Below is the HillCo client report from the September 9 Senate Business & Commerce Committee hearing.

The committee met to hear invited testimony on the following interim charges:
Interim Charge 1:  Review the administrative and financial state of the Texas Windstorm Insurance Association (TWIA). Specifically, review management’s business practices that result in continued administrative oversight by the Texas Department of Insurance, and determine alternative financial methods to fund a probable maximum loss of a 1 in 75 or 1 in 100 year event. Monitor litigation developments. Develop and evaluate plans to reduce TWIA’s total insured exposure. Monitor and make recommendations regarding an exposure reduction clearinghouse under development at TWIA, which aims to assist the transfer of TWIA policies to the free market. Study and make recommendations regarding the qualifications for building inspectors conducting inspections for the TWIA and other building inspectors statewide. Consider expanding the types of professionals qualified to conduct inspections and the appropriate entity to oversee inspectors.
 
Interim Charge 2: Review the Texas FAIR Plan’s organizational and financial structure as the state’s insurer of last resort for residential homeowner’s insurance coverage. In particular, study the structural relationship to TWIA, cause of its current debt, and available coverages and rates compared to the private market. Evaluate proposals to reduce the total insured exposure of the FAIR Plan.
 
Receive updates from the Public Utility Commission of Texas, the Office of Public Utility Counsel, and the Electric Reliability Council of Texas. 
 
INTERIM CHARGE 1
Julia Rathgeber, Texas Department of Insurance Commissioner

  • TDI administrative oversight of TWIA is ongoing
  • Recent letter sent out to clarify oversight
  • Inspection program and process reviewed by Commissioner
  • Sen. Lucio asked about litigation in his district – Brownsville ISD
    • Rathgeber said in discovery process and judge has set court hearing – progress is being made and both sides are talking
    • John Polak, General Manager of Texas Windstorm
      • He is hopeful for resolution but still in process of gathering information – court date in October
  • Lucio asked what is scope of TDI oversight
    • Will provide packet of material
    • Oversight includes:
      • Monthly financial updates
      • Major personnel decisions top two tiers
      • Approve non-standard contracts
    • Polak has put procedures in place to make it stronger so TDI has backed off slightly in the level of oversight

 
John Polak, General Manager of Texas Windstorm

  • Sen. Whitmire asked how long has he been in the position – about 3 years
  • Whitmire inquired about Brownsville ISD litigation
    • Currently they are pursuing litigation in the courts and is not sure if TWIA has moved for a continuance from trail date of Oct. 13
    • Whitmire asked if TWIA moved for a continuance then how are they working towards a resolution
    • Whitmire said he also understands that TWIA has moved away from mediation
    • Polak said he does not think that has happened
    • Polak does not know how much TWIA has spent on the case but at least $1million
  • Whitmire asked what safeguards have been put in place against making of racists comments and practices
    • Have prohibitions against those sentiments and individual in question is no longer there
  • Sen. Van de Putte asked about troubling news in regards to process and procedures – internal audit director at TWIA reports to whom?
    • Reports to the Board of Directors
    • Polak typically sees a draft before final publication
    • Rathgeber has a different audit process different from TWIA’s audits and that auditor reports to Rathgeber
    • Van de Putte wants more insight about the audits – who reports to who, internal and external and what type?
    • Rathgeber will get report and full details in writing to committee – there are many different types of audits
  • Polak continued his remarks noting they are a very different organization from 2008
    • Changed procedural and internal documentation
    • Changed management
    • Have highest funding since Hurricane Ike – $3.9 billion approx. which is within $1 billion of the 1 in 100 event, etc
  • Whitmire inquired why there is a state employee at TDI who made outlandish racists remark
    • At no point are they aware that she has violated those process and procedures in place so she is still employed at TDI
    • Whitmire said she brought her offensive record with her
    • Rathgeber said at this time she is not sure they have grounds to fire her – Whitmire disagrees

 
Deeia Beck, Office of Public Insurance Counsel

  • Released a study on program to reduce losses and insurance cost associated with TWIA
  • Wants to get out more information on WPIA and work with colleagues on that

 
INTERIM CHARGE 2

  • Commissioner Rathgeber noted it is not just limited to coastal counties
  • No questions from members – testimony is closed

