At the January 17, 2019 Open Meeting, the Public Utility Commission of Texas (Commission) addressed several highly contested issues, including storage, Operating Reserve Demand Curve, Real-Time Co-optimization, and Marginal Losses. First, in Project No. 48023, Rulemaking to Address the Use of Non-Traditional Technologies in Electric Delivery Service (the Battery Project), dealing with utility ownership of battery storage, the Commission decided to defer further action until Texas Legislature’s regular session concludes. This decision comes after 63 comments were filed with the Commission, expressing widely varying views on whether a transmission and distribution utility within ERCOT may legally own and operate battery storage facilities. The Commission previously submitted through its Scope of Competition Report a request for the Legislature to enact legislation clarifying this legal point.
Don’t miss Chris Reeder’s annual report on the regulatory activities during 2018 at the Public Utility Commission of Texas.
Chris will speak during the Gulf Coast Power Association’s Annual Meeting & Luncheon on Thursday, January 17, 11:00am in Houston, Texas at the Downtown Club at the Houston Center.
For more information or to register visit GCPA’s Houston Luncheon event site.
The biodiesel industry is gathering at the National Biodiesel Board’s National Biodiesel Conference in San Diego starting January 19. With turmoil in the federal Renewable Fuel Standards program and low petroleum prices, the industry will be highlighting the important role biodiesel has to play in lowering carbon in the atmosphere. Biodiesel is commercially available and produces up to 90 percent less carbon emissions than petroleum diesel. Further, many biodiesel technologies are capable of using waste products as the primary input. National carbon reduction goals under the Paris Climate Accord generally are not being met, and in some cases carbon emissions are increasing. Here in the U.S., carbon emissions increased last year, largely based on increased use of transportation fuel given a stronger economy. While it seems that substantial federal action on carbon reduction is not likely until after the 2020 election cycle, there are significant carbon reduction strategies in effect or being implemented in various Canadian provinces and at the Canadian federal level. In the U.S., the primary drivers are carbon cap-and-trade programs in California and Oregon, as well as the Regional Greenhouse Gas Initiative of nine northeastern states. Conference sessions will focus on these programs and the potential for additional similar programs here in the U.S.
The Public Utility Commission of Texas has finalized the recommendations it will include in its upcoming 2019 Report on the Scope of Competition in Electric Markets in Texas to the 86th Texas Legislature, which goes into session January 8, 2019. The Commission voted on the recommendations at its December 20, 2018 meeting; the most significant inclusions involve a recommendation to increase the threshold for the review of mergers and acquisitions of power generation companies from 1% to 10% of installed generation capacity, and a request that the Legislature provide clarity on which entities may own and operate battery storage devices.
Review of Power Generation Mergers and Acquisitions
Under Texas Utilities Code § 39.158, the Commission is required to review mergers and acquisitions of entities if the newly merged companies will offer for sale more than 1% of the total electricity for sale in the state. The Commission is required to approve the merger or acquisition unless the new company exceeds a 20% installed generation capacity limit set by § 39.154. The Commission recommends increasing the threshold for the review of mergers and acquisitions of power generation companies from 1% of installed generation capacity to 10% of installed generation capacity. The Commission did not recommend changing the limit that prevents one company from owning more than 20% of installed generation capacity. Additionally, the Commission requested the Legislature clarify the meaning of the phrase “total electricity for sale,” which denotes the total regional capacity used in this calculation, and clarifying that the review under § 39.158 applies only in a power region open to customer choice.
The Commission reasoned that the current 1% threshold unnecessarily delays numerous transactions that have a negligible likelihood of breaching the 20% limit, noting the number of applications for review of these mergers and acquisitions has increased from five applications in 2015 to 26 in 2018, most of which came at the end of the year. Changing the threshold for review would avoid undue delays, and in effect avoid the regulatory uncertainty and impediments to business that current regulations cause.
