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The Senate Committee on Jurisprudence met to take up and vote on SB 3 (Schwertner) relating to preparing for, preventing, and responding to weather emergencies, power outages, and other disasters. The committee also reconsidered the vote on SB 23 (Huffman) relating to an election to approve a reduction or reallocation of funding or resources for a municipal or county law enforcement agency. SB 23 was then left pending.

This report is intended to give you an overview and highlight of the discussions on 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.

SB 3 (Schwertner) Relating to preparing for, preventing, and responding to weather emergencies, power outages, and other disasters; increasing the amount of administrative and civil penalties.

  • Schwertner – Comprehensively addresses oversight, poor communication, and lack of coordination during the winter storm
  • Establishes emergency alert system to properly notify about outages, formalizes communication through Texas Energy Reliability Council, addresses weatherization, provides for more robust planning & communication for load sharing
  • Prohibits variable rate plans and ensures bills are deferred during emergencies
  • Certain power providers must commit to specific load, directs creation of state plan
  • CS laid out
    • Renames emergency alert to “power outage alert”, refines membership and duties of council, directs council to map gas supply chain, abolishes index plans for residential and small business, directs PUC and RRC to create penalty matrices for companies refusing to act in good faith
    • Removes language for wind and solar load commitment, directs PUC to limit amount of time high cap can be in place to 12 hours, establishes emergency offer cap based on cost of generation
    • Caps ancillary to 150% of high cap, tasks PUC with reviewing caps every 5 years

Julia Harvey, Texas Electric Cooperatives – On

  • Changes are needed in how obligations are calculated so that they’re equitable and reflect contributions to seasonal peak
  • Hope that we get clear guidance on what constitutes critical load, makes it difficult to effectively rotate load shed
  • Coops appreciate effort to create better value proposition for thermal
  • Want to make sure we understand impact of changes to systemwide offer cap

Cyrus Reed, Lone Star Chapter of the Sierra Club – For

  • Commenting on bill as filed
  • Very important to weatherize gas resources
  • Appreciate creation of alert system, in CS looks like TDEM has bigger role which is important; should also bring in TCEQ due to pollution impacts with startups and shutdowns
  • Loads typically pick up ancillary services, not generators, which is something that needs to be talked about
  • Demand side is missing from this bill, load is important, but more can be done for energy efficiency

Stan Brannon, Self – On

  • Here in support of wife

Michelle Brannon, Self – On

  • SB 3 addresses problems in the electricity industry, but bill is not enough; needs to mandate that PUC be more responsible and accountable for utility enforcement
  • Son was electrocuted by low-hanging powerline, bill was passed to increase oversight by PUC, but PUC did not review reports or properly enforce
  • Winter storm exposed that utilities cannot be trusted to follow standards without strict oversight and PUC cannot be trusted to enforce
  • Highlights Bettencourt bill SB 1593 which bolsters oversight & enforcement

David Bunton, Cooper Cameron – On

  • Winterization heating systems are available
  • Should consider adding requirement that all wind sites maintain design & wind speed standards based on region
  • Imperative that winterization systems are tested and audited

J.P. Urban, Association of Electric Companies of Texas – On

  • Support the direction of the bill, alert system, coordination between industries, systems mapping etc. are important
  • Design decisions for the energy market should be run through PUC process

Todd Staples, Texas Oil & Gas Association – On

  • TERC will be very meaningful, supply chain map is crucial to getting this right
  • Giving TDUs ability to prioritize who needs power and when will be very important
  • Number 1 reason for lack of production in the storm was loss of power, no amount of winterization will have gas flow to generation if power is lost or roads are frozen; mid-stream operations have detailed plans to make sure gas flows
  • Many operators winterize extensively today, but they had no power to their wells
  • Need to make sure there is flexibility in the winterization requirements that the economics make sense for small producers
  • Johnson – Appreciate the point that there are many small producers where economics won’t make much sense & that winterization won’t do much on that front
  • Johnson – Should TCEQ be included in the structuring of industry communication?
    • TCEQ plays an important role, regulators for some entities; could be part of the conversation to include them
    • Primarily have conversations with RRC, but TCEQ plays an environmental role and shutting facilities down has environmental consequences
    • Need to explore this further
  • Johnson – Is the mapping we’re talking about going to alleviate the problem of generators being unable to produce?
    • We think it will, critical generation portion is important, but current critical generation form lacks clarity and needs to be part of that
    • Essential that we know who is eligible & TDUs are given priority; if everyone is considered critical it doesn’t help us
  • Johnson – Inability to deliver electricity to gas producers was at least partly due to lack of winterization that took generation offline in the early parts of the storm
    • I think it’s accurate that you had generation failures that spread throughout the supply chain
  • Johnson – If we can fix every part of this, I think we’re good
    • Need to look at proximate cause; can consider contract revisions, alternative fuel sources, etc.
    • No shortage of gas in Texas, there is an inability to move it around when you lose power
  • Schwertner – You brought up flexibility, SB 3 does put weatherization under RRC for gas and PUC for electricity, but also gives RRC enhanced powers through penalty matrix
  • Schwertner – High numbers of small gas producers is something the RRC could take into account, this is the design of the CS; do you have thoughts on this?
    • May need to be more clarity in this regard
    • Depletion of gas for a large producer is fairly rapid, can be part of a plan and then gone before a calamity hits; may need some clarity in how to deal with this
    • SB 3 also talks about looking at everything ahead of time, need to see if that part works the way you intend it to
  • Schwertner – Is onsite generation feasible for gas production?
    • Sometimes it is depending on facility, usually pretty cost prohibitive to have two different power sources
    • Even with generators, can be difficulties in getting crews out to start onsite generation
  • Schwertner – Regarding firm contracts, my understanding was that it was difficult to get a firm contract?
    • Can be the case when infrastructure and system hasn’t been developed enough to do that; need a variety of things like firm contracts, alternative fuels, etc.
    • Alternative fuels is expensive, but doable for some like Entergy

