushback from multiple agencies that zip code is now required as there was corporate push back; do not see how it could be an issue
  • Turner – Would rather have these kinds of protections in place this than clean up afterwards?
    • Would agree
  • Turner – Do not have the authority to have security requirements?
    • Believe this is something we can handle through a business process
  • Turner – If DPS had both zip code and CVV security requirements could have prevented this?
    • Do not know if it had prevented this; possible those committing the fraud had the credit card information as well
  • Turner – Would be about 2 factor authentication?
    • They found identifying information on these people on the dark web; have talked with DPS about putting a variety of other checks in place
  • Spiller – Were you present or reviewed DPS’s testimony for Articles I, IV and V; fair and accurate?
    • I may have used different words, but believe it was more or less fair and accurate
  • Chair Hunter – Reiterates the request for DIR and DPS to visit with each committee member

 

Texas Ethics Commission

J.R. Johnson, Executive Director TEC

  • Overviews the structure of TEC; are an independent agency
  • Are 30k filers a year which is three times more than our federal counterparts
  • Last year waived $250k worth of fines
  • Filing system failed last summer due to size and number of filings have increased 500%; in part due to legislative changes:
    • HB 1295 required private sector to disclosure when working with government entities
    • HB 2586 required all electronically received contributions to be itemized
  • Have moved to the cloud and do not expect future issues
  • Have received more complaints than ever, but have been able to resolve faster than ever
  • In 2022 5 times as many opinions adopted than previously
  • One legislative recommendation have to do with reporting thresholds; asking the legislature if there is a better way to do things
    • Could increase the length of time between adjustments
    • Could tweak formula to round to the nearest hundred dollars
  • Geren – Explain who defends you in the cast when you get sued?
    • Default is the Office of Attorney General except in exceptional circumstances in which we hire outside council
  • Geren – Bruce v. Johnson settlement, did you ask AOG to solicit a settlement?
    • Is attorney-client privileged information
  • Geren – Is the commissions’ privilege to waive; have not been given that authority?
    • Have discussed it, not requested
  • Geren – Request you ask to waive that privilege
  • Geren – Did Commissioners vote in open meetings to pursue that settlement?
    • No
  • Geren – Does not violate the Open Meetings Act?
    • Do not believe so
  • Geren – Were you informed by the OAG if you did not take the settlement they would not continue to represent you?
    • Is attorney-client privileged information
  • Geren – How many uncollected fines does the commission have?
    • Complicated question; are cases we refer to the OAG that they declare uncollectable
  • Geren – How many dollars are uncollected? Have that information at my office and it is several million dollars
    • Can follow up with you
  • Geren – Can commissioners go outside that first right of refusal?
    • There is a provision of law that the office can engage with outside council, but is a budget requirement that prevents expending funds without engaging the OAG
  • Geren – In Salinas v. Johnson OAG refused to represent?
    • Commission requested the authorization to have outside council which was granted by OAG
  • Geren – Concerned about this situation being a violation of the Open Meetings Act
  • Chair Hunter – Request you ask for the authority before next Wednesday and report back to us at that time
    • Will get it done faster than that
  • Turner – Campaign finance reports deadlines are in statute?
    • Correct; agency does not require any reports not in statute
  • Turner – Do not send emails to every filer when you have updated agency rules?
    • Do not know; do not want to clog up peoples’ emails
    • Is reasonable to send emails on rules that would impact filers; is something we could implement
  • Turner – Creation of PACs related to commercial enterprises specifically Patriot Mobile PAC; LLCs may contribute to PAC?
    • Correct, with a caveat; corporations can contribute to their own PAC
  • Turner – What if the customers were corporate customers?
    • Do not think so if they are paying for goods/services
    • Believe it would be permissible under state law
  • Turner – When there are violations of campaign finance law, does TEC take proactive action?
    • Does have authority to initiate investigation; is rarely exercised
  • Turner – Why?
    • It requires a super-majority vote of the Commissioners
  • Turner – Does staff have the ability to take their concerns to the Commissioners?
    • Yes; in closed session enforcement staff can present possible investigations to commission
  • Chair Hunter – Committee has oversight over your agency; request during this session you regularly meet with members

 

