BILL ANALYSIS

S.B. 1075

By: King

State Affairs

Committee Report (Unamended)

BACKGROUND AND PURPOSE

Section 39.918, Utilities Code, was added to law by the 87th Texas Legislature in the aftermath of Winter Storm Uri to allow transmission and distribution utilities (TDUs) to lease temporary emergency generation to be used during load shed events or otherwise when there is a widespread power outage, such as after a powerful storm or hurricane. Protections were included such that this temporary emergency generation did not compete with competitive generation or otherwise distort the generation market. These assets may only be used to protect public safety in emergencies and not to sell power into the wholesale market. Currently, Section 39.918 is set to expire September 1, 2029.

Since the passage of the 2021 law, utilities have deployed these assets multiple times for the benefit of Texans during power outages. But the current requirement that the utilities lease, not own, these assets makes them more expensive, because the utilities must pay the margin of a lessee that would not be incurred if the utilities owned the assets. Additionally, clarity is needed regarding when these assets can be used, how much a utility can procure to protect public health and safety, and how these costs should be reviewed for recovery by the Public Utility Commission of Texas (PUC).

S.B. 1075 seeks to make several reforms to Section 39.918, including removing the 2029 expiration date, allowing TDUs to lease the assets from an affiliate who owns them so that this public health and safety tool is less expensive to the TDU and in turn to customers, and expanding the qualifying power outages in which these assets may be used, while also addressing cost recovery issues that have arisen at the PUC.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

S.B. 1075 amends the Utilities Code to make permanent the provisions of the Public Utility Regulatory Act (PURA) relating to the authority of a transmission and distribution utility (TDU) to take the following actions by removing the September 1, 2029, expiration date for those provisions:

·         lease and operate facilities that provide temporary emergency electric energy to aid in restoring power to the utility's distribution customers during certain widespread power outages; or

·         procure, own, and operate, or enter into a cooperative agreement with other TDUs to procure, own, and operate jointly, transmission and distribution facilities that have a lead time of at least six months and would aid in restoring power to the TDU's distribution customers following a widespread power outage.

S.B. 1075 further revises those provisions as follows:

·         changes the type of power outage to which those provisions apply from a "widespread power outage," which is defined as an event that results in a risk to public safety and a loss of electric power that affects a significant number of distribution customers of a TDU and has lasted or is expected to last for at least eight hours, to a "significant power outage," which the bill defines as an event that causes the independent system operator to order a TDU to shed load or results in a loss of electric power that, as follows:

o   affects a significant number of distribution customers of a TDU and has lasted or is expected to last for at least six hours;

o   affects distribution customers of a TDU in an area for which the governor has issued a disaster or emergency declaration;

o   affects distribution customers served by a radial transmission or distribution facility, creates a risk to public health or safety, and has lasted or is expected to last for at least 12 hours; or

o   creates a risk to public health or safety because it affects a critical infrastructure facility that serves the public such as a hospital, health care facility, law enforcement facility, fire station, or water or wastewater facility;

·         authorizes the Texas Division of Emergency Management, ERCOT, or the executive director of the Public Utility Commission of Texas (PUC) to determine that a power outage other than an outage meeting such criteria constitutes a significant power outage for these purposes;

·         entitles a TDU to determine whether a loss of electric power that affects distribution customers served by a radial transmission or distribution facility and has lasted or is expected to last for at least 12 hours creates a risk to public health or safety for purposes of determining whether the loss event constitutes a significant power outage;

·         with respect to the authorization for a TDU to lease and operate facilities that provide temporary emergency electric energy to aid in restoring power to the TDU's distribution customers during an applicable power outage, removes the language limiting the circumstances under which such facilities are deployed to those where the independent system operator orders the TDU to shed load or the TDU's distribution facilities are not being fully served by the bulk power system under normal operations;

·         provides the following with respect to an affiliate of a TDU and that authorization for a TDU to lease and operate facilities that provide temporary emergency electric energy to aid in restoring power to the TDU's distribution customers during a significant power outage:

o   the affiliate may own such temporary emergency electric energy facilities;

o   the affiliate may lease the temporary emergency electric energy facilities to the TDU if the costs of the lease comply with the requirements under PURA with respect to the consideration of payment to an affiliate for purposes of computing rates;

o   the affiliate is not considered to be a power generation company for the purposes of PURA or PUC rules based solely on the ownership of and leasing to the TDU temporary emergency electric energy facilities;

o   the affiliate is considered to be a competitive affiliate for the purposes of PURA and PUC rules if the affiliate engages in the business of owning and leasing to unaffiliated third parties temporary emergency electric energy facilities; and

o   the affiliate is considered to be a competitive affiliate only for the provisions of PURA regarding the consideration of payment to an affiliate for purposes of computing rates if:

