The PUCT sponsored a workshop to discuss the Texas Energy Fund, an incentive program to promote the construction or expansion of dispatchable electric generation resources. The program involves up to $10B in grants for completion and successful operation of facilities that is paid out over a period of years, and a low-interest, multi-billion-dollar loan program that would provide up to 60% of the capital cost of the plant to be provided at 3% interest. Note that PUCT staff is working in advance of a November vote by Texans to approve the TEF because of the deadlines that are looming in coming months.
The workshop was well attended by power plant owners and developers. Attendees submitted comments and questions in advance and raised those issues during the workshop. Of note, NRG had a financial officer participate who offered extensive comments during the hearing. Staff was very appreciate of all feedback.
Additional comments are encouraged to be submitted with a deadline of October 13th.
The agenda questions to facilitate the workshop discussions are available HERE. The archive of the discussion is available HERE.
Staff Comments (David Gordon, Attorney for PUCT and David Smeltzer are leading this effort)
- Oct 13 deadline for comments to PUC
- Response to question on Texas Energy Fund Committee
- Chair – Timelines driven by June 1st
- Chair – Legislature impaneled committee (to oversee implementation and management of these funds) and they are not yet impaneled, will take recommendations they have made at that time
- Staff – not clear they can afford to wait, when the committee forms, then staff will see how the committee may want to interact with them
- Chair – will be moving forward to the extent they can
- Staff- language calls for them to consider input from committee
- Chair – can accomplish work envisions in bill without them if they have to do that
- Staff – *later clarified, they shall give recommendations full considerations from committee, but they don’t know when they will received them
Grants for Facilities Outside of the ERCOT Power Region – PURA § 34.0103
Julia Harvey, Texas Electric Cooperatives
- Facility modernization could include adapting to something new, grid automations or communication upgrades, looping circuits, upgrade wooden poles to concrete poles
- Measures could qualify under more than one criteria
- Essential components of rulemaking, look for framework to borrow from as develop the rules
- Would like to see the three funds stood up simultaneously, sees overlap in the groups
Taylor Kilroy, Texas Public Power Association
- Eligibility should consider small utility programs like set asides, streamline applications, simpler reporting requirements
- Help ensure rural or small town areas maintain eligibility
- Communication is key – smaller cooperatives and munis do not have the resources to monitor
Zoe Lees, Xcel Energy
- Needs to be a streamline and simple application process
- Grants could have impacts to ratepayers, material impact on costs
- Make material grants of a size that ratepayers and customers will realize the impacts
- Avoid it becoming a program of a revolving loan – keep it at grant
- If funds were available next year, entities would apply
- Clear expectations to applicant are very helpful and thresholds that should be demonstrated
Loans for Facilities Inside the ERCOT Power Region – PURA § 34.0104
Monica Batra-Shrader, Enchanted Rock
- Submitted comments as well
- Would like to rank projects by physical criteria
- Applicants should be permitted to aggregate portfolio to meet minimum threshold
- Can bring 500MW to grid in 3 years if aggregations are allowed to participate
- This portfolio would target local and regional reliability needs as well as geographic
Tom Atkins, NRG (Bill Barnes introduced Tom Atkins, VP of Finance)
- Submitting comments as well
- This is an ambitious program
- Important to look at quality of projects it receives, collateral for loan will be asset itself
- 40%/60% mix concern on funding – ensure the applicant has the 40%
- Sponsor needs to have experience to pull this off, need to know how to build, get permits, guarantees for performance of project, etc…
- Show study that has been done by transmission, so not constrained by transmission – could have a third party report
- Applicant should provide creditworthiness
- Need economic model that project can generate cash flows to pay back the loan
- There is an industry that does this type of work, third party evaluations – may be helpful for the PUCT to retain this expertise
- Chair – Have issued pre-solicitation notice seeking someone to help administer program
- Estimated cost – applicant should be supplying enough information to understand what the cost is, will there be loan fees and do they count as capital cost, if state loans money during build that adds to capital cost
- Qualifying capital cost is important, deposit is important collateral
- Contingency is a big item and should be included in capital cost – maybe 5% of capital cost. Any commercial lender would require this. Money should be set aside for negative events during construction.
- Debt covenant regarding reliability, standard needs to be reasonably achievable (e.g., an unexpected outage outside control causes less output and should not disqualify you)
- Summer 2026 gets max completion bonus. Suggest program would need to be funding by end of 2024 in order to reach Summer 2026 goals. Having loan proceeds available by 2024 to meet the 2026 high bonus deadlines is necessary.
- Fund loans by end of next year would facilitate getting online by summer 2026
- The standard to qualify for the loan should be reasonable, not a high standard. Do not want plants going into default.
- Would suggest cannot apply for completion bonus grant until complete
- If you don’t qualify for the grant it changes loan application, so important to know what is needed for grant before initial applications
- Need to know rules for qualifying for the grant up front.