Office of Public Utility Counsel

Courtney Hjaltman, General Council OPUC

  • Geren – Congratulates the General Council on her role as she was a previous Capitol staffer
  • Overviews OPUC’s services and case participation
  • In 2022 achieved $239m in consumer savings
  • Required to participate in 26 projects a year; including energy efficient proposals
  • In the process of creating a utility alert email in order to communicate issues with the legislature
  • Are an ex officio member at ERCOT and sit on the Texas Energy Reliability Council

 

Electric Reliability Council of Texas

Dan Woodfin, VP System Operations ERCOT

  • 1k generating units with 52k miles of transmission totaling 80k MW of consumer demand
  • With projected battery storage increases longer distance can result in congestion
  • Work to create two reports to identify future trends and needs: Long Term System Assessment and the Regional Transmission Plan
  • Last SB 1281 two additional criteria to evaluate transmission projects; resiliency and consumer benefit test added to existing reliability and economics
    • Are now being used in the 2023 evaluation process
  • ERCOT has seen an increase in transmission improvement and investment; transmission cannot get lost in the conversation to increase generation
  • Anchia – Congestion plays an important role in what type of market design; how much it costs consumers?
    • Most congested element last yar was West Texas Export Constraint; not necessarily a cost to consumers but held back efficient transmission
    • Congestion rent last year cost just under $300m
  • Anchia – Net costs ultimately get passed on to consumers?
    • Ultimately they become a part of the cost of electricity
  • Anchia – Does ERCOT not keep data on how much congestion costs consumers?
    • Are layers to that calculation
  • Anchia – Possible for ERCOT to model that issue
    • Can get information to you
  • Anchia – Can congestion slow generation coming online?
    • Congestion costs give a signal to new generation development where not to build
  • Anchia – ERCOT tried to deal with congestion challenges in South Texas during Uri; speak to what ERCOT did?
    • RGV upgrade has been approved to add additional export path to further north on the system and a cross-valley tie
  • Anchia – Ultimate price tag of that?
    • Do not know
  • Anchia – Is load a variable; visibility into load variability?
    • Load is driven by weather; have forecasts on this
    • Getting large amounts of load that is price sensitive and have less visibility of this behavior
  • Anchia – Example of the non-visible ones?
    • Have less visibility of predictability; biggest new kinds of large flexible loads like bitcoin miners
  • Anchia – Large industrials have an impact on load?
    • Correct
  • Anchia – Often hear about the intermittency of renewables, but is also bitcoin minders and large industrial on the other side?
    • Correct
  • Anchia – Renewables have the effect of lowering energy costs?
    • Correct
  • Anchia – Have a number of challenges with our market including older generation fleet, intermittency, etc.
    • Another huge challenge is a growing economy
  • Anchia – How big of a challenge are forced thermal outages?
    • Had 3k MW out during last summer peak out of 90k MW
  • Chair Hunter – Asks Woodfin to define a number of concepts including transmission and renewables
    • Transmission all the equipment to transfer power from generation to load above 60 KV
    • Renewables based on a fuel source that is reproduced, not a finite resource like oil/gas; wind, solar, hydro, not sure if the industry includes batteries, geothermal could be

 

Wholesale Market Design Discussion

  • Chair Hunter – Have 2 panels regarding different ways to incentivize investment in new dispatchable reliable generation

 

Panel 1

Michele Richmond, Executive Director Texas Competitive Power Advocates

  • Represent primarily dispatchable generation
  • Few companies have retail affiliates, but majority are not
  • Represent 54k MW generating capacity; 82% of gas generation in the ERCOT market
  • Represent the newest gas plant and oldest gas plant in the industry
  • Concerning a new market design believe any out of market actions should be reflected in market prices; should not be regulated rate of returns and not subsidize generation
  • In ERCOT prices are unstable in the volatile procurement of ancillary services
  • PCM provides a reliability product in the existing market; are some misconceptions out there of the PCM
  • PCM is not a tax, is a competitive market product; is a safety net
  • Is a reliability service that provides investment signals; is a part of SB 3 requirement
  • PCM is not a capacity market, is a real time measurement of actual performance that contributes to reliability
  • Have capacity market aspects in current market such as the emergency response service
  • PCM provides a long-term incentive for dispatchable resource to meet a reliability standard
  • PCM is not a windfall for generators; do not get paid ahead of time, get paid for what is provided
  • Penalty for non-performance is appropriate
  • Are probably old inefficient plants that should be retired, but cannot retire them in the current market
  • Takes 2 to 3 years for brownfield development; want the old units to stay online until the newer ones come on
  • Heard PCM was a government intervention into the market, but we have always relied on administrative decisions in the market
  • PCM is just a piece to meet the reliability standard
  • Does not shift investment risk back to consumers; creates a reliability service with an additional revenue stream allows for increased investment
  • Are already plans to build before fully implemented because it takes years to get up and running
  • Current energy-only market is not successful at attracting new dispatchable generation and investment
  • Have a company that tried to build a gas plant in ERCOT 20 years ago and learned in the development phase that it was not economic to build in ERCOT, so built in another part of the country