§  the affiliate engages solely in the business of owning and leasing to the TDU temporary emergency electric energy facilities; and

§  the TDU demonstrates that the cost of leasing temporary emergency electric energy facilities from the affiliate provides benefits to ratepayers equal to or greater than would have been achieved by leasing the facilities from an unaffiliated third party;

·         requires a TDU, as soon as reasonably practicable after the TDU deploys a temporary emergency electric energy facility, to provide written notice to the PUC and a written market notice to advise competitive market participants of the details of the deployment and further requires the TDU, not later than the fifth business day after the date the deployment ends, to file a report, in a form approved by the PUC, providing the details of the deployment, including the start and end times of the deployment, the number of kilowatts or megawatts deployed, the number of facilities used, the locations of the facilities, and any other information required by the PUC;

·         replaces the requirement for a TDU, when reasonably practicable, to use a competitive bidding process when leasing a temporary emergency electric energy facility with a requirement for a TDU that decides to lease such a facility, when reasonably practicable, to solicit competitive bids and consider any bids received before leasing the facility;

·         with respect to a TDU's recovery of the reasonable and necessary costs of leasing or procuring, owning and operating facilities for the restoration of power after a significant power outage:

o   prohibits costs for which the TDU requests recovery from being treated as transmission costs but entitles a TDU making such a request to select whether the costs are considered to be distribution substation equipment costs or distribution transformer costs, unless the PUC has found in a previous base rate proceeding for the TDU that temporary emergency electric energy costs should be categorized in a different manner; and

o   authorizes the PUC to review costs recovered through a periodic rate adjustment proceeding in the following base rate proceeding and order refunds to customers if appropriate;

·         establishes that the fact that the PUC has not previously approved a facility operated for power restoration in response to a significant power outage or a cost of leasing, procuring, owning, or operating such a facility is not grounds for dismissal of the facility or the cost from a periodic rate adjustment proceeding or another ratemaking proceeding;

·         requires each TDU that leases and operates a temporary emergency electric energy facility to assess every four years, considering the following factors, the total capacity of facilities needed to aid in restoring power during a significant power outage and to submit that assessment to the PUC for review:

o   the presence and frequency of extreme weather conditions, including hurricanes, tornadoes, high winds, lightning, flooding, icing, and freezes, in all or a portion of the TDU's certificated service area;

o   the TDU's current and planned system hardening efforts;

o   the TDU's current and planned vegetation management efforts;

o   the TDU's current and planned expenditures on traditional distribution facilities;

o   the TDU's current and planned expenditures on automation of its distribution system;

o   the TDU's allocated load shed obligation based on historical seasonal peak demand, as determined by the independent system operator;

o   the presence or number of communities that are remotely located or served radially in the TDU's certificated service area;

o   the number or location of critical infrastructure facilities that serve the public such as hospitals, health care facilities, law enforcement facilities, fire stations, and water or wastewater facilities in the TDU's certificated service area;

o   the TDU's emergency operations plan filed with the PUC; and

o   other engineering or operational needs;

·         authorizes the PUC to take the following actions:

o   establish the capacity of facilities that may be operated by a TDU in aid of restoration for each type or category of significant power outage;

o   establish reasonable conditions on the operation and use of facilities, including duration times and prioritizing use to serve critical infrastructure facilities that serve the public such as hospitals, health care facilities, law enforcement facilities, fire stations, and water or wastewater facilities; and

o   require compliance with applicable law, including any rule or order of the PUC; and

·         authorizes a TDU, notwithstanding certain other bill provisions, to do the following:

o   provide facilities to or use facilities from other entities as part of a mutual assistance agreement during a significant power outage; and

o   lease facilities on a short-term basis in response to a significant power outage if the following conditions are satisfied:

§  the significant power outage constitutes an emergency and the TDU determines that additional facilities are necessary;

§  the term of the lease is only for the duration of that emergency;

§  the TDU notifies the PUC of the lease not later than the 30th day after the date of the lease agreement; and

§  the PUC reviews the costs incurred by the utility in a periodic rate adjustment proceeding or in another ratemaking proceeding.

These provisions apply only to a contract or lease entered into or facilities procured on or after the bill's effective date. Moreover, these provisions apply only to a proceeding before the PUC or a municipal governing body, as applicable, that commences on or after the bill's effective date. Such a proceeding that commenced before the bill's effective date is governed by the law in effect on the date the proceeding commenced, and that law is continued in effect for that purpose.

S.B. 1075 amends the Transportation Code to specify that construction machinery owned by a TDU and used to maintain or repair electrical lines or substations in response to a power outage is included among the construction machinery exempt from vehicle registration requirements on the basis of the machinery only temporarily being used on the highways.

EFFECTIVE DATE

September 1, 2023.