Agency Highlights

United States Environmental Protection Agency (“EPA”)

EPA’s Revised WOTUS Rule. EPA faced a range of options after the Supreme Court’s ruling in Sackett v. EPA narrowed the definition of the “waters of the United States” (“WOTUS”). EPA’s initial approach was to keep the agency’s options open in the wake of the May 25, 2023 decision, which narrowly defined wetlands subject to regulation as those indistinguishable from adjacent jurisdictional waterbodies based on a relatively permanent surface water connection. The ruling overturned decades of high court precedent and the broad provisions of the Biden Administration’s 2023 WOTUS rule. EPA has since decided to make amendments to the 2023 WOTUS rule that would bring the rule in line with the Supreme Court’s decision in Sackett. The new final definition of WOTUS was sent to the White House Office of Management and Budget (“OMB”) in July. It will skip the notice-and-comment step of the rulemaking process for “good cause,” as the Administrative Procedure Act allows in instances where it would be impracticable, unnecessary, or contrary to the public interest. EPA Water Chief, Radhika Fox, has stated that the new final definition will remove the now overturned significant nexus test and address the narrower adjacency definition provided by Sackett. Such final rule has been published in the Federal Register with an effective date of September 8, 2023 and is available at: https://www.federalregister.gov/documents/2023/09/08/2023-18929/revised-definition-of-waters-of-the-united-states-conforming.

EPA Proceeds with CWA Section 404 Authority Assumption by States. Despite ongoing uncertainty surrounding the definition of WOTUS in the wake of the Supreme Court’s ruling in Sackett, EPA has moved forward with issuing a new proposal regarding state assumption of Clean Water Act (“CWA”) Section 404 dredge-and-fill permitting authority. The proposed CWA Section 404 assumption proposal would facilitate states’ assumption of the permitting program by making procedures and requirements more transparent and also allowing flexibility in how requirements are met in an effort to address perceived barriers to assumption presented by current policies. Presently, EPA and the Army Corps of Engineers (the “Corps”) implement CWA Section 404 permitting across a majority of the country. Only three states have authorized Section 404 permitting programs—Florida, Michigan, and New Jersey—and Florida’s permitting authority is currently the subject of ongoing litigation. In light of such litigation, the proposed rule has raised concerns about how EPA will go about approving state permitting programs. The proposed rule would also require states assuming permitting authority to adhere to the federal definition of WOTUS, which had been undefined, pending revision to the 2023 WOTUS rule to account for the Sackett ruling. Without final WOTUS guidance, there was much uncertainty for states, as well as the Corps, which has paused approving jurisdictional determinations for new dredge-and-fill permits pending such guidance from EPA.

EPA Revised CWA Section 401 Certification Rule. OMB has received the final revised CWA Section 401 certification rule for review, which is expected to roll back previous reforms that narrowed states’ ability to block or change projects through the certification process. CWA Section 401 allows states to review federally permitted or licensed projects to certify that they will not impede state-level water standards. The proposed final rule would allow states to object to any activity related to a project seen as impacting water quality rather than only direct pollution discharges. It would also broaden cases where conditions can be imposed on a pending project with limited EPA oversight. The new rule’s measures would also likely be applied retroactively to certification requests submitted before the rule goes into effect.

David Uhlmann Confirmed as EPA Enforcement Chief. The Senate confirmed David Uhlmann to serve as EPA’s Enforcement chief on July 20, 2023. He will formally serve as Assistant Administrator for the Office of Enforcement & Compliance Assurance (“OECA”). Ulmann’s confirmation comes more than two years after President Biden first nominated him for the position. Since being nominated, Uhlmann has served as Principal Deputy Administrator of OECA, and during such time, he sought common ground with conservatives and emphasized the need for nonpartisan enforcement that would be consistent across administrations. Uhlmann has committed to return EPA’s enforcement numbers to 2019 levels.

EPA to Address Lead in Drinking Water. EPA has been called on by the Office of the Inspector General (“OIG”) to immediately notify communities when it detects lead levels above its regulatory action levels in drinking water, as its failure to do so could create a significant public health risk. The requirement to notify the public of lead exceedances stems from the 2021 Lead and Copper Rule Revision (“LCRR”), which has a compliance date of October 26, 2024. Therefore, immediate notification is not currently required. However, 2016 amendments to the Safe Drinking Water Act (“SDWA”) require EPA to provide notice of an exceedance as soon as practicable with a maximum delay of 24 hours. Additional notification requirements are expected to come with the upcoming Lead and Copper Rule Improvements (“LCRI”). EPA submission of the proposed LCRI to OMB has been delayed, but the final rule is still expected by its original target date of October 16, 2024.

