Agency Highlights

United States Environmental Protection Agency (“EPA”)

EPA Guidance Regarding the Clean Water Act (“CWA”) Section 401 Rule Vacatur. The U.S. District Court for the Northern District of California issued an order on October 21, 2021 remanding and vacating EPA’s Trump-era CWA 401 Certification Rule, which had nationwide ramifications. The order required a temporary return to EPA’s 1971 Rule until it finalizes a new certification rule. EPA has since issued a guidance document on the effects of the vacatur, generally clarifying that it does not expect to revisit certifications it made while the rule was in effect. The guidance states that pending certification requests will be processed in accordance with the 1971 Rule and certification modifications are permitted under the 1971 Rule. EPA will continue the rulemaking process that was announced in May 2021 and expects to propose a new CWA Section 401 rule in Spring 2022. EPA’s Q&A guidance is available at https://www.epa.gov/cwa-401/qa-2020-rule-vacatur.

EPA Considers Numeric Drinking Water Limits or Treatment Standard for Two Per- and Poly-fluoroalkyl Substances (“PFAS”). EPA previously announced that it plans to propose a national primary drinking water regulation for perfluorooctanoic acid (“PFOA”) and perfluorooctane sulfonic acid (“PFOS”) in Fall 2022, with a final rule in Fall 2023. The agency has acknowledged that establishing a numeric drinking water limit could be precluded by technical or economic feasibility constraints. Specifically, EPA is examining whether a treatment technique is more appropriate for the two PFAS rather than a maximum contaminant limit (“MCL”). A treatment technique is an enforceable procedure or level of technological performance that a public water system must follow to ensure control of a contaminant. EPA is waiting on the review of key documents by its Science Advisory Board to determine what type of enforceable drinking water limit to set. These documents include a framework for estimating non-cancer risks from exposure to PFAS, the proposed approaches for establishing MCLs for PFOA and PFOS, and analysis of reductions in cardiovascular disease risks from reductions in PFOA and PFOS exposures. While EPA has proposed health-based reference doses for PFOA and PFOS, it has not yet calculated MCL goals.

New Lead and Copper Rule (“LCR”) Takes Effect, EPA Plans New Line-Replacement Mandates. On December 16, 2021, the Trump-era LCR revisions took effect after the Biden Administration concluded that the rule increases public health protections. The Biden Administration still has concerns about the trigger and action levels in the LCR and lack of a mandate for 100 percent removal of lead service lines (“LSLs”). Therefore, EPA plans to propose a new rule with stricter requirements for LSL replacements. This is part of the Lead Pipe and Paint Action Plan, which details how nearly $3 billion from the bipartisan infrastructure law funding will be allocated to states for LSL replacements and how $350 billion in funding from the American Rescue Plan can be used for LSL and lead faucet and fixture replacement. EPA is allocating $2.9 billion in 2022 for LSL replacement. The agency plans to finalize its new rule by 2024. In the meantime, EPA is committing to developing plans to ensure equitable distribution of funds, committing to oversight and technical assistance to communities with high lead levels, improving risk communication through additional guidance, and encouraging full LSL replacement and discouraging partial LSL replacement.

EPA Finalizing Safe Drinking Water Act (“SDWA”) Monitoring Rule on Unregulated PFAS. The White House Office of Management and Budget completed pre-publication review of EPA’s SDWA monitoring rule on December 3, 2021, setting EPA up to issue the final version of the rule. The proposed version of the fifth unregulated contaminant monitoring rule (“UCMR5”) includes 30 contaminants, 29 PFAS and lithium, with verified test methods. The first set of data collected under UCMR5 will be publicly available in mid-to-late 2023.