Use of Battery Storage in ERCOT
Under Texas Utilities Code § 35.152, electric energy storage that is intended to be used to sell energy or ancillary services at wholesale are classified as generation assets, and the owner or operator is classified as a power generation company. Section 31.002(10) defines power generation company as a person that generates electricity that is intended to be sold at wholesale, does not own a transmission and distribution facility, and does not have a certificated service area. Section 39.105 states a transmission and distribution utility (TDU) may not sell electricity or otherwise participate in the market for electricity except for the purpose of buying electricity to serve its own needs.
These rules surrounding battery storage have been an issue since AEP Texas, a TDU operating in ERCOT, requested to install two utility-scale batteries to address reliability issues in its distribution system. The docket was dismissed by the Commission on grounds there was insufficient information for a decision to be made; the Commission subsequently opened a Project to further evaluate the possibility of an electric utility owning and operating an energy storage device. The argument made by AEP was that a TDU owning and operating a storage device on its system, that does not intend to sell power at wholesale or participate in the electric market, but only intends to support reliability, does not violate existing rules. Opponents argued TDUs are not able to own and operate storage devices, because they would be participating in the wholesale energy market through the charging and discharging process. The comments received in the Project have highlighted these two arguments, and are sharply contrasting.
The Commission is asking the Legislature for clarity on how these rules apply to battery storage, noting many options exist for TDUs, such as: prohibiting a TDU’s involvement with an energy storage device other than to provide transmission and distribution service to it; allowing a TDU to contract with a power generation company for reliability service from an energy storage device; and limiting a TDU’s ownership and operation of an energy storage device in circumstances where the TDU’s ownership and operation of the device would provide the lowest-cost transmission and distribution service.
The Commission is also requesting that the Legislature provide clarity regarding whether electric cooperatives and municipally owned utilities, known as non opt-in entities, may own or operate batteries without registering as a power generation company. Sections 35.151 and 35.152 of the Texas Utilities Code requires an owner or operator of electric energy storage equipment (i.e. batteries) to register as a power generation company; however, electric cooperatives and municipally owned utilities cannot qualify as a power generation company, therefore it could be inferred they are not permitted to own or operate a battery. The Commission believes this would leave opt-in entities “in a precarious position,” and thus requested legislative guidance.
Registration of Retail Electric Brokers
The Commission is recommending the Legislature require retail electric brokers to register with the Commission in a manner similar to retail electric aggregators to ensure customers who use such brokers have adequate consumer protections. Retail electric brokers connect buyers with sellers of electricity, and many non-residential electric customers use brokers as an alternative to developing in-house expertise to negotiate retail electric contracts. Residential customers also use brokers, authorizing these brokers to make electricity contract decisions on the customer’s behalf. Whether a broker represents the customer or retail seller can vary from deal to deal, risking customer confusion and blurring the parties’ responsibilities. The Commission already regulates many market participants and has customer protection rules in place, including requirements that participants demonstrate industry expertise and financial stability. Electric aggregators perform many of the same functions as retail electric brokers and are required to register with the Commission under Texas Utilities Code § 29.353 of the Texas Utilities Code; the Commission believes brokers should be regulated as well to protect customers.
Electric Industry Security
The Commission is recommending the Legislature establish a collaborative cybersecurity outreach program to ensure the safety and reliability of electric service. The Commission envisions this program including regular meetings with utilities to identify best practices and emerging threats, coordination of workforce training and security exercises, and related research. Members introduced bills addressing these issues during the 2017 legislative session, but none were enacted.
Under Texas Utilities Code § 15.024(d), if a person that the Commission issues a Notice of Violation against does not respond within 20 days, the Commission considers the person to be in default, and § 15.024(f) requires the Executive Director of the Commission to set a hearing at the State Office of Administrative Hearings; after the hearing the violation is decided by the Commission. The Commission recommends § 15.024(f) be amended to remove the hearing requirement to allow default violations to move more quickly.