- Now takes two years to purchase a certain circuit breaker, soft costs would be expended now
- Costs already spent should be funded from loan from beginning and 60/40 going forward and a guarantee with the 40 already being there
- Staff – could they be approving projects that depend upon completion bonus
- Project sponsor takes certain risk, mitigated by fix price contract and timing
- Focus on getting steel in ground, state can foreclose on asset if needed
- Thinks completion bonus is project risk
- When a loan funds, there should be a draw package on a monthly basis going forward
- Fund should consider retaining a third party administrative agent
Bryan Sams, Calpine & TCPA
- Open to any questions about TCPA
- Aggregation may be controversial – because it needs to be net increase for each facility
- Recommends additional briefing if aggregation is consideration
- Chair – may be holding additional workshops as they progress
- Speaking on behalf of Calpine – agrees with NRG and says important is clarity and definition needs to be consistent with finance language
- Rules around criteria for completion bonus need to be very clear, what kind of discretion is there in 10 years to change bonus payout needs to be answered
- Market design is also super important
Diana Coleman, CPS Energy
- Did submit comments
- More details are requested on credit worthiness, like repayment for stalled projects, etc
- Reliability performance standards – would program have milestone metrics, what does each entity have to meet before moving forward
- Expectations need to be stated regarding process to qualify and participate in the program and with reliability standards
- If they participated in the program, could they participate in any other market enhancements
- Chair – only read through chapter 34 and limitations, not sure how participation in another program would help
Meghan Griffiths, Targa Resources
- Would like clarity and understanding on how “ primarily” will be interpreted
- Delays in Permian Basin are critical concerns
- Is this opportunity to serve critical customers in private use networks? Need clarification
- Generation otherwise eligible would not be a facility that falls under particular load restrictions
- Chair – do you have a position on size vs load of facility or?
- Need to look at if generation meets requirement under statute
- Need to come up with language to address providing to critical customer and then uploaded into the grid
- Critical customer clarification, need to look at characteristics of the load
- Each project will be different, rules of road should be laid out on completion bonus
John Russ, TIEC
- Wants to know what “primarily” means, if capacity exceeds load then it might be considered not primarily serving
- Formatting rule so there is distinction, could an entity apply for completion bonus and not loan
Enchanted Rock
- Deployment models with co-located load would be another consideration
Russell Weeks, Wärtsilä
- Aged assets in grid currently over 30 plus years, could look at resource asset registration forms, see what is being applied for qualifies for resources
- Need to understand more what “primarily” means
Cyrus Reed, Sierra Club
- “Other factors” – Please assure environmental permitting requirements can be met in the application. E.g., if building in Houston area and not qualifying on NOX, then you won’t be able to proceed.
Completion Bonus Grants – PURA § 34.0105
Tom Atkins, NRG
- 100 hours, should take into account EAF (“Equivalent Availability Factor”) (all projects should meet same standard)
- Median performance should not be too high, starts at 50% and graduates up to what is optimum
- Optimum is achievable but what you hope to do
- 95% is reasonable expectation for mature plant and 92% in the first year
- Anticipates there will be annual look-back
- Debt covenant is fatal outcome, this should be about giving up a completion bonus payment for a year if they miss the mark
- Standard – Guiding principle should be beyond reasonable control of project
- Don’t believe someone should apply until they have met rules, interconnected
- There should be a look-back at end of year, project would submit an accounting for its equivalent availability and copy go to ERCOT to confirm
- There are different kinds of projects, what about a peaking plant that only operates when called upon…as long as it was available it should get full credit to help address if it was held back in reserve
Emily Jolly, LCRA
- How are they looking at existing facilities in light of the grant program
- Chair – reached out to ERCOT, if there was an upgrade in facility it would be captured in CER going forward, agrees upgrades of 100Mw or more
Mike Nary, Dallas Resident
- Equipment can’t be delivered on a timely basis
- Suggest its in the state’s best interest to allow more time to qualify provided people are working intently, understands those changes would have to be addressed through the legislature
- Rules that could incentivize should be put in place, and lead time to get equipment in place should be considered
- Soft costs will be spent in anticipation they would quality, sooner the rules are set forth then people will be inclined to risk more funding to develop
The Texas Backup Power Package Program – PURA § 34.0201 -.0205
Monica Batra-Shrader, Enhcanted Rock
- Wants clarification on threshold of 2.5 MW
Kristina Rollins, NRG
- Define who, there are certain categories in statute would like to see in rule
- Minimize operation cost – how does providing environmental controls impact
- Need clear idea of what facility can be used for or not
Diana Coleman, CPS
- What are limitations or components for eligibility
- Clarity on what manner facility can be used down the line
Zack Stephenson, Texas Electric Cooperatives
- Reading of statue is a lot would go to committee, would like clarification on what they will defer to committee
- Chair – research entity will be recommending project types and committee will also be providing recommendations
Closing remarks
- Gina Minjarez was present from the Trust Company
- Please file any remaining comments by October 13
- Providing sample language is useful tool for them