 

Clif Lange, General Manager South Texas Electric Co-Op

  • Serve 290k consumers and fleet is diverse in geography and fuel source
  • Had enough power during Uri
  • Are sensitive about shifting costs to load as co-op customers are owners
  • Establishment of a reliability standard is the first step to any market proposal
    • SB 3 did not fall short on directing creation of this
  • SB 3 notes dispatchable energy is eligible for the reliability service
  • Current attempt sand prior attempts are criticized because consumers have to bear the burden of costs
  • Want more predictable renewable generators, incentivization of load is sending the correct signal
  • Proposed our own reliability proposal; has been added to PCM and FRM
  • None of the proposals address all key principals of SB 3; meets reliability standard and eligibility, but cost allocation is not a part of the PCM and that is a key failure of the proposal
  • Backstop reliability program does not meet the first two criteria of SB 3

 

Q&A Panel 1

  • Dean – Are penalties for generators that bid into PCM, but do not show up?
    • Richmond – Yes; if you commit to be there and are not
  • Dean – Should be able to receive credits for MW they do not bet on, but they performed at a higher capacity than they originally bet on?
    • Richmond – Should commit the amount of MW you intend to provide and that’s what you get paid for

 

Panel 2

Todd Staples, President Texas Oil and Gas Association

  • Have a vested interest on this discussion on potential effects citing decisions and investment
  • Ask for favorable consideration of a plan that will build steel in the ground through a three-pronged approach:
  • Adopt legislation establishing a grid reliability fund; target building dispatchable generation
  • Pass policy incentives for construction of dispatchable generation to provide tax abatements
  • Reliability serviced directed recent addresses resources mix problem; would be a direct reliability reserve system; ERCOT could go in day-ahead and determine the MW needed
    • Not just oil and gas support this, are many others
  • Reliability/reasonable cost are the two criteria when we look at what energy this market needs
  • Retirements will occur, but notes they were overstated in the E3 report
  • PCM has been projected to generate 5k MW of new power and $460m; is an unrealistic projection

 

Pat Wood, CEO Hunt Power

  • Former chairman of the PUC
  • Our current batteries are right next to utility substation; 10 operational 10 MW
  • Projected to have 50 distributed batteries across the state
  • Are moving forward with thermal generation of 10 MW
  • Have been focused on dispatchable standalone battery storage; are not considered renewable
  • Fully participate in the ERCOT market; are a number in interruptions in the market and batteries are a perfect fit to fill the gaps
  • Most batteries are one-to-two-hour batteries max; are a flexible resource
  • Texas has the most efficient energy market in the world; was timely to make changes to the market
  • Are subsides for oil and gas throughout the gas code, but is a renaissance of renewables in the state through federal subsidies
  • Are some favored resources and unfavored resources now; dislocation is not ideal in an energy-only market
  • PCM is not sufficient to bring the amount/kind of investment we need in thermal generation
  • Are solving for the resources that are dependable; today batteries are not economic to do that, need enough dispatchable thermal resources
  • Like that PCM pays for resources that actually perform; clawbacks in capacity markets are not an approach we want to take
  • Investor uncertainty is a real issue with PCM; proposed a bridging solution that we stick PCM into operating reserve demand curve
  • Need to stick to familiar tools to incentivize investment

 

