The most recent Texas biennial legislative session ended on May 29, 2023. Before its close, legislators introduced a series of energy-related bills aimed at shaping the state’s energy landscape and addressing various environmental, economic, and regulatory concerns. These bills were expected to have a significant impact on businesses operating in Texas, particularly renewable developers and investors. This article discusses those energy-related bills passed by the Texas legislature and which await the governor’s signature. It also addresses two bills that did not pass but, because of their importance, may be re-introduced in a future legislative session.
Relevant Bills that Passed
Given the challenges posed by extreme weather events, bills addressing grid modernization and resiliency gained prominence in the legislative session. These bills, including House Bill 1500 and Senate Bill 2627, both of which await the governor’s approval signature by the veto deadline of June 18, 2023, (i) aim to improve the reliability and resilience of Texas’ energy infrastructure, and (ii) have implications for businesses involved in grid infrastructure, energy storage, and related technologies.
House Bill 1500 addresses the continuation and functions of the Public Utility Commission of Texas (PUC) and the Office of Public Utility Counsel. (Every twelve years all state agencies go through a performance review by the Texas Sunset Advisory Commission.) The upcoming law includes a number of administrative changes to PUC’s operations, including requiring public participation as an agenda item for each regular PUC meeting and written instruction, rather than verbal instruction, to ERCOT to take an official action.
Once signed into law, House Bill 1500 will impose many revisions to ERCOT’s wholesale market operations, such as setting a $1 billion net cost cap on the performance credit mechanism (PCM). This provision is intended to create guardrails on potential market changes implemented by the PUC. The law will also include revisions to voluntary mitigation plans by increasing the penalty for market power violations from $25,000 per violation to $1 million. The law will eliminate the existing financial renewable energy credits program but directs ERCOT to develop a voluntary renewable energy credits program.
Under the upcoming law, municipally owned utilities, electric cooperatives, power generation companies and exempt wholesale generators, including renewable IPPs, will be required to provide ERCOT a notice of each planned or unplanned service interruption within a reasonable time after the interruption has impacted generation availability. The law will broaden the use of temporary emergency generation for significant power outages expected to last more than 6 hours, those that could pose a threat to public health or safety, those that are in response to a load-shed event, or those that are at the direction of the Texas Division of Emergency Management.
Senate Bill 2627 creates the Texas Energy Fund for ERCOT power region loans and allocates $10 billion for dispatchable generation construction and improvements in ERCOT (excluding electric energy storage facilities), as well as for backup power generation in ERCOT, and for non-ERCOT utilities. Non-ERCOT utilities may use these funds for facility modernization, weatherization or resiliency improvements.
Senate Bill 2627 includes specific provisions regarding who qualifies for these loans including facilities with at least 100 MW, for up to 60 percent of the cost of the facility, and other terms of the loans. The law will require the PUC to evaluate a loan application based on the applicant’s quality of services and management, efficiency of operations, history of operations in Texas and other factors. Loans will have a term of 20 years and an interest rate of 3 percent. The bill, once signed into law, allows for completion bonus grants, capping a grant at $120,000/MW for a facility interconnected by June 1, 2026, or $80,000/MW for a facility interconnected by June 1, 2028, to incentivize rapid response to the grant program.
The fund will be overseen by the Texas Energy Fund Advisory Committee, which will consist of three Senators and three Representatives. Funds may also be used for the Texas Power Promise program, which intends to facilitate and provide funding for backup power for necessary and emergency services, such as food, fuel, medical care, senior living centers, police departments, fire stations and other emergency services.
Relevant Bills that did not Pass
Not every energy-related bill introduced by legislators during the last legislative session will become law. For example, House Bill 3707 and Senate Bill 624, which proposed onerous permitting requirements for wind and solar renewable energy facilities, did not make it out of the legislature. These two bills, if passed, were aimed at increasing regulation and oversight in the renewable energy sector, which has been growing rapidly in Texas. These bills could be reintroduced in a future biennial legislative session, or a special session called by the governor, as long as the topic is designated by the governor.
One of the key provisions in these bills was the requirement for renewable energy facilities to obtain a permit from the Texas Commission on Environmental Quality. This permitting process would have involved submitting detailed plans, conducting various studies, and complying with stringent regulations, all of which could have significantly delayed, and increased the cost of, the development of renewable energy projects.
In addition, the proposed but not passed legislation included provisions that gave local governments more authority in approving or denying permits for renewable energy projects. Had these bills passed, this shift in power could have led to increased influence of local opposition and potential roadblocks for developers, making it more challenging to develop wind and solar projects in certain areas.
Furthermore, H.B. 3707 and S.B. 624 introduced new transmission fees on renewable energy facilities. The bills proposed imposing a fee on renewable energy generators for use of the state’s transmission grid to deliver electricity. If these bills had passed, this additional financial burden could have potentially hindered the economic viability of renewable energy projects and discouraged further investment in the sector.
Based on those bills that passed—and, perhaps more importantly, those that did not—Texas legislators signaled that the state is more concerned about protecting and improving its current energy grid, rather than placing unnecessary burdens on the renewable energy industry. Perhaps these legislators were concerned that such measures would have slowed the growth of renewable energy in Texas and impeded the state’s progress towards cleaner and more sustainable energy sources. Even so, it is expected that energy-related legislation will continue to receive significant attention from Texas legislators.