At the conclusion of a hotly contested Texas 88th Regular Legislative Session, the Texas Legislature has passed, and Governor Abbott has signed into law, two major pieces of legislation that could have substantial impacts on the Texas electric grid and energy market.
The two bills, Senate Bill (“SB”) 2627, and House Bill (“HB”) 1500, comprise the second major attempt by the Texas Legislature to shore up the state’s power sector in the wake of the rolling blackouts that occurred during Winter Storm Uri in February 2021. That effort began with the passage of SB 3 shortly after the winter storm, which, among other reforms, required the Public Utility Commission of Texas (“PUCT”) to implement stringent weatherization requirements for power plants and utilities, and bolstered communications between the state’s natural gas and electric systems.
Since the passage of SB 3, the PUCT and the Electric Reliability Council of Texas (“ERCOT”) have debated a series of additional reforms to the energy market intended to improve grid reliability by providing more stable revenue streams to gas generation and increasing the amount of operating reserves available to ERCOT during emergency conditions. To that end, in January 2023, the PUCT proposed a novel “Performance Credit Mechanism” or “PCM.” The PCM construct would provide an additional revenue stream to generators that commit in advance to being available to provide power during hours of highest reliability risk. If implemented, the PCM would constitute a dramatic change in the underlying structure of the ERCOT market, which has historically compensated generators only for the power that is actually consumed by end-users. This controversial proposal generated significant legislative feedback that in part led to the adoption of HB 1500 and SB 2627. Some of the most significant aspects of these new laws are summarized here.
