Texas Energy Landscape Changing: New PUCT Commissioners, New Statutes, New Direction

Following the historic Winter Storm Uri that slammed the Texas power grid, leaving over 4 million Texas customers (including the author of this blog post) without power, and the resignation of all three of its commissioners, the Public Utility Commission of Texas (“PUCT” or “Commission”) will have a completely new cast of appointees. With eyes towards addressing the financial and physical wreckage from the storm, Governor Greg Abbott has selected his first two of three nominations for commissioners to be appointed to the state agency that regulates electricity, water, and telecommunications utilities in Texas.

His appointees, if confirmed by the Texas Senate, “will have the responsibility of charting a new and fresh course for the agency,” Abbott said. “Texans deserve to have trust and confidence in the Public Utility Commission, and this action is one of many steps that will be taken to achieve that goal.”

The previous PUCT commissioners made several controversial decisions just before the sportlight was on them for Winter Storm Uri. Chairman Deanne Walker spearheaded the dissolution of the agency’s Oversight and Enforcement Division (“O&E”) and fired its director. This decision made many people question how the agency would go about investigating and addressing violations. Further, the chairman led the agency to drop its contract with the Texas Reliability Entity (“TRE”) – the reliability monitor that researches violations of statutes, rules, and ERCOT protocols – because she did not believe its oversight of the electricity industry was worth the price of the contract.

These decisions did not age well after the winter storms, with many arguing that the industry could have used the foresight of the O&E Division and the TRE. With the importance of ensuring reliability of the Texas grid and oversight of market participants, these past decisions will surely be addressed by the incoming Commissioners.

Abbott’s PUCT Commissioner Selections

Abbott’s first pick is moving quickly through Senate confirmation. On April 1, the governor selected Will McAdams as the first of three selections for PUCT commissioners. McAdams is a long-time legislative staff member and currently the president of the Associated Builders and Contractors of Texas.

At McAdams’ Senate confirmation hearing, he testified that had he been on the commission during the Winter Storm Uri, he would not have kept in place a controversial, $9,000-per-megawatt hour price cap on wholesale power for about 32 hours on Feb. 18-19. However, he admitted that he does not know what all information from the Electric Reliability Council of Texas (“ERCOT”) the PUCT may have had before them during the crisis. Lt. Gov. Dan Patrick has fought with Abbott and the House over the $16 billion in charges that many have argued were wrongfully accrued during the February outages. McAdams’ position is a notable shift from the previous chairman’s view that the high cap was necessary for grid stability.

McAdams was unanimously recommended for appointment, sending the decision to the full Senate floor for final confirmation.

McAdams has spoken of striking a balance between renewable energy and fossil fuels. He has called wind and solar “absolutely valuable resources,” but that to whatever extent those are not available, the PUCT should “firm that up” with “dispatchable forms of generation,” such as gas, coal and nuclear.

McAdams has also suggested providing securitization or low-interest bond financing to rural electric co-ops that are financially insolvent from the enormous wholesale power bills accumulated during the winter storms.

Later, on Monday, April 12, the governor tapped 38-year-old finance expert, Peter Lake, as the next chairman of the Commission, whose term would run through September 1, 2023. Lake currently chairs the Texas Water Development Board, the agency that helps develop water resources in the state. He holds an undergraduate degree from the University of Chicago and a master of business administration degree from Stanford University. He also has experience trading futures and derivatives in the Chicago Mercantile Exchange and financial leadership positions at a small oil company.

“I am confident he will bring a fresh perspective and trustworthy leadership to the PUCT,” Abbott said of Lake. “Peter’s expertise in the Texas energy industry and business management will make him an asset to the agency.”

These new recommended commissioners would, alone, be a huge shift in direction for the PUCT. However, the new commissioners will be inheriting an agency that will undoubtedly be playing by different rules than before Winter Storm Uri, with the 87th Texas Legislature in full swing.