FERC recently issued a Notice of Proposed Rulemaking (NOPR) that would eliminate the need for electric power sellers with market-based rate authority who sell into certain independent system operator (ISO) and regional transmission organization (RTO) capacity markets to file two screens—the pivotal supplier screen and wholesale market-share screen—with FERC, which would simplify the horizontal market power analysis for sellers in those markets.
This proposed modification of the horizontal market power analysis would apply in any RTO/ISO market with RTO/ISO-administered energy, ancillary services, and capacity markets subject to FERC-approved RTO/ISO monitoring and mitigation. For RTOs and ISOs that do not have an RTO/ISO-administered capacity market, market-based rate sellers would be relieved of the requirement to submit indicative screens if their market-based rate authority is limited to sales of energy and/or ancillary services.
The NOPR, announced at FERC’s December 20, 2018 meeting, is a follow up to FERC’s Order No. 816 NOPR, and is aimed at relieving the filing burden on market-based rate sellers in RTO/ISO markets without compromising FERC’s ability to prevent the potential exercise of market power in those markets. If the NOPR were implemented, indicative screen failures in organized wholesale power markets where the grid operator does not administer a capacity market would no longer be presumed to be adequately addressed by the market monitoring and mitigation in those markets. If a screen failure were to occur, market-based sellers in those markets would be able to submit a delivered-price test or other evidence; sellers could also propose other mitigation or capacity sales. All market-based sellers would still be required to file a vertical market power analysis and an asset appendix which provides comprehensive information relevant to determining a seller’s market power. The appendix would be required to include generators owned or controlled by the seller and its affiliates, long-term firm power purchase agreements, electric transmission assets, and natural gas facilities.
The NOPR would simplify the horizontal market power analysis electric power sellers are required to complete to obtain market-based rate authority. The NOPR would apply to sellers doing business in ISO-NE, MISO, NYISO, and PJM, which all have a capacity market that includes market monitoring and mitigation. Entities in Cal-ISO and SPP would still need to file the screens, because the NOPR would not apply to them given the lack of central capacity market with monitoring and mitigation. Sellers in ERCOT would remain unaffected because the ERCOT market is not subject to FERC’s rules.
The screens this NOPR would eliminate originated in Order No. 816 NOPR, which was issued in 2009, when ISO/RTO capacity markets had just begun operating. The three pivotal supplier test and market share screen (with a 20% threshold) serve as cross checks on each other to determine whether sellers may have market power and whether they should be more closely examined. If a seller passes both screens, a rebuttable presumption the seller did not possess horizontal market power is established. If a seller fails either screen, that failure establishes a rebuttable presumption that the seller has market power; the seller then has a chance to present evidence through a delivered price test analysis or other evidence to show the seller does not have market power, despite the screen failure.
No other market-based rate regulatory reporting requirements would be affected by the proposed order.
Comments on this NOPR are due 45 days after publication in the Federal Register, and may be filed in Docket No. RM19-2-000, Refinements to Horizontal Market Power Analysis for Sellers in Certain Regional Transmission Organization and Independent System Operator Markets.
Husch Blackwell partners with the Texas Renewable Energy Industries Alliance (TREIA) once again to present a five-part webinar series focused on the Texas renewable energy industry. The final installment in the New Directions webinar series will discuss the upcoming 2019 regular session of the Texas Legislature and what’s in store for renewable energy.
Register for the Texas Legislative Preview webinar to be held on Monday, December 17, 2018 at 12:00pm – 1:00pm CST.
If you missed the previous installments of the New Directions webinar series, the recording for each installment can be found here or you can download the podcast.
In the latest of the eight-part Renewable Energy Projects Webinar Series, Husch Blackwell’s Chris Reeder and Linda Walsh will discuss the federal and state regulatory approvals often required for typical wind and solar energy projects. They will address the circumstances under which such regulatory approvals are required and the timing needed to apply for and receive the approvals. In addition, they will highlight the issues that commonly arise throughout the approval process.
