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Public Utility Commission staff met on January 25 to discuss rulemaking for the in-ERCOT Loan Program – Project 55826. An archive of the hearing can be found here.

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.

 

Opening Comments

  • This hearing is being held as requested by Texas Competitive Power Advocates; are covering items highlighted in their hearing request
  • PUC staff leading discussion: David Gordon, David Smeltzer, Alison Fink
  • Will cover four questions and then hold a general discussion
  • Staff from ERCOT: Catherine Gross and Luke Butler
  • In the process of engaging a third-party contractor that will build the systems that implement the Texas Energy Fund program; that entity is not here today
  • Structure on this hearing will be a little more loose than usual; to implement SB 2627 will have 5 separate rule makings

 

Question 1: How should the Commission evaluate PURA 34.0106(b)’s prohibition against providing a loan to an electric generating facility that would be used primarily to serve an industrial load or private use network?

John Russ Hubbard, TIAC

  • Recommend subtracting maxim demand of the load with net dependable capacity of the generating facility; excess capacity over 100 MW should be eligible for the fund
  • Current proposal looks at output rather than capacity, which is too limited

 

Mark Spencer, LS Power Development

  • Recommend any costs not directly related to production of electricity should be excluded when calculating these project costs and determining load thresholds
  • Recommend dual use projects based on their ability to deliver energy to the grid at all hours
  • Recommend a higher bar of dual use; discretion for those who solely to deliver energy to the grid to be prioritized over dual use projects

 

Michele Richmond, Texas Competitive Power Advocates

  • Do not recommend anything less restrictive than what the PFP has outlined
  • Should avoid tying eligibility to point of time capacity snapshots and non-coincident peak
  • Focus should be on standalone projects first that are dedicated generation to ERCOT; legislature did not contemplate loans for dual-serving loads
  • There are wholesale generators that have agreements with customers; all generation goes to ERCOT, not serving industrial load
  • If it is not behind the meter, and is a hedge, than it should qualify; if the energy flows through the transmission system, should be eligible
  • Commission should provide clarity on rank and priority for projects

 

Megan Griffith, Targa Resources

  • Commission should consider capacity of the resource, not the energy output
  • Commission should consider the reliability role that critical gas suppliers/customers play in the ERCOT power system
  • 87(R) SB 3 and HB 3648 requiring RRC and PUC to adopt rules to designate gas facilities as critical; ERCOT passed NPRR 1087 based on the reliability role of these facilities
  • Requests the Commission recognize the reliability of these facilities
  • Are ways to evaluate if a generating facility primarily serves the reliability of the grid or an industrial load
  • Requests clarification on eligibility if a facility has 100 MW of nameplate capacity that either serve the load of critical gas suppliers/customers or provides excess energy/ ancillary services to the grid
  • Is consistent with the language of statutory construction; Commission needs to look at PURA as a whole to determine what “primarily” means

 

Ned Bonskowski, Vistra

  • Primarily is the word in statute; it means more than a snapshot in time evaluation
  • Parsing out what that means adds complexity
  • Can simply prioritize facilities who participate fully in the market; prorated to their anticipated participation in the market

 

Monica Batra-Shrader, Enchanted Rock

  • Suggest allowing proposals for excess dispatchable generation capacity in front or behind the meter to participate in this program where dispatchable generation is primarily available to the grid
  • If a simple percentage threshold is adopted, recommend 90% of potential generation output be supplied to the grid, inclusive of run hours due to ERS calls, market prices, and run hours in anticipation forced CP periods

 

Discussion

  • Gordon – Explain why it is appropriate to have facilities associated with industrial load?
    • Hubbard – Co-located facilities will be providing load to industrial customer, many are peaker facilities to backup intermittent resources, capacity factor would be much lower
    • Hubbard – Co-located facilities would not qualify
    • Griffith – Looking at output is the wrong calculation to look at
  • Hubbard – Statute is clear it should focus on what is more cost efficient; priority to those who had the highest ratio of
  • Batra-Shrader – Only ask these facilities behind industrial meters can be under the energy fund based upon a cost-effective lens
  • Fink – Possible to isolate costs going to provide for energy going to ERCOT versus going to industrial load?
    • Hubbard – On a pro-rata basis; is cheaper often for co-located facilities to be larger
  • Gordon – Open to a measurement that tracks the load amount to make sure the load does not grow in proportion –
    • Hubbard – Yes
    • Spencer – Do not think you can look at delivery under a certain amount of hours and look at pro rata costs, the tradeoff is customer is getting benefit of the efficiency and the grid is getting the high cost value; unequitable distribution
  • Gordon – Envisioning separate ERCOT and non-ERCOT units?
    • Hubbard – Open to both
  • Griffith – More expensive to serve critical from outside of the grid; could be other costs to be considered

