Lawmakers criticize proposed regulations that would allow natural gas suppliers to avoid critical unit designation.


Proposed Texas Railroad Commission regulations that would allow natural gas suppliers to opt-out of critical unit designation requirements has drawn bipartisan criticism from state lawmakers.

The contentious issue, which came up during a September 28 meeting in Austin of the Texas Senate Business and Commerce Committee, signals a potentially bumpy road ahead as policymakers continue grappling with reforms in the aftermath of February’s power outages. During the committee meeting, lawmakers quizzed regulatory and industry officials about ongoing energy reform efforts — including the implementation of new energy reform laws. Public Utility Commission chair Peter Lake, ERCOT interim director Brad Jones and others testified.

However, it was comments made by Railroad Commission executive director Wei Wang that specifically drew lawmakers’ ire. Speaking about his agency’s implementation of recent legislation, Wang confirmed that proposed enacting rules would allow gas suppliers to avoid new critical unit requirements by paying a $150 fee. Lawmakers had included the critical unit designation requirements in newly adopted Senate Bill 3, an omnibus reform bill, as a means of guarding against future power outages. 

“This part of the conversation is disturbing … this is a glitch,” said Republican Sen. Lois Kolkorst, R-Brenham, who described the agency’s proposed opt-out rule as a “loop hole” and an “Achilles heel” in the state’s plans to improve grid reliability.

Sen. Jose Menendez, D-San Antonio, said the Texas Legislature might consider filing a new bill during the ongoing special session if the agency fails to close the opt-out provision.  State Sen. John Whitmire, D-Houston, told Wang he had “unified this body” because both Republicans and Democrats on the panel strenuously opposed the proposed rule.

Railroad Commission Executive Director Wei Wang

Weatherizing gas facilities can be costly — according to some estimates, up to $50,000 for new and existing wellheads — and lawmakers on the Business and Commerce committee noted that some operators may simply chose to opt out of receiving designation as a critical unit and pay $150 in an attempt to avoid the greater weatherization expense.  However, lawmakers during the meeting also acknowledged that the proposed opt-out rule follows the letter of Senate Bill 3.

Wang said the critical unit designation rules have not yet been finalized and that he understood the lawmakers’ concerns and that the agency would take them under consideration.

Reform Efforts

Beyond quizzing state officials about their implementation of energy reform legislation, lawmakers also questioned witnesses about more far-reaching energy reform proposals. Among these were proposed changes to rules governing an ERCOT mechanism that adds to wholesale energy prices, a proposed reduction in the offer cap in the wholesale power market and proposed modifications to the ancillary services market.

PUC Chair Lake confirmed the agency has created a rulemaking process to reduce the offer cap in the state’s wholesale power market from $9,000 per megawatt hour to $4,500. ERCOT interim CEO Jones cited draft recommendations relating to winter storm preparations issued recently by FERC and NERC staff. He said his organization was working to implement each of them. He also said ERCOT is acquiring more day-ahead power reserves to help ensure reliability.

Sen. Charles Schwertner

Business and Commerce Chair Charles Schwertner floated his own reform ideas, including the possibility of creating a low-interest loan program to modernize dispatchable resources and the possibility of creating a performance-based grant program to incentivize new dispatchable generation. 

Comments by Market Participants

Officials from several generation companies also testified at the September 28 committee hearing, including representatives of Vistra Corp, NRG, Calpine, WattBridge and the Lower Colorado River Authority. 

Amanda Frazier, vice president of the Vistra Corp, pushed back against proposals floated by Berkshire Hathaway and some other corporate interests that would allow generation companies to receive multi-billion-dollar subsidies to build dispatchable energy plants. She said such subsidies would undermine ERCOT’s existing free-market structure and — counterproductively — contribute to more generation shortfalls over time. Instead, Frazier proposed other ideas, such as providing new incentives for generators that have their own on-site fuel storage. 

WattBridge president Mike Alvarado said his company’s business model takes advantage of markets with “intermittency challenges” and that dramatic changes to the ERCOT market could undermine its investments. An official with the Lower Colorado River Authority suggested a number of reforms, including the addition of a dispatchable reliability service to ERCOT’s ancillary services menu, and the creation of a firm fuel service.

Bill Barnes, director of Regulatory Affairs at NRG, said his company this week would unveil detailed market redesign recommendations that would call upon the PUC to set capacity requirements. Although Barnes insisted his company was not proposing a centralized “capacity market,” the company’s proposal would require Load Serving Entities — companies like retail electric provides, electric cooperatives and municipally owned utilities — to contract for a share of mandated capacity requirements. Failure to do so would result in monetary penalties, under the plan.

“This … is intended to allow each, individual LSE to address their share of the requirements,” said Barnes. 

– R.A. Dyer