EPA Begins New Rulemaking on Waters of the United States (“WOTUS”). EPA and the Army Corps of Engineers (“Corps”) are working on an additional rule to define WOTUS beyond the recently proposed interim rule. This proposed interim rule interprets WOTUS to mean waters defined by EPA and Corps regulations (“1986 Regulations”) with amendments reflecting the agencies’ interpretations on the limits of the scope of WOTUS as informed by recent U.S. Supreme Court decisions, such as Rapanos v. United States. The interpretation includes: traditional navigable waters, interstate waters, the territorial seas, and their adjacent wetlands; most impoundments of WOTUS; tributaries to traditional navigable waters, interstate waters, the territorial seas, and impoundments that meet either the relatively permanent standard or significant nexus standard; wetlands adjacent to impoundments and tributaries, that meet either the relatively permanent or significant nexus standard; and “other waters” that meet either the relatively permanent standard or significant nexus standard. The proposed second rule would include revisions reflecting additional stakeholder engagement and implementation consideration, scientific development, and environmental justice values. EPA plans to propose the second rule in February 2022.

Deadlines for SDWA Consumer Confidence Rule (“CCR”). EPA and the Natural Resource Defense Counsel (“NRDC”) have settled on deadlines for EPA to propose and finalize changes to its CCR regulations. EPA intends to sign proposed revisions by March 15, 2023, and sign the final rule no later than March 15, 2024. EPA and NRDC’s agreement allows EPA to seek an extension on the proposal deadline for good cause, but also allows NRDC to oppose such extension. EPA intends to seek recommendations from its National Drinking Water Advisory Council on rule revisions by May 2, 2022.

EPA Releases Strategic PFAS Roadmap. On October 18, 2021, EPA released a “Strategic PFAS Roadmap,” outlining agency actions to address PFAS into 2024. The overarching goals of the Roadmap are to (1) invest in research towards understanding exposure, toxicities, and effective interventions, (2) develop a comprehensive approach to restrict PFAS from entering the environment, and (3) expand and accelerate the cleanup of PFAS contamination. According to the Roadmap, EPA intends to implement regulations to designate PFOA and PFOS (the two main PFAS categories) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). Doing so will potentially make landfills and other solid waste disposal facilities liable under the Superfund program for remediation costs associated with PFAS contamination. EPA intends on proposing these regulations in spring 2022 with plans to finalize them by summer 2023.

Related to the PFAS Roadmap, EPA has also recently announced plans to initiate a future rulemaking to regulate PFOA and PFOS under the Resource Conservation and Recovery Act (“RCRA”). EPA announced these plans on October 26, 2021 in response to a petition from New Mexico Governor Lujan Grisham. The future proposed rulemaking will aim to regulate PFAS as a hazardous substance under RCRA and also seek to require parties to investigate PFAS contamination under RCRA’s Corrective Action Program.

EPA Issues National Recycling Strategy. On November 15, 2021, EPA issued a finalized “National Recycling Strategy” to advance the national municipal solid waste recycling system. The Strategy identifies the following objectives, aims to create a stronger, more resilient and cost-effective recycling system and outlines a series of stakeholder-led actions to accomplish them:

• Improve Markets for Recycling Commodities;
• Increase Collection and Improve Materials Management Infrastructure;
• Reduce Contamination in the Recycled Materials Stream;
• Enhance Policies to Support Circularity; and
• Standardize Measurement and Increase Data Collection.

The Strategy underwent a major revision from the draft version introduced in October 2020. It is now part of a larger 10-year vision and strategic direction for the EPA’s Sustainable Materials Management Program. The Strategy frames recycling as one component of a waste and materials management system that includes reduction, reuse, redesign, composting, biological recycling, and consideration of chemical/advanced recycling. It also now includes an emphasis on climate change and environmental justice priorities. EPA plans to implement the Strategy in conjunction with the National Recycling Goal to increase the national recycling rate to 50 percent by 2030.

EPA Announces Potential Future Rulemaking on Pyrolysis and Gasification Units. On September 8, 2021, EPA announced an advanced notice of proposed rulemaking (“ANPRM”) to assist in the development of Clean Air Act regulations for pyrolysis and gasification units that are used to convert solid or semi-solid feedstocks, including solid waste, to useful products such as energy, fuels, and chemical commodities. Potentially regulated entities include solid waste combustion units, decomposing municipal solid waste, oil and gas exploration operations, commercial waste disposal companies, and manufactures of certain products (e.g., wood, pulp, paper, furniture, plastics, cement). According to EPA, the ANPRM is necessary in order to clear up confusion in the regulated community regarding the applicability of Clean Air Act Section 129 to pyrolysis and gasification units. The comment period closed on the ANPRM on December 23, 2021.

EPA Rescinds 2020 Clean Air Act SSM Policy. On September 30, 2021, EPA released a guidance document rescinding an October 2020 guidance document, which allowed exemptions for Startup, Shutdown, and Malfunction (“SSM”) emissions from larger sources. The 2020 guidance document, titled “Inclusion of Provisions Governing Periods of Startup, Shutdown, and Malfunctions in State Implementation Plans,” was based on EPA’s previous determination that State Implementation Plans (“SIPs”) were permitted to contain SSM exemptions for a limited period and still meet the requisite National Ambient Air Quality Standards (“NAAQS”). In rescinding the 2020 guidance, EPA has now reinstated the 2015 policy, which provides that the inclusion of SSM exemptions or affirmative defense provisions in state SIPS will “generally be viewed as inconsistent” with the federal Clean Air Act. Notably, the September 2021 guidance document identifies plans to revisit Texas’s SIP, among other state SIPs, to determine whether it complies with the new policy, as Texas’s SIP contains provisions based on the 2020 guidance.

EPA Issues Proposed Rulemaking to Reduce GHG and VOC Emissions from Oil and Natural Gas Activities. On November 15, 2021, EPA published a proposed rulemaking outlining three distinct groups of actions under the federal Clean Air Act (“CAA”), which are collectively intended to significantly reduce emissions of greenhouse gases (“GHGs”) and other air pollutants from the Crude Oil and Natural Gas source category. First, EPA proposes to revise the new source performance standards (“NSPS”) for GHGs and volatile organic compounds (“VOCs”) for the Crude Oil and Natural Gas source category under the CAA to reflect the agency’s most recent review of the feasibility and cost of reducing emissions from these sources. Second, EPA proposes nationwide emissions guidelines (“EG”) under the CAA for states to follow in developing, submitting, and implementing state plans to establish performance standards to limit GHGs from existing sources in the Crude Oil and Natural Gas source category. Third, EPA is proposing to take several related actions stemming from the joint resolution of Congress, adopted on June 30, 2021 under the Congressional Review Act (“CRA”), disapproving EPA’s final rule titled “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources Review” (2020 Policy Rule). EPA issued this proposed rulemaking in response to President Biden’s January 29, 2021 Executive Order, “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.” The public comment period closes on January 31, 2022.

Texas Commission on Environmental Quality (“TCEQ”)

TCEQ Adopts Final Rule Increasing IHW Generator and Management Fees. On November 3, 2021, TCEQ adopted a final rule regarding industrial solid waste and municipal hazardous waste generator and management fee increases. Specifically, the final rule (1) increases the Industrial and Hazardous Waste (“IHW”) generation fee schedule from $0.50 to a maximum of $2.00 per ton for non-hazardous waste generation; (2) increases the fee schedule from $2.00 to a maximum of $6.00 per ton for hazardous waste generation; and (3) allows the Executive Director the ability to adjust the actual IHW generator fee at or below the new fee schedule amounts. TCEQ initially proposed the fee increases because of the declining balance in the waste management account fund (Fund 0549) and the fees have not been adjusted since 1994. TCEQ will implement the fee increases based on a phased fee schedule, beginning on March 1, 2022. The fee schedule is posted on TCEQ’s website and the agency announced that it will also be sending notices to regulated entities of the fee schedule before its implementation.

TCEQ Adopts Final Rule to Amend ISW and MHW Rules to Maintain Equivalency with RCRA Revisions. In the October 2021 edition of The Lone Star Current, we reported on a proposed TCEQ rulemaking to amend, repeal, and replace a number of sections of 30 Texas Administrative Code (“TAC”) Chapter 335, Industrial Solid Waste (“ISW”) and Municipal Hazardous Waste (“MHW”), in order to maintain equivalency with Resource Conservation and Recovery Act (“RCRA”) revisions promulgated by EPA. During the January 12, 2022 Commission agenda, the TCEQ Commissioners adopted the final rule designed to update Chapter 335 to include federal rule changes set forth in parts of RCRA Clusters XXIV – XXVII. The most notable of the proposed changes involve:

• Revising the existing hazardous waste generator regulatory program by (1) reorganizing the regulations to improve their usability by the regulated community and by (2) providing greater flexibility for hazardous waste generators to manage their hazardous waste in a cost-effective and protective manner;
• Revising existing regulations regarding the export and import of hazardous wastes from and into the United States by applying a confidentiality determination such that no person can assert confidential business information claims for documents related to the export, import, and transit of hazardous waste;
• Revising rules to adopt EPA’s methodology for determining the user fees applicable to the electronic and paper manifests to be submitted to the e-Manifest system;
• Revising rules to prohibit disposal of hazardous waste pharmaceuticals into the sewage system and codify the exemption for unused pharmaceuticals that are expected to be legitimately reclaimed from being classified as a solid waste; and
• Adding rules to add hazardous waste aerosol cans to the universal waste program.

TCEQ is holding workshops on January 20 and 25 about the new rule, and it will go into effect on February 3, 2022.

TCEQ Proposes Rulemaking on Compliance History. On December 15, 2021, TCEQ proposed a rulemaking to revise the agency’s compliance history rules in 30 TAC Chapter 60. More specifically, the proposed rulemaking aims to add a new Section 60.4 of 30 TAC Chapter 60, which would allow the Executive Director to designate and reclassify the compliance history classification for a site involved in an emergency event that causes or results in exigent circumstances. The new section would provide a process for the Executive Director to initially designate a site’s compliance history classification as “under review” and then later reclassify it to “suspended” if the Executive Director determines that exigent circumstances exist due to an event at a site, such as a major explosion or fire, that significantly impacts the surrounding community and environment, causes emergency response efforts by federal or state authorities to address pollutants, contaminants, or other materials regulated by the agency, and results in certain urgent or grave consequences. TCEQ is holding a public hearing on the proposed rulemaking on January 27, 2022. The public comment period closes February 1, 2022. TCEQ anticipates adopting a final rule on June 1, 2022.

TCEQ Adopts Final Rule to Clarify Composting Notice Process. During the January 12, 2022 Commission agenda, the TCEQ Commissioners adopted a final rule to clarify and update existing notice language and requirements for composting facility applications. The final rule aims to provide clarity on who will receive notice for certain compost authorizations, and to remove other vague mailing requirements. TCEQ is revising sections of 30 TAC 332 (Composting) to clarify that the registration tier facilities have the same notice requirements as the notification tier facilities. TCEQ also changed the notice rule for notification tier facilities (30 TAC § 332.22) to make clear that the landowner list includes only properties bordering the facility.

In addition, the final rule incorporates applicability, fees, and reporting requirements from 30 TAC Chapter 330, Subchapter P into sections for registered and permitted facilities. The final rule also makes revisions to various citations and addresses typographical issues. The final rule goes into effect February 3, 2022.

TCEQ Releases MSW Year in Review Report. On October 1, 2021, TCEQ released its 2020 “Municipal Solid Waste in Texas: A Year in Review” report. The report shows an increase in active landfills and recycling efforts. For example, according to the report, between 1995 and 2021, the number of active landfills in Texas averaged about 187, and by 2020, that number increased to 198 facilities. The increase was largely the result of the addition of a new type of landfill (monofills), which was established in 2013 for the disposal of demolition waste from properties with nuisance and abandoned buildings that are owned or controlled by a county or municipality. The number of monofills contributing to the total landfill count increased from 4 in 2014 to 11 in 2020.

Additionally, the report shows that in 2019, 12.9 million tons of solid waste was recycled, up from 9.17 million in 2015. Based on the tons of recycling reported, the 2019 municipal solid waste (“MSW”) recycling rate for Texas was 27.5 percent and represents $4.8 billion for the Texas economy. The report further indicates that the total remaining MSW landfill capacity in Texas at the end of 2020 was approximately 1.96 billion tons or about 2.89 billion cubic yards. The statewide net remaining tons capacity increased by approximately 30.5 million tons or about