Texas lawmakers pass bills overhauling electric grid, increasing consumers costs

PROMO State - Texas Road Sign - iStock - gguy44
Published Wednesday, June 2, 2021
by Bethany Blankley | The Center Square contributor

(The Center Square) - After statewide power outages in February that lasted weeks in some areas, leaving millions of Texans in the cold and dark without water, the state Legislature was tasked with reforming the state's electric grid.

Unlike 47 other states that operate on either the East or West Coast electric grids, Texas operates on its own grid. It is managed by the Electricity Reliability Council of Texas (ERCOT), which is regulated by the state legislature and the Texas Public Utility Commission (PUC).

While the reform measures passed revamp ERCOT and PUC, they also allow ERCOT to increase rates for consumers, create another fee to be added to electric bills, and authorize electric companies to pass on the costs of billions of dollars in loans they took out onto consumers.

Costs being passed onto consumers add a triple blow to residents, critics argue, who were already hit with high electric bills after having lost power for weeks during Winter Storm Uri. On Valentine's Day, sub-zero temperatures caused a wide range of property damage that, coupled with decisions made by ERCOT executives and the PUC, left millions of Texans without heat, water and electricity for weeks.

The 100-year winter storm forced the legislature to pass several bills to strengthen the states' electric grid, although several lawmakers had called for the legislature to secure the grid for years to no avail. Grid reform was also listed as an emergency legislative item by Gov. Greg Abbott, which by law requires the legislature to take up the measure.

On late Sunday, the Senate approved SB 2 to reform ERCOT, and SB 3, the Power Grid Stability Act, which revamp the organizational oversight of the state's electric grid and require weatherization of critical energy facilities.

SB 3 also increases costs to consumers. It creates a new fee to cover costs to dispatch electric generation capacity in an emergency, permanently increasing electric bills.

Texans' electric bills will also increase if Abbott signs a bill into law filed by Rep. Chris Paddie, R-Marshall. The bill, HB 4492, passed both chambers on Monday, the last day of the 87th legislative session.

HB 4492 would increase electric rates for consumers in order to cover the costs of loans taken out by electric companies. Increased costs will vary by company depending on the amount and length of the loan, among other factors.

Senate Bill 2 makes changes to the operations of ERCOT and the PUC by expanding their boards and requiring their board members to be Texas residents. It also streamlines emergency responses inside the PUC.

Changing ERCOT's board from one comprised of "industry insiders with conflicts of interest to one that is wholly independent of the state electric market" was a key priority, its author, Sen. Kelly Hancock, R-North Richland Hills, said. The change is "radical from what Texas is used to, but you know what it's not radical from - every other grid in the United States," he said. "Every other grid in the United States has an independent board and Texas will now have that model."

In February and March, after ERCOT's shortcomings were exposed, several ERCOT board members who lived outside of Texas resigned.

The bill requires the ERCOT board to be comprised of eight unaffiliated members with executive level experience in finance, business, engineering and electric markets, approved by a commission appointed by state leadership. It also prohibits members from holding a financial interest in any company that operates in the ERCOT market. It also requires that any major proposals offered by ERCOT be approved by the PUC.

Filed by Sen. Charles Schwertner, R-Georgetown, SB 3 requires all critical electric, transmission and natural gas facilities to be prepared to operate in extreme weather conditions. It provides for inspection of winterization efforts and imposes fines of up to $1 million for companies that don't comply.

It also establishes requirements for the PUC, ERCOT, the Texas Railroad Commission, the Texas Division of Emergency Management, and the Texas Commission on Environmental Quality, including a mapping of Texas' electricity supply chain and inspection of weather emergency preparedness efforts now required to be implemented by natural gas, electric and water service entities.

In order to improve coordination among all sectors of the state energy market, the bill creates the Texas Energy Disaster Reliability Council and the State Energy Plan Advisory Committee to be comprised of state regulators and market participants and creates a new statewide power outage emergency alert system.

SB 3 also creates a new fee passed on to consumers to cover costs to dispatch electric generation capacity in an emergency. Lt. Gov. Dan Patrick claimed the Senate was standing up for ratepayers.

"We began this session by immediately calling for a correction of the energy pricing that occurred during the February storm, which created millions of dollars in windfalls for some companies," Patrick said in a statement. "The Texas Senate continued to stand up for ratepayers throughout this session" by passing the bills.

Perhaps the biggest cost to consumers could come from HB 4492, filed by Paddie, which would allow retail electric providers and other companies to access low-interest loans to cover costs, which they would then pass on to consumers through rate increases over a period of several years, instead of hiking bills all at once.

"Many wholesale market participants incurred extraordinary costs in attempting to restore service during the winter storm, and the current short-pay amount would not allow the ERCOT organization to uplift the costs to the market in a reasonable amount of time due to the limitation on monthly uplift," a bill analysis states.

Opponents of the bill argue it is a bailout for companies and simply reallocates debt to customers already struggling to pay their bills and could lead to unintended consequences.

Patrick said the Senate proposed a framework for a $3 billion fund to help consumers pay for electric rates that go up as electric companies pay off interest on $2.1 billion worth of loans they already took out, but the proposal didn't make it through the House before the session ended. The House was in session 76 out of 140 possible days.

Patrick has asked Abbott to add ratepayer relief to the special session agenda.

"The next time we're going to spend billions of dollars concerning the storm, it's going to be to help the people of Texas and ratepayers, or I won't call that bill up," Patrick said. "We can help ERCOT, we can help businesses, but we have to help the people of Texas and their electric bills."

All three bills were sent to Abbott for consideration. Once signed into law, they would be effective September 1.

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