EPA’s Cyber Security Mandate Under Review. The Government Accountability Office (“GAO”) has begun an examination of a recent EPA policy that requires states to consider public water systems’ (“PWSs”) cybersecurity in their SDWA reviews, principally that sanitary surveys include reviews of cyber preparedness. The new SDWA policy was launched in a March memorandum, and GAO has expressed interest in talking with PWSs who have since completed their sanitary surveys. Several groups representing PWSs have opposed the policy, challenging sanitary surveys as the appropriate mechanism to ensure the water sector has adequate cyber protections in place. These groups responded to the memorandum, urging EPA to clarify its requirements and scope. Concerns have also been raised that EPA must ensure states protect any potentially sensitive cybersecurity data utilities provide for the sanitary surveys. Following GAO’s examination, proceedings in State of Missouri, et al. v. EPA have frozen further implementation of the policy pending a final ruling on its legality, with the possibility for EPA to make changes to the policy to address the claims brought against it.

EPA Proposes Changes to Greenhouse Gas Reporting. On July 6, 2023, EPA issued proposed amendments to the reporting requirements under subpart W of the Greenhouse Gas Reporting Program to improve the accuracy of reported greenhouse gas (“GHG”) emissions. The rule would include updated calculation methodologies and reporting requirements and would add new emissions sources, referred to as “other large release events” to capture abnormal emission events that are not accurately accounted for under the existing methods, as well as clarify the existing rule requirements to improve understanding. These amendments are intended to address gaps in the total methane emissions reported by facilities and are expected to reduce methane from covered sources by 87 percent below 2005 levels. The revisions are proposed to be effective January 1, 2025. Comments will be accepted for 60 days after publication in the Federal Register and a separate proposed rule relating to implementation of the waste emissions charge is expected in the fall of 2023.

EPA Aims PFAS Regulations at Air Emissions Reporting. On July 25, 2023, EPA announced proposed revisions to the federal air emissions reporting requirements to require facilities to report PFAS as part of its PFAS Strategic Roadmap. Hurdles to the rulemaking include that PFAS are not yet designated as “hazardous air pollutants” (“HAPs”) and there are no health benchmarks for the inhalation toxicity of PFAS compounds. However, EPA intends to move forward with the rulemaking, having determined that point source emissions into air can affect drinking water quality. The proposed revisions would not require facilities to measure PFAS emissions if measurements were not already available, but would require facilities to use PFAS source measurements for annual emissions reporting when available. The reporting threshold would be set at 0.05 tons per year. Comments will be accepted for 70 days after publication in the Federal Register.

Affirmative Defense Emission Waivers banned for Emergency Scenarios for Title V Air Permits. Historically, facilities operating under a Title V permit were shielded from civil liability during a malfunction or other emergency resulting in excess releases of air pollution under an “emergency defense waiver,” if the permittee provided evidence that the event was unavoidable with reasonable maintenance. However, earlier this year EPA determined that this waiver was inconsistent with the enforcement structure of the Clean Air Act (“CAA”) and began a highly controversial rulemaking process to ban this waiver. After significant discussion with industry leaders, the final rule was published on July 21, 2023 and is expected to face significant challenges from those operating under a Title V permit as many assert that EPA lacked statutory authority to enact this rule.

Public Utility Commission of Texas (“PUC”)

PUC Finalizes Cut in Oncor Electric Delivery Company LLC (“Oncor”) Rate Request. On August 24, 2023, the PUC cut Oncor’s annual revenues by $13 million – or roughly 0.2 percent. In a rate case filed in May 2022, Oncor initially sought a $251 million revenue increase, or 4.5 percent over its 2021 test year revenues of $5,560,081,218. The PUC Administrative Law Judge (“ALJ”) hearing the case rejected that proposal with an initial Proposal for Decision (“PFD”) adopted on April 6, 2023, and then the PUC reversed several findings in its Order on Rehearing adopted on June 30, 2023. During a vote on August 24, 2023, the PUC declined to extend the timeline for further consideration of the case.

