Texas lawmakers last week passed a pair of utility reform bills in response to the ERCOT grid’s near collapse during February’s winter storm, giving them more influence over the grid operator but also creating doubt over the measures’ effectiveness.

Senate Bill 2 would overhaul the ERCOT Board of Directors’ makeup, shrinking its members from 16 to 11 and task a selection committee, appointed by the governor, lieutenant governor and the House speaker, with choosing the independent directors. Nine of the 11 board seats would be voting members, giving state politicians more influence than before over the grid operator.

The provision emerged from a conference committee late Saturday night and was approved by both chambers Sunday.

“I am pretty upset by this massive change,” tweeted Cyrus Reed, president of the Lone Star chapter of the Sierra Club. “This should be debated in public, not snuck in a bill in the dead of night!”

The bill would still require all board members be Texas residents. The chair and vice chair have normally come from outside Texas to maintain separation from market participants and lend outside expertise. The board’s five non-Texans all resigned in February in the face of political and public outrage over their status. (See ERCOT Chair, 4 Directors to Resign.)

SB2 would further order that new protocols or revisions may not take effect until the Public Utility Commission approves their market impact statements.

A separate bill also approved Sunday, SB3, would require weatherization of power plants and some critical gas infrastructure, improve oversight of the electric industry’s supply chain, and create a statewide emergency alert system to better alert Texans to potential power outages.

The 87th Texas Legislature expired at midnight Sunday. Special sessions devoted to more controversial political issues are expected later this year.

Rep. Chris Paddie (R), who carried SB3 in the House of Representatives, said the bill targets “the systematic failures from wellhead to light switch” in addressing legislators’ three main priorities: oversight and accountability, communication failures, and weatherization.

“I don’t think it is acceptable for us to leave this session not having passed this bill and these reforms,” Paddie said during the debate.

While SB3 would require weatherization of power plant facilities, it would only ask the same of gas facilities identified as critical infrastructure by a supply chain mapping process. The Texas Railroad Commission (RRC), which critics say does more to protect the oil and natural gas industry than provide oversight, would be responsible with determining what upgrades to make. The bill does add penalties that range from $5,000 to $1 million for violations of the standards.

Several energy experts criticized the legislation as it unfolded, saying it ignored the fact that gas generation accounted for the bulk of outages that plunged the ERCOT grid into four days of blackouts. (See “Updated Storm Outage Report Minimizes Wind Energy’s Contribution,” ERCOT Technical Advisory Committee Briefs: April 28, 2021.)

“SB3 does an OK job of requiring regulatory bodies to develop weatherization standards and have rules and penalties in place. Those are good things,” Beth Garza, a senior fellow with R Street Institute and former director of ERCOT’s Independent Market Monitor, said during a media briefing last month. “What hasn’t been addressed is any kind of energy efficiency or demand-side actions to improve the usage, the lower and controlled requirements for electricity.”

“If there’s a take-home message for legislators to consider, are we requiring the gas plants, which were the biggest part of the outages, to winterize?” asked Daniel Cohan, an energy researcher at Rice University. “There’s been more to winterize the power plant side than the gas side. We’ll just have more plants that don’t have fuel to burn. It’s hard to see how this provides the full coverage of winterization that we need.”

At the same time, the House removed Senate language that would have charged renewable resources to provide ancillary services, currently covered by the market. Similar language targeting renewables for their intermittency is also not in the House version of SB3.

That pleased Advanced Power Alliance President Jeff Clark, who said this has been the most difficult legislative session he has lobbied. He complimented the House and Senate for working together to address February’s failures.

“[Rep.] Paddie and the House have thoughtfully worked with [the Senate] to find common ground on many issues, balancing many competing interests,” Clark said in an email to RTO Insider. “We hope that they will continue to consider the consumers, investors, communities and power generators who raised their voices of collective concern and not move backward on the improvements made to the bill.”

During a debate May 23, Paddie said the February disaster “opened the eyes of a lot of folks” to the interdependency between the electric and gas industries. “I think everyone can admit there were failures, in communication most importantly,” he said.

Garza referred to the dependency between the two industries as a “dysfunctional relationship.”