PUCT-Related Bills Moving Quickly through Texas Legislature

Both houses of the Texas Legislature have been vigorously addressing the failures of the Texas grid during Winter Storm Uri that effected virtually every district in the state. Accordingly, an unprecedented number of electric related bills have been filed (around 400 relating to energy or utility matters).

Taking center stage is Senate Bill 3 (“SB 3”), which has passed through the Texas Senate and onto the House. SB 3, filed by Republican state Sen. Charles, Schwertner of Georgetown, would require all power generators, transmission lines, natural gas facilities and pipelines to winterize their facilities, protecting them from extreme weather.

SB 3 would also ban indexed retail electric plans, which feature rates that wildly fluctuate based on the cost of wholesale electricity. In periods of high demand, such as the heat of summer or the cold of Winter Storm Uri, wholesale electricity can become astronomically more expensive.

SB 3 features an amendment that would give the PUCT and the Texas Railroad Commission – the state agency that regulates the oil and gas industry – six months to draft weatherization rules, protecting energy facilities from extreme weather. SB 3 would also require these agencies to conduct on-site compliance inspections.

Another provision of SB 3 would shift some financial burden of ancillary services to renewable energy producers. This measure is based on the argument that the fluctuation in the availability of renewable resources requires ERCOT to secure more ancillary services than coal, gas, or nuclear‑based generators. Renewable industry groups, such as the Advanced Power Alliance, have battled this proposal, calling it an “unnecessary discriminatory policy.”

Aside from SB 3, there are several other Texas energy-related bills moving through the Texas Legislature this session, outlined below:

  • SB 2142 would mandate repricing resulting from the 32-hour, $9,000-per-megawatt hour price cap on wholesale power on Feb. 18-19, during Winter Storm Uri.
  • HB 11 and HB 14 would require winterization of generation facilities and gas pipelines.
  • HB 12 would create a statewide emergency disaster alert system, informing Texans of severe weather events.
  • SB 415 and HB 1672 would allow transmission and distribution utilities (“TDUs”) to use battery storage for reliability purposes.

Several bills aim to change the organization of the PUCT and the number of commissioners appointed. SB 2154 would expand the number of Commissioners at the PUC from three to five, all would have to be Texas residents, and three of the five (including the chairman) would have to be “well informed and qualified in the field of public utilities and utility regulation.” The other two would need five years’ experience running a business or government, or practicing as a lawyer, CPA, or professional engineer.

Below is a list of other bills that would affect PUCT appointments and governance are:

  • House Bills 10, 2434, 2467, 2586, 3062, 3093, 3473, and 3487, and Senate Bill 2.

PUCT Rulemaking Proceedings to Adjust to New Legislation, Subject to Industry Comment

Once the dust settles from the Legislature and new PUCT commissioners are confirmed, the PUCT will have to implement newly enacted legislation and develop conforming Commission rules. Every decision made and new rule proposed will come under heavy scrutiny of the public, which has lost its trust in the agency.  Regulated entities and various interest groups will be jockeying for position as they battle out long, contentious rulemaking proceedings and policy debates.

The Triple Bottom Line: While we do not yet know the playing field that the new commissioners will inherit, nor do we know their predispositions, we do know that there will be huge changes to the PUCT and Texas energy regulation. Regardless of your position or concerns, getting involved early and often in PUCT proceedings can help shape the regulatory landscape with your interests in mind.

Duane Morris has an active Energy, ESG, and Sustainability Team to help organizations and individuals plan, respond to, and execute on Energy, Sustainability and ESG planning and initiatives within their own space.  Further, we have attorneys with broad and extensive experience before the Public Utility Commission of Texas, including participation in contested matters as well as rulemaking proceedings. We would be happy to discuss your potential energy-related needs with you.  Contact your Duane Morris attorney for more information.

If you have any questions about this post, please contact Patrick Dinnin, Brad Thompson, Jacob Arechiga, or the attorney in the firm with whom you are regularly in contact.