As a result of the PUC’s decision, Oncor has had its initial rate request slashed by more than a quarter-billion dollars. In addition, despite the utility’s revenues remaining nearly unchanged under the order, residential customers nonetheless will see a bill increase because of the approved class cost-allocation methodology. More specifically, an average residential customer would have experienced a $7.22 monthly increase under the company’s filed rate case, and Oncor would have benefited from an 11.2 percent increase in residential class revenues. Under the adopted Order on Rehearing, an average residential customer will experience a $3.10 increase in monthly bills, and the company will benefit from a 6.1 percent increase in residential class revenues.

CenterPoint Energy Houston Electric (“CenterPoint”) Temporary Emergency Electric Energy Facilities (“TEEEF”) Rider. CenterPoint filed an application to amend its TEEEF Rider requesting a revenue requirement of $187,875,401. This is a $148.9 million increase to the TEEEF Rider CenterPoint sought in its last Distribution Cost Recovery Factor and would result in a cost of $3.24 per month for the average residential customer.

CenterPoint requested interim rates related to its requested TEEEF Rider effective September 1, 2023. Although all intervening parties opposed the request, the ALJ granted CenterPoint’s request after the issue went to hearing. Discovery related to the TEEEF request is ongoing. We will report more as the docket proceeds. More information concerning CenterPoint’s TEEEF request can be found on the PUC Interchange under Docket No. 54830.

CenterPoint Distribution Cost Recovery Factor (“DCRF”). In its April 5, 2023 DCRF Application, CenterPoint sought an $84.6 million increase to its DCRF. The parties subsequently agreed to a black box reduction of $15 million. The Stipulation and Settlement Agreement and Proposed Order, filed on July 14 and August 28, respectively, reflect this reduction. On September 14, 2023, PUC consented to and adopted this Order. More information can be found on the PUC Interchange under Docket No. 54825.

Oncor Electric Delivery Company LLC (“Oncor”) DCRF. Oncor filed an application to amend its DCRF seeking to increase its distribution revenues by $152.78 million. Intervening parties disputed several investment recovery requests and recommended offsets totaling approximately $34 million. Nevertheless, Oncor declined to settle, and the parties have since conducted a “paper hearing” on the application. Briefing concluded on September 5, 2023 and the PUC ALJ will likely issue a proposed order prior to the September 28 PUC Open Meeting. More information can be found on the PUC Interchange under Docket No. 55190.

PUC Rulemaking Update. PUC Staff’s current rulemaking calendar for 2023 can be found under Docket No. 54455. As of August 3, 2023, the following projects are being prioritized:

• Project No. 55250 – Transmission and Distribution System Resiliency Plans
• Project No. 55153 – Review of §22.52
• Project No. 54589 – Rule Review of Chapter 26
• Project No. 54932 – Review of §24.101, Water Rate Appeals
• Project No. 53924 – Water and Sewer Utility Rates after Acquisition
• Project No. 53404 – Power Restoration Facilities and Energy Storage Resources for Reliability
• Project No. 52059 – Review of PUC’s Filing Requirements
• Project No. 55182 – Circuit Segmentation Study
• Project No. 54585 – Emergency Pricing Program
• TBD – Renewal Energy Credit Program

• Other rulemaking projects that are being prioritized but do not yet have a determined schedule include:
• Project No. 54233 – Technical Requirements and Interconnection Processes for Distributed Energy Resources (“DERs”)
• Project No. 55249 – Regional Transmission Reliability Plans
• Project No. 54999 – Texas Energy Fund
• Project No. 54584 – Reliability Standard for the ERCOT Market
• Project No. 52301 – ERCOT Governance and Related Issues
• Project No. 51888 – Critical Load Standards and Processes
• Project No. 53981 – Review of Wholesale Water and Sewer Rate Appeals
• Project No. 54224 – Cost Recovery for Service to DERs

Texas Railroad Commission (“RRC”)

Gas Securitization Update. Texas gas utility customers will pay at least $4 more each month because of high gas prices resulting from Winter Storm Uri in 2021. This increase of $4 will continue through 2036. In total, $3.5 billion in natural gas costs will be financed under the securitization arrangement. Gas utilities will receive bond proceeds up front while their customers will retire the bonds – plus interest – over the 16-year recovery period.