Joel Yu, Enchanted Rock – On

  • Provides overview of Enchanted Rock operations & benefits of microgrids; natural gas microgrid fleet was extremely reliable
  • As critical loads are more extensively identified, removes flexibility for outages and shed; critical infrastructure should have some responsibility in ensuring generation
  • In furtherance of this, barriers for critical load to deploy microgrids should be removed

Catherine Webking, Texas Energy Association for Marketers – For

  • Retail electric serves a very important role in communication which is well represented in SB 3
  • Supports initiatives in the bill regarding index markets

Michele Richmond, Texas Competitive Power Advocates – On

  • Reliability requires a holistic supply chain, mapping is crucial to know where critical points are, weatherization of these parts in important as well
  • Appreciate penalty matrix on violations to give discretion to PUC & opportunity to cure
  • Requiring ERCOT to purchase to secure reliability of intermittent resources is important
  • Scarcity pricing provisions are concerning, limiting to a duration of 12 hours would prevent energy market from providing incentives to maintain or increase supply; would prefer to delegate that to the PUC & work through the process
  • Gas supply transparency portions are important, no included in CS and would like to see it; members had firm contracts, but gas was not provided under these contracts
  • CS is a vast improvement over filed version
  • Schwertner – Asks about requiring onsite storage of natural gas?
    • Haven’t spoken about this with members, unless there is funding would like to make these decisions based on the economics
  • Schwertner – My understanding is that the longest the price cap had been in place before winter storm Uri was 4 hours; in general then, high price cap wouldn’t be expected to be in place for 12 hours
    • Investment signals that have been sent have been to retire generation, this is a function of not seeing prices indicating you can recover investments in the market
    • Concerned that codifying this would exacerbate this
  • Schwertner – Bill does speak to this on the ancillary services
    • Supportive of this and step in the right direction
  • Schwertner – Bill also mandates PUC look at pricing and review on a constant basis
    • Concern is putting the 12 hours in statute instead of leaving it to the PUC
  • Schwertner – Prices would have been less powerful if lowered during the storm? You like the $9k cap?
    • Would need to look at this holistically in length of time, likelihood of occurrence, etc.
  • Johnson – Concerned about market construction when we design around prices far in excess of market pricing; limit in bill is 3x as long as historical need, possibly skeptical of PUC being able to set this appropriately
    • Market design depends on scarcity times to send investment signals; design is certainly a policy decision
    • So long this is in place, concern is that we send appropriate signals to ensure dispatchable generation
  • Johnson – On what do you base the conclusion that renewables are driving ancillary services in ways other generation is not
    • Proliferation of intermittent resources Is primarily due to subsidization, causes them to produce at times when it may not be needed
  • Johnson – Isn’t that what we’re trying to do is push prices down, function of competitive market?
    • I think the goal is to have a well-functioning market, prices are part of this
    • Tax incentive provides an incentive to generate not based on market need
  • Johnson – What is the relation to ancillary services?
    • ERCOT needs to ensure generation is available, if intermittent resources have pushed prices down, then need to work on ancillary services portion
  • Johnson – Data doesn’t show that ancillary services have increased, need is not driven by intermittent resources; doing something that we haven’t done by attributing these costs to generation instead of load without evidence
  • Jonson – Convinced we’re making a mistake by attacking something because we feel it may be the problem without evidence
    • Timing of resource availability has shifted due to intermittent resources
    • This has been looked at in many different ways
  • Johnson – Has been looked at by ERCOT and they’ve never voted to make this move
    • Have had workgroups & participants on all sides; what was ultimately determined was this was beyond stakeholder process; policy decision for PUC or legislature
  • Johnson – Hope we make policy decisions on data and not theory
  • Schwertner – Need a diverse market; asks after fuel sources
    • Members have resources of all different types; concern is making sure we have a reliable system and a well-functioning market signaling need for investment