 
AGENCY UPDATES
Bill Magness, ERCOT

  • Slides were provided with high level summary
  • See significant growth with high level demand of electricity in Texas
  • This summer was relatively mild and came in under forecasted load
  • Recently released a load forecast – SARA bottom line expect capacity to be sufficient even in extreme modeling
  • CDR report that was put out in May shows expected load and expected generation over a 10 year period
  • Going into fall and winter – no generation units have said they need to come off due to drought issues but will keep monitoring
  • Lucio asked about Valley at risk of transmission interruptions
    • Projects being built there by 2016 so there is some risk until then but they are working with it
    • 2016 is scheduled completion
  • Sen. Van de Putte noted they are using the new load methodology but because of congestion on the rail lines (slide handout looks like 37% is coal) is there difficulty getting coal?
    • They have seen oil and other liquids on rail that would traditionally carry coal
    • Have heard reports and it is being watched closely
    • Getting as much backup as they can going into the winter
    • Similar situation as the drought – no one has said they can’t meet demand but they will keep watching
  • Lucio in regards to lake level slide – curious if enough water for production
    • Have not gotten reports that generators will be unable to run because of water
    • Had some issues in 2011 when they were thinking about alternatives but not seeing that issue right now
    • They are seeing some reservoirs getting pretty low – if there is a situation there may be certain times when they run or construction mitigation that will be put in place

 
Brian Lloyd, Public Utility Commission of Texas

  • As of one week ago, received water utility regulatory program from TCEQ
    • Have requested the additional FTE’s as stipulated in the legislation
  • Universal Services Fund  – continue to see a decline in disbursements from the fund
    • SB 583 has further reforms they are in the midst of implementing that will step down support
    • Have proposed rules to implement financial needs test, should implement rule in the Fall
  • Smart meters – staff has done review on health effects and for whatever reason customer has they can opt out – have adopted rule for an opt out process 
  • Rate case expenses – rate cases tend to be much more comprehensive and it has gotten to be very expensive so have implemented several ways to help mitigate (ie audits they may not need, etc)
  • Carbon Dioxide rules for existing power plants – very complicated rules and the rules attempt things EPA has never done before
    • There is concerned about feasibility among other things with the rule
    • Will be working in conjunction with other agencies to provide comments on the rule
  • Lucio – asked about System Benefit Fund and if state is communicating with different regions that bring % of need in our state and wants to know specific numbers
    • They will pull that detail
    • Outreach is done every year
    • HB 7 provided that the fund ends Sept. 1 2016 – so can extend fund life by one year and can extend discount or take the cap off in FY 2016 and can size discount
  • Sen. Watson thanks agency for work regarding water rate change over
  • Van de Putte wanted to ask specifically about the rate cases and timeline – companies said need to plan out length of time because it takes so long during a rate case
    • There are a variety of different types of rate cases
    • Example offered of SWEPCO adding $1 billion coal plant so that is a bigger case
    • Commission has set bright light standards on things like – duplication of effort or re-litigating things over and over again so commission has set better bright line standards
    • Discovery rules should be published by end of October
    • Carving certain auditing out of requirements also an issue they will tackle
    • As general matter the Commission has needed authority to do what is needed but in following session –instead of renewing maybe provide broader authority

 
Lt. Governor David Dewhurst begged for a harder look to be taken at TWIA during the 84th Session

  • Since 2003 – exposure under TWIA has increased exponentially and Texans are on the hook for that $77 billion
  • Thought they were making progress when carving up areas in order to not create a rate shock and move them into commercial market – but it did not move forward 
  • Texas is operating a $77 billion insurance company

 
Tonya Baer, Texas Office of Public Utility Counsel

  • Have intervened in 5 case with 3 settled and 2 ongoing
  • OPUC working with consumers on water and wastewater utilities
  • Achieved delay in effective date, waive rate case expenses, freeze in rates, etc.
  • Judicious in advocacy for consumers of these cases
  • Watson said appreciative of the role they are playing but need to make sure they stay in the loop on this

 
Meeting is concluded. Chair Eltife stated no more meeting are planned prior to session. This hearing will allow them to conclude their interim report.