According to utilities’ executives, securitization will spread the pain from what otherwise would have been massive billing spikes after Winter Storm Uri. Under the bond financing arrangement, Atmos Energy has securitized approximately $2 billion in fuel costs, CenterPoint approximately $1.1 billion and Texas Gas Service about $197.3 million. Other utilities to receive recovery through securitized debt include Bluebonnet, Corix, EPCOR, SiEnergy, UniGas, TGS West Texas Service Area and CoServ.

Atmos Pipeline Rate Case. On May 19, 2023, Atmos Pipeline filed a rate case at the RRC seeking to increase rates annually by $119.4 million on a systemwide basis. The Atmos Cities Steering Committee and other city groups intervened in the regulatory proceeding, and evaluation of Atmos Pipeline’s request is ongoing. Numerous discovery requests and responses have been exchanged, and settlement discussion commenced in mid-August. The hearing is set for October 10-12, 2023. More information can be found on the RRC website in Case No. 00013758.

CoServ Gas, Ltd. (“CoServ”) Rate Case. On July 28, 2023, CoServ filed a rate case at the RRC seeking to increase annual revenues by $10.3 million in incorporated areas. The proposed rates and tariffs would increase CoServ’s annual revenues by approximately $12,118,404 or 7.7 percent including gas costs, or 27.5% excluding gas costs. More information can be found on the RRC website in Case No. 00014771.

Texas Gas Service Company (“TGS”) Rate Case. On June 30, 2023, TGS filed a rate case at the RRC seeking to increase annual revenues within the unincorporated areas of the Rio Grande Valley Service Area by $9.81 million, which is an increase of 16.10% including gas costs, or 25.94% excluding gas costs. On July 17, 2023, the Cities served by TGS filed its Motion to Intervene in this proceeding. This motion was granted on July 20, 2023. More information can be found on the RRC website in Case No. 00014399.

SiEnergy, LP (“SiEnergy”) Rate Case. On May 5, 2023, SiEnergy filed a rate case at the RRC seeking to increase rates in the environs of North, Central, and South Texas. Parties reached a Unanimous Settlement Agreement, which resulted in an annual revenue increase for SiEnergy totaling $5,500,000 – a reduction from the $9,694,308 initially requested by SiEnergy. The deadline for RRC action is November 6, 2023.

On June 20, 2023, SiEnergy filed its Petition for Review of the rate action taken by the City of Princeton (“City”). SiEnergy stated that the City denied SiEnergy’s requested rate change. This proceeding was docketed under OS-23-00014351.

On August 7, 2023, SiEnergy, the Staff of the RRC, the Cities Served by SiEnergy, and the City of Princeton filed a joint motion to consolidate the previously severed rate case expenses with the latter rate case. The parties contended that consolidation would support the preservation of the parties’ resources and is an efficient resolution of all issues related to SiEnergy’s rate request. This joint motion was granted on August 11, 2023, and OS-23-00014351 was consolidated with OS-23-00013504. More information can be found on the RRC website in Case No. 00013504.

RRC Budget Update. The RRC will receive approximately $481 million over the next two years under the state budget bill signed by Governor Greg Abbott on June 18, 2023. As part of the new budget, the RRC will hire up to 50 new pipeline safety professionals to conduct pipeline inspections on additional gathering lines. Moreover, funding will be provided for new staff in the Oil and Gas Environmental Permits and Support Unit and for additional cameras to increase inspection capabilities.

Electric Reliability Council of Texas (“ERCOT”)

ERCOT Reveals its “Suite of Market Design Initiatives.” In its August 21, 2023 memorandum, ERCOT released its “suite of market design initiatives.” Recent legislation and PUC initiatives related to grid reliability and power generation retention have directed ERCOT to develop several market redesign mechanisms. As such, ERCOT’s memorandum detailed the history, scope, and implementation timeline of the market enhancements. According to ERCOT CEO Pablo Vegas, the initiatives operate in parallel, support reliability, and implement market changes necessary for operational flexibility and long-term resource adequacy. Each initiative is detailed below.