Brent Bennett, Texas Public Policy Foundation – On

  • Weatherization and solutions in SB 3 are not enough, problem is that we do not have enough reliable generation on the grid
  • Ancillary services discussion is good start, wind & solar should be required to pay for some of reliability
  • Prices not rising for ancillary services illustrates the problem of missing money on the market, need to address this problem
  • Johnson – The idea that we’re going to have a competitive free market where we impose costs on some players because they’re operating too inexpensively? What about cancelling federal incentives? Wouldn’t endorse this, but would understand more
    • Federal incentives are interfering, would see less distortion in market, this solution works to correct this

Rudy Garza, CPS Energy – For

  • Provides overview of CPS operations, winter storm impacted CPS on gas and electric side
  • Hugely increased prices for electricity and gas are unsustainable for customers
  • Legislature should also take broad view of communications between electric, gas, water, and telecoms & consider costs associated with new requirements

Mike Kezar, South Texas Electric Cooperative – For

  • SB 3 is a good step, have refinement we will continue to work on
  • Regarding intermittent generation & ancillary services; there is missing money in the market, price signaling has been defective
  • Price cap and ancillary services are good measures to address these problems
  • Value wind & solar, but know that it imposes reliability problem; ancillary services requirement with right incentives for winterization and fuel topics like storage and dual source
  • Not a punishment, but there are categories that don’t have the same exposure; with the right approach price cap issues, etc. will be mitigated
  • Without correct market incentive, will see further retirements of resources that offset intermittent resources
  • Johnson – We’re talking about market incentives that reassign costs to one part of the market; isn’t this just regulated?
    • Market function when we have sufficient ancillary services
  • Johnson – So many rules that it almost isn’t a market
    • Have a choice to make it simple and go to a capacity market, option is to find the right incentive & SB 3 can be the simple solution
  • Johnson – Can you explain how this change will incentivize billions of investment?
    • We can, have been modeling potential impact
  • Johnson – Would be great info to get to the committee
    • Issue now is that language is too broad, need more guardrails
  • Johnson – We have a scarcity pricing system that rewards thermal generators, why are the market incentives existing now not sufficient?
    • Because we have no market signal for reserves, used to have a bigger buffer that has been stripped out
    • There is a way to make ancillary service market be efficient and fix this problem; currently it isn’t addressing market swings
    • Don’t agree that lack of price rises in ancillary services means we’re fine

Katie Coleman, Texas Association of Manufacturers – On

  • Electricity costs are typically one of the top 3 costs for manufacturers
  • Manufacturers have unique needs that are interrelated with gas and electric, missed this with TERC during storm; appreciate being included in SB 3
  • Would like qualifying facility phrasing removed; requirement already covered elsewhere
  • Scarcity pricing provisions protect market
  • Johnson – Is there intermittency of demand? For industrials?
    • Yes, they do
    • When ERCOT buys generation today they look at how demand moves; intermittent generation looks at this but on the flip side
    • This is why discussions revolve around ERCOT needing to plan around intermittent generation and shared burden
  • Johnson – Could you not say the same about intermittent users?
    • You could, but we pay for ancillary services as is; asking for shared costs
  • Schwertner – Regarding qualifying facilities, SB 3 specifies only qualifying facilities that sell electricity in ERCOT are covered
    • If qualifying facility participates in market it is required to register as an electric generation company; looking to address issue of self-serving qualifying entities

Michael Jewell, Octopus Energy – On

  • Provides overview of Octopus Energy operations & products, incl. index product; high customer satisfaction

Jeffrey Clark, Advance Power Alliance – On

  • Represent wind & solar development projects in TX, largest purchaser of gas; not advocating for an all green approach
  • Regarding ancillary services, these serve everyone in the market and respond to a wide variety of stimuli
  • If we’re going to start assigning costs to generation, then should look at entire system; if there is load creating need for ancillary services then should assign that
  • APA believes you will find this is an unwise approach, but if we’re going down this path should assign ancillary services to all who cause them in service of fairness
  • Johnson – Can you explain comments in written comments that efficiency in controlling frequency improved over last 10 years
    • Renewables have grown 262% over last 10 years, ancillary services has not grown
    • If renewable energy is creating this need, where is it? No evidence

Sen. Schwertner closes

  • SB 3 is important for the state, very much want input from stakeholders on energy policy

CSSB 3 voted out to full Senate 5-0

SB 23 (Huffman) Relating to an election to approve a reduction or reallocation of funding or resources for a municipal or county law enforcement agency.

  • Huffman – Previously voted this out, bringing bill back before the committee to clean up before it moves to the floor; received good suggestions from Sheriff’s Association, etc.
  • Hughes moves to reconsider vote on CSSB 23 & reconsider adoption of CS

SB 23 left pending