 

Question 2:  How will the Commission prioritize applications for loans if the Texas Energy Fund appropriations are not sufficient to cover all applicants seeking loans?

  • Gordon – $5b appropriation currently, $10b contemplated in the statute; how to carve that amount up has not been contemplated; have not assigned any priority factors

 

Joe Ariza, WattBridge

  • WattBridge has constructed 2.4k MW fast-start generation
  • Encourage PUC to allow for notice of intent to apply as soon as possible; so by June 1 are able to make recommendations

 

Zoe Parker, Wärtsilä

  • Expect the fund to be oversubscribed to; recommend a phased screening process
  • After projects are scored based on viability and credit worthiness, then it should be based on resource attributes and location
  • Could prioritize projects using a weighted assessment, thermal g-rate, water consumption, flexible, that can support dual
  • Request load pickets in which potential projects would receive deference

 

Michele Richmond, Texas Competitive Power Advocates

  • Want to ensure there is transparency on how the application is scored especially things that go beyond statute
  • Opening date and closing date should be clearly communicated
  • What is going towards loans versus what is going towards completion bonuses
  • Smeltzer – Would this apply to those who want to apply for a notice of intent?
    • Would be important to streamline that process

 

Mark Spencer, LS Power Development

  • Recommend requiring applicants provide their minimum TF debt that would make their projects viable
  • To avoid cheaply built projects, Commission should enumerate minimum project requirements and base emphasis on track record and reputation
  • Would like clarity on whether pari-passu debt used to calculate minimum TF debt threshold

 

Brian McCabe, NRG Energy

  • Should prioritize best positioned in terms of viability; those at financial close
  • Commission should review supporting site control, property tax agreements, interconnection agreements, etc.
  • Not factor hedging strategy or project technology or cost of project

 

Megan Griffith, Targa Resources

  • Did not provide remarks

 

Ned Bonskowski, Vistra

  • Concerning the threshold matter – Commission should consider how it will allocate funds the state has provided
  • Commission should then establish tranches each with its own application window
  • Disagree with NRG on prioritizing those nearest to financial close, legislature did contemplate this fund incentivizing new projects
  • Should consider evidence of credit worthiness, access to capital/liquidity, etc.

 

Emily Jolly, Lower Colorado River Authority

  • Clarity on whether the same process would be for the completion bonus grants; how many MWs contemplated by these programs
  • Should prioritize projects that are most advanced
  • Would like clarity on those 5 anticipated rulemakings to implement SB 2627
    • Smeltzer – Backup power program rulemaking already held, holding two currently, and another backup power program

 

Stephanie Kroger, Hunt Energy Network

  • Prioritization should consider cost as a critical component
  • Portfolio of resources the program would support – diversity of resources, especially geographically, disbatchabiltiy, etc.
  • Agree with previous testimony on the importance of the level of transparency around application criteria

 

Discussion

  • Gordon – Notice of intent piece is built into the rule, do not anticipate adopting anything before the loan program rule
  • Cyrus Reed, Lonestar Sierra Club – As looking at prioritization, some indication has the natural resources, has environmental permits in hand or is on the way to getting those permits
  • Gordon – What level of clarity do you need – a scoring rubric? What kinds of metrics?
    • Bryan Sams, Calpine – Support the idea of a rubric; filed comments and looked at certification rules for a retail electric provider, these kinds of credits could help give you
    • Spencer – Agree a rubric would be helpful
    • McCabe – Agree; important to know what needs to be included in the application as soon as possible
    • Jolly – Echo comments of previous discussion; if you are going to weight any criteria in any specific way, would be important to know how
    • Ariza – A pass/fail system or check would be helpful
    • Mark – Support prioritizing statutory criteria; if commission adds secondary criteria, should be weighted as such
    • Kroger – Agree on;
  • Smeltzer – A rubric could undermine ability to do comparative/diversity
    • Kroger – Is a balance between being so prescriptive and being too broad; for example, not all projects run on gas

 

Question 3. Way to communicate with the Commission or cure application, technical assistance to ensure complete applications?