A. Operating Reserve Demand Curve (“ORDC”) Enhancement

The ORDC is a market mechanism that rewards an extra price adder to generators that participate in the real-time ERCOT market when total reserve capacity is below a certain threshold. Put differently, to incentivize generation during times of resource scarcity, the ORDC rewards generators that offer power at certain levels of grid constraint: (1) real time energy prices and (2) extra revenue through the ORDC price adder.

Recently, PUC determined that a “bridge program” to more comprehensive market redesign initiatives, such as the Performance Credit Mechanism (“PCM”) (see below), is necessary to support resource retention in the interim. It directed ERCOT to establish such a program, and ERCOT ultimately proceeded with the enhanced ORDC. The enhanced ORDC implements a “multi-step floor” of $20 at 6,500 MW of reserve capacity and $10 at 7,000 MW of reserve capacity. PUC approved the ORDC enhancement in August 2023, and ERCOT anticipates the program to go live in November 2023.

B. The Dispatchable Reliability Reserve Service (“DRRS”)

The 88th Legislature passed legislation requiring ERCOT to develop and implement an additional ancillary service by December 1, 2024. Currently, ERCOT utilizes five ancillary services: the Regulation Service-Up, Regulation Service-Down, Responsive Reserve Service, Non-Spinning Reserve Service, and the newly launched Contingency Reserve Service. ERCOT acquires these services in the day-ahead market to support the following day’s operating reserves. More specifically, ERCOT “holds out” ancillary service capacity from the market to ensure system stability in the event a grid scarcity event during the preceeding day requires the extra capacity reserves. Pursuant to House Bill (“HB”) 1500, ERCOT must now develop the DRRS.

After stakeholder workshops, ERCOT intends to establish the DRRS as a “sub-type” of the existing Non-Spin ancillary service. However, it narrowed DRRS eligibility to resources that: (1) run for at least four hours at their high sustained limit; (2) are online and dispatchable not more than two hours after ERCOT calls for deployment; and (3) have the operational flexibility to address inter-hour operational challenges. It still must develop an Impact Analysis to identify cost, resource, and system impacts, but anticipates the DRRS to go live before the statutory deadline.

C. The PCM

Despite opposition at the legislature, ERCOT intends to proceed with the PCM subject to legislative constraints provided under HB 1500. Under the PCM, ERCOT rewards performance credits (“PCs”) to generators that are “available” during hours of highest reliability risk. Load serving entities (“LSEs”) must purchase from the generators PCs in amounts that reflect the LSE’s energy consumption during the hours of highest reliability risk. Theoretically, this incentivizes and funds thermal generation, although several stakeholders assert that it burdens consumers with increased cost and falls short of legislative initiatives.

Nevertheless, ERCOT is now developing a “framing document,” based on HB 1500 directives, that will provide a “level-set” on the PCM. It will subsequently file a strawman addressing PCM design parameters in October 2023. Finally, pending PUC approval, it anticipates the PCM to go live in 2025.

D. Real-Time Co-optimization + Batteries (“RTC+B”)

The RTC is a transformative market redesign initiative that would merge the otherwise separate Real-Time and Ancillary Services markets. According to the ERCOT Independent Market Monitor (“IMM”), the RTC is “the most important improvement to the ERCOT market over the long term.” It would grant ERCOT, for purposes of the real time market, access to ancillary service capacity and therefore improve pricing during scarcity events.
ERCOT initiated the RTC implementation process in 2017. Due to recent market and technological changes, however, it has reengaged stakeholders to reconsider RTC parameters. Specifically, it established the RTC+B task force to incorporate the proliferation of batteries—which are expected to contribute 14 GW to the ERCOT grid by 2025—into the RTC framework. ERCOT anticipates the RTC to go live in 2026.

Additional information regarding ERCOT’s market redesign initiatives can be found in PUC Project No. 53298.

“Agency Highlights” is prepared by Chloe Daniels in the Firm’s Water and Districts Practice Groups; Mattie Isturiz in the Firm’s Air and Waste Practice Group; and Rick Arnett in the Firm’s Energy and Utility Practice Group. If you would like additional information or have questions related to these agencies or other matters, please contact Chloe at 512.322.5814 or chloe.daniels@lglawfirm.com, or Mattie at 512.322.5804 or misturiz@lglawfirm.com, or Rick at 512.322.5855 or rarnett@lglawfirm.com.