Register here for the webinar on December 14, 2018, 12:00pm – 1:00pm CST.
If you missed previous installments of the Renewable Energy Projects Webinar Series, a description and link to the recording for each previous installment is listed below.
#1 Transaction Overview – In this first installment of the series, Husch Blackwell attorneys walk through the main stages of a development project at a high level. After a wild end to 2017 and a new tax code, the renewable energy industry adjusted for 2018 and beyond. Margins narrowed and companies searched for efficient, effective ways to cut costs. Listen now.
#2 EPC, O&M and Asset Management Agreements – In the second installment of the series, Husch Blackwell attorneys focus on best practices with respect to Engineering Procurement and Construction (“EPC”) Contracts, Operations and Maintenance (“O&M”) Agreements and Asset Management Agreements. The conversation provides an overview of key agreement provisions and how they can protect against recurrent issues as well as special considerations for negotiating and administering these agreements. Listen now.
#3 Transaction Structuring – HB attorneys discuss how renewable energy project developers can best position themselves during a project’s acquisition and development phases for a successful financing process. Presenters summarize the current PTC and ITC landscape and key qualification components, as well as examine the commercial and legal considerations a developer must keep in mind to ensure that the development and construction of its project stays on schedule and eligible for 100% of the value of available tax credits. Listen now.
#4 Site Assembly – In the fourth installment, HB attorneys discuss best practices for early- and mid-stage site control efforts that will save time and money in later stages, as well as how to avoid common pitfalls. Presenters provide a practical checklist and other tools that can be used during site development to help ensure that due diligence efforts at financing or sale of the project go smoothly. Listen now.
#5 Project Permitting – Husch Blackwell Environmental attorneys discuss the federal, state and local environmental and development permits required for typical wind and solar energy projects. They address the circumstances that trigger the need for a permit, the studies and assessments that are generally performed to evaluate the applicability of permitting requirements, and the timing to apply for and obtain permits. Listen now.
#6 Project Acquisition and Disposition – HB attorneys discuss current issues that arise in the acquisition and disposition of renewable energy projects and how to increase efficiencies throughout the life of the transaction. They address common issues that typically require significant negotiation between the parties, as well as novel issues that require thoughtful consideration, planning and negotiation. Listen now.
#8 – Purchase Power Agreements (Coming in January 2019)
Husch Blackwell’s Daniel Fanning and Coty Hopinks-Baul provide interesting insights in the latest post from the CWA Series on whether or not a permit is required for discharges to groundwater under the Clean Water Act.
Read more here.
Ali Nelson, Senior Counsel, was featured in Rock Products October edition discussing the litigation surrounding the regulatory definition of ‘Waters of the United States’ and the recent court decisions leading to the application of different definitions in different states.
In the United States, the largest category for water consumption is electric power generation. Similarly, the largest demand for electricity is water extraction and distribution (Department of Energy). This strong interdependence drives great opportunity in the Energy-Water Nexus (EWN) to impact both energy and water consumption.
As a proud supporter of the Midwest Energy Research Consortium (M-WERC), we are pleased to advertise their upcoming Energy Water Nexus Technical Conference, being held this Friday, November 16. It is a unique conference specifically designed with an eye towards industrial water and energy users, and will focus on key crosscutting technologies that drive both energy and water efficiency and affordability in manufacturing processes and utility operations.
The conference will feature keynote addresses by Weston Berg from the American Council for an Energy Efficient Economy and Sara Beaini from the Energy Power Research Institute. Panel topics will include:
- The Policy Context of the Energy Water Nexus in Manufacturing;
- Energy and water savings created by membrane and AC drive technology in the manufacturing process and the barriers to wide-adoption;
- Fostering an Energy Water Nexus focus within a company: Case Studies.
For more information or to register, please click here.