“One of the ways [SB3] can address that is by forcing those two industries to work together on a couple or three things,” she said. “Any product that comes out of forcing those two industries to work together and produce something is a step in the right direction.”

The RRC and PUC, which oversees ERCOT, water utilities and telecommunications, will be responsible under SB3 to work together in mapping critical infrastructure and helping develop an alert system that would be coordinated by the Texas Department of Public Safety.

No Electricity Market Changes — Yet

Under questioning from fellow representatives, Paddie said his committee purposefully avoided addressing the electric market’s structural issues to focus on oversight and accountability, communication and weatherization. He pointed out that the bill includes a section that would create a hand-picked select committee to review the various improvements being recommended and to deliver a comprehensive report by September 2022.

Any major changes to the ERCOT energy-only market would be the first since the legislature deregulated the electric industry in 1999 in an effort to reduce prices.

“If we’re going to make a decision in this body, I want to make sure we have all the information that is accurate,” Paddie said. “I really wanted us to push any discussion of market tweaks to a market that’s served us pretty well for 20-plus years, but that probably deserves a little bit of a look. We probably need to pop the hood and take a look at some potential tweaks … [but] we should proceed very deliberately and fully understand the full impact of those types of changes.”

SB3 would allow for a State Energy Plan Advisory Committee composed of 12 members selected equally by the governor, lieutenant governor and House speaker. The committee members would be asked to evaluate the market’s structure and pricing mechanisms, including the ancillary services market and emergency response services, and provide recommendations to remove barriers that prevent “sound economic decisions” and improve the grid’s reliability, stability and affordability.

Charlie Hemmeline, the Texas Solar Power Association’s executive director, agreed that any changes to the market are “complicated” and should be done in a “thorough, consolidated” way.

“Let’s take some time to look at some new things we need to add,” Hemmeline said. “It’s been 20 years since deregulation. What else do we need to do to reform this market, to be inclusive and create new products for new needs? Those are all good things. Let’s just make sure we are doing that in a thoughtful manner.”

An amendment to study the feasibility of ensuring significant reserves are available to the grid for emergencies only failed. Berkshire Hathaway Energy and Starwood Energy Group Global have both proposed building about 10 GW of natural gas facilities to provide backup power, funded by decades of monthly charges to customers. (See Berkshire Hathaway Offers Texas Emergency Power Supply.)

ERCOT Overhaul

The Legislature also agreed to SB2154, which would increase the PUC from three commissioners to five. A previous requirement that commissioners be “well informed and qualified in the field of public utilities and utility regulation” would only apply to two of the five commissioners.

Rep. Drew Darby (R), whose district consists of nine West Texas counties, failed in his attempt to amend the bill so that at least one commissioner hails from a county with 150,000 or less residents.

“If we don’t want them to be competent, at least let one of them come from rural Texas,” Darby said during debate last month.

Another bill securitizes $2.5 billion worth of bonds to help the ERCOT market recover some of its losses from February. The market was still short nearly $3 billion as of May 21, with bankrupt Brazos Electric Power Cooperative owing $1.88 billion.

A special session is already being scheduled in the fall to handle redistricting and allocating $16 billion in federal COVID-19 response funds. Legislation that doesn’t pass this biennial session could be added to the fall agenda.

PUC Sets Weekly Schedule for June

In anticipation of the pending legislation, the PUC has set up weekly workshops in June to “get ahead” of the rulemakings and scheduling issues.

“It’s fair to say there’s a lot of homework coming our way,” Commissioner Will McAdams said during the agency’s May 21 open meeting.

McAdams proposed that the “informal” workshops begin this Thursday, giving himself and Chairman Peter Lake, the only other current commissioner, an opportunity to discuss the February blackouts with PUC and ERCOT staff. The workshops have yet to be set on the commission’s calendar.

The PUC has set aside its June 11 open meeting for an ERCOT update on its plans to meet summer demand, projected to peak at a record 77.1 GW. (See ERCOT Resource Adequacy Hard Sell After Winter Storm.)

The commission has a number of standing agenda items related to the winter storm and the coronavirus pandemic, including a review of wholesale-indexed retail products, gas-electric coordination, and reviews of a weatherization standards rulemaking, scarcity-pricing mechanism and critical load standards and processes.