Cyrus Reed, Lonestar Sierra Club

  • This communication would include the third party
    • Gordon – Correct
  • Would make sense for applicants to fix a deficiency; have applicants who continuously have deficiencies in TCEQ, need parameters such as a three-strike policy to not waste time
  • Do not want a lot of public funds being used for technical assistance
  • Policy makers and the public have the right to see some sort of checklist on what kinds of applications received, fuel use, general location, number of applications, etc.
  • Smeltzer – Would goal be accomplished if they were statistics without names?
    • Would like it all the way, but do not know what the statute allows; would be for listing the companies, but not sure what others think

 

Mandy Kimbrough, NRG

  • Support a more fluid flexible process would be more aligned with statutory objective
  • Funds need to be disbursed by the end of next year, contested case process does not work with this
  • Separate from rule, contractor or commission could put out a document on what this process would be, including a timeline

 

Ned Bonskowski, Vistra

  • Disagree with NRG; believe this process should be through a limited contested case process
  • Would address question formal completeness review; would address any potential cures needed

 

Discussion

  • Bryan Sams, Calpine – Rubric would help with knowing submission of application requirements; contested cases for managing applications would take up a lot of resources, do not support that; would rather look at this as projects
  • Bryan Sams, Calpine – If the legislature would have intended this to be contested cases, they would have said so
  • Kimbrough – If the Commission does make it a contested case process, request it just be the applicant and staff in an informal manner without a hearing
  • Sams – Agree

 

Question 4: Will the Commission use a standardized form of loan agreement for approved borrowers?

Mark Spencer, LS Power Development

  • Do not think standard form credit document would be practical
  • Could be basic loan tenants like payment terms, notice, cure, and default tenants which would be distributed to potential applicants

 

Brian McCabe, NRG Energy

  • Supports standardized form, certain elements will need to be tailored for each individual project
  • Need tailoring on the loan schedules, construction timeline, cost estimate, revenue contracts, etc.
  • Recommend stakeholder feedback in a workshop on the form agreement; would recommend finalized before June 1
  • Would like notice if there needs to be a credit agreement or separate security agreement

 

Ned Bonskowski, Vistra

  • Agree with previous commenters; ability to review standard loan agreement
  • If there was a limited case hearing, could be incorporated into the final agreement

 

Discussion

  • Craig Bennett, CPS Energy – Municipal and other entities have different finalizing obligations, would be difficult to incorporate electric cooperatives; support workshops to provide input on this
  • Gordon – Program will be open to public power entities, so your point is well taken
  • Fink – Related to topic 2, PUC is now a bank under this program, but this is limited public money, how would a bank score you on this kind of loan? PUC could take pointers from banks who loan for these projects
    • McCabe – Is extensive lender due diligence focused on fatal flaws along an independent engineer; a title report is produced
  • Fink – Is this process standard? Or is it project specific?
    • McCabe – Are a lot of things that are standard, but every project is going to be unique; debt versus equity, etc.
    • Griffith – Need to be careful in being overly prescriptive on this issue, it can vary based on what phase of project; hope consultant has generation advisor on this
    • Spencer – Agree this is bespoke, but there are basic tenants like the independent engineer, make sure risk allocation, will need an independent market report on the facility to ensure there is sufficient debt service coverage; will be attorneys overlooking the project; have to provide status updates
    • Sams – Helpful for the Commission to get a chart on how this is typically done
    • Taylor Kilroy, Texas Public Power Association – Texas Water Development Board has a lot of rubrics on how they give out funds, do not think we need to get that granular, but their feedback would be great
    • McCabe- Banks do not lend to development, they lend to construction; that goes hand in hand with our prioritization criteria

Closing Comments

  • Gordon – Will be announcing our contractor soon, they will benefit from these conversations