Q&A Panel 2

  • Raymond – Believe in the free market, but like with broadband the state needs to invest to get the reliability we need
  • Raymond – Staples, made a previous comment we should not use surplus funds on this; Richmond’s association had some good ideas about establishing an emergency on sight generation fund
  • Raymond – Get into more specifics of what you recommend
    • Staples – You do have a surplus, but need to target dollars into actual investment activity, not just putting money into the system
    • Could do something like what you did for water in the SWIFT fund
  • Raymond – Will likely pass re-design legislation this session; we have money now and we don’t want to have another weather emergency and need to be worried about future demand
  • Raymond – Have any recommendations on what we can do?
    • Wood – TAM proposal is interesting; know we cannot treat generators better than the others; things like HB 5 are helpful
  • Raymond – Can envision having an emergency; what if the state could build battery capacity?
    • Wood – Emergency generation to be procured on a limited basis; think this idea is on PUC’s docket; they do not need to focus on that, need to focus on new build
    • In emergency situations, would put TDEM on that
  • Raymond – What about a safety net?
    • Wood – Do not love that idea, but need to be pragmatic on this; if the state says it is a state need, then the state can pay for it
  • Raymond – Request you or anyone else to submit proposals; $6b of securitization if paid off how much does that pay rate payers?
    • Wood – Was a large number, but spread out so much that cost is small per individual
    • Notes energy efficiency adders have been helpful and could be helpful in the future
    • Staples – Payment of securitization could be helpful; notes legislature has put things in place to ensure events of Uri do not happen again
  • Anchia – Texas used to be leader of the pack in energy efficiency, not anymore; are plenty of bills to address this
  • Anchia – Agnostic on PCM versus not PCM
  • Anchia – In a historically low interest rate environment; why didn’t the market design to send necessary signals to get more thermal online?
    • Staples – Recognized there is enough thermal online already; wind and solar are inexpensive power, but not reliable
  • Anchia – What about a low interest rate fund?
    • Staples – Recognize the state/needed capacity is growing and intermittent are favored
  • Anchia – See different resources now?
    • Staples – Different fuel mix and seeing more peaker plants
  • Anchia – Projections on cost/impact of RRS?
    • Staples – Cost $1.6b; RUCing will diminish; purchase of other ancillary services will go down
    • Could have a direct procurement mechanism; TDEM does not need to be in the electric procurement business
    • Believe PCM is a mandated capacity payment
  • Anchia – Skepticism on companies who have already affirmed they are going to the state due to the prospect of PCM?
    • Wood – That market signal is loud
  • Anchia – Why not support PCM then?
    • Wood – Concerned about the people who lost their lives during Uri as still a 10 MW gap
  • Anchia – EROCT says there is a resource adequacy problem, but you do not? IMM has stated energy only is delivering sufficient market signals, but there
    • Staples – The smaller stuff is economic, but the larger stuff is not
  • Anchia – There are old thermal fleet that needs to come off too, so not just renewables are intermittent
    • Staples – But those have to give ERCOT the heads up they are going to retire
  • Turner – Know we have a lot of older thermal that have to retire at some point; PCM is the rationale for increased demand and retirements
    • Staples – Agree there will be increased demand and retirements; is a more cost-effective way than PCM to send the right price signals
    • Staples – ERCOT shows reserve margin is 22% in 2023, but 34% in 2024
  • Turner – Those percentages are an average though correct, not on peak days?
    • Correct; if there are forced outages or things do not run how they plan
  • Turner – You can have a projection of reserves, but there will be days where margins get tight; PCM intends to address?
    • Staples – That is what the Reserve Reliability Service attempts to address
    • Wood – RRS could be implemented tomorrow and be an immediate benefit; could either be an interim bridge or an ongoing program
  • Turner – Doesn’t ERCOT currently have projections and take measures to address those now?
    • Staples – Through ancillary services and RUCing that are very costly
    • Staples – PCM could be irrelevant if we have more direct solutions like RRS
  • Spiller – Have heard testimony on both sides of PCM; what recommendations do you have to address concerns
    • Staples – Implement the three-pronged approach or give PUC ability to implement RRS
    • Staples – Believe announcements to come here are real, but were already in the queue
    • Staples – Is nothing in the PCM that mandates building of dispatchable generation; know generators
    • Wood – If PCM is the route we are going to go, need to get on with it; is still a gap to close and the state needs to have a stable/strong energy foundation
    • Wood – Need a bridging solution to put into the current market structure right now
    • Wood – Once you get the generation you need, then all extra money goes to $0
  • Smithee – If ERCOT operated under FERC, would set a regulatory requirement?
    • Wood – Do not think FERC has done that; cannot say that 100 MW windfarm is 100 MW reliability
    • Wood – Recent docket opened on how many expected outage numbers
  • Smithee – Seems like PCs have been theoretical to produce some kind of result, are there any other models to see how other grids have ensured adequate reliability? Want more assurance
    • Wood – Do not know if there are; if we do not address increased demand soon, will never close the gap; cannot reassure you on this one
    • Wood – This is a hard job – now tweaks are needed in the market