Legislative Committees Evaluate Texas Electric Market During Interim Hearings

by Roslyn Dubberstein

In mid-June, the House State Affairs Committee and the Senate Business & Commerce Committee held hearings to evaluate the progress of electric market changes from the 2023 Texas Legislative Session and to begin discussing potential focuses for the 2025 Texas Legislative Session. Both hearings addressed a wide range of issues, from the impact of crypto mining on the Texas grid to the interplay between transmission buildout and the state’s continuous load growth. Both committees heard invited testimony from representatives of the Electric Reliability Council of Texas (“ERCOT”), the Independent Market Monitor (“IMM”), the Public Utility Commission of Texas (“PUC”), generators, consumers, and Bitcoin miners, among others.

The dialogue in both hearings repeatedly circled back to a few overarching questions:

• How can the state manage rapidly growing energy consumption and prioritize reasonable consumer costs?
• How can policymakers help facilitate regulatory market certainty?
• Does the Performance Credit Mechanism, incorporated into legislation during the 2023 Legislative Session, have a future in the Texas energy-only market?
• Is there a need to differentiate between crypto mining operations and data centers as these industries continue to move into the Texas grid?

Rapid Load Growth
Legislators were surprised to learn that ERCOT’s projected load growth for Texas has increased significantly. ERCOT Chief Executive Officer (“CEO”) Pablo Vegas testified that the projected load growth through 2030 was originally 85 gigawatts but has since increased to 150 gigawatts. This means peak demand would effectively double over the course of about six years. Vegas described an “insatiable demand” for electricity to support artificial intelligence, industrial electrification of oil and gas operations, and various industrial operations. According to Vegas, the U.S. Inflation Reduction Act is a major impetus for much of the industrial growth in Texas, particularly as it relates to hydrogen production.

Consumer representatives emphasized the need to consider costs when assessing how to best serve the state’s constantly growing demand. Transmission expansion is one avenue for addressing rapidly increasing demand, but allocating and managing the costs of transmission expansion is a concern, particularly given the cost of numerous changes since Winter Storm Uri. Julia Harvey with Texas Electric Cooperatives testified that “costs have to be foreseeable and reasonably commensurate with benefits.” Thomas Brocato, on behalf of the Steering Committee of Cities Served by Oncor and the Texas Coalition for Affordable Power, noted that market modifications since Winter Storm Uri have had cost implications, including an increase in transmission and distribution utility rates. Similarly, Courtney Hjaltman with the Office of Public Utility Counsel testified that 30-40% of residential bills are transmission and distribution costs. Given these discussions, finding a balance between demand and cost will likely require continued discussion at the Legislature.

Regulatory Market Certainty and Reliability
Many parties providing testimony emphasized the importance of legislative stability during the upcoming Session. Stakeholders discussed that regulatory market certainty is crucial to stimulate investment. Based on the number of new programs and endeavors since Winter Storm Uri, this testimony seemed to indicate a desire to steer away from broad sweeping electric market reform in the upcoming session.

PUC Chairman Thomas Gleeson testified that the PUC expects to finalize a rule in August that will mandate a particular reliability standard. This will likely contemplate the frequency and magnitude of outages. ERCOT CEO Pablo Vegas said that many parts of the country will be watching the development of Texas’s reliability standard as a possible guide.

The Future of the Performance Credit Mechanism
The Senate Business & Commerce Committee (“BCC”) was particularly interested in whether the Performance Credit Mechanism (“PCM”), recommended by E3 and incorporated into House Bill 1500 last session, is still an appropriate market reform for Texas. Many legislators, particularly on the Senate BCC, were skeptical of PCM and asked whether it is still a necessary component for the market design in Texas. In response to questions from legislators, ERCOT representatives provided that PCM is not mandatory and may not be a necessary addition to the market but that it is important to do the study work to find out.

PUC Chairman Thomas Gleeson explained that PUC is currently conducting a comment process for stakeholders to weigh in on the appropriate parameters for PCM. Gleeson noted that there will also be a cost-benefit analysis of PCM, as required by statute. On behalf of Texas Industrial Energy Consumers, Katie Coleman expressed concerns about PCM being a move away from the energy-only market. Additionally, there is skepticism about
how high the cost of new entry may be to generators if PCM is ultimately implemented.

Crypto Mining and Data Centers
ERCOT Chief Operating Officer Woody Rickerson testified that all crypto mining in Texas equates to about 2,600 megawatts, or the equivalent of the City of Austin. During peak times, however, the crypto mining load drops to about 200 megawatts because crypto has the ability to go offline. The projected crypto load forecast for 2030 is 11,000 megawatts.

Senators on BCC had several probing questions for the crypto mining industry and expressed concerns about conflating crypto operations and data centers. Senator Nichols asked about how to distinguish between the two. One approach would be to distinguish by energy characteristics, such as operation duration; another distinction could be to look at end results. As we approach the 2025 Legislative Session, legislators may be interested in creating distinct definitions for the two terms. The House State Affairs Committee discussed the registration process for crypto miners and whether there should be legislation to limit crypto mining in Texas.

Overall, the interim hearings illustrated that the electric market remains a crucial subject for Texas policymaking as we approach the next legislative session. This is particularly evident given the lingering impacts of Winter Storm Uri and the steady growth throughout the state. The House State Affairs Committee’s next interim hearing is scheduled for August 16. The Senate BCC’s next interim hearing is scheduled for August 27.

Roslyn Dubberstein is an Associate in the Firm’s Energy and Utilily Practice Group. If you have any questions or would like additional information related to this article or other matters, please contact Roslyn at 512.322.5802 or rdubberstein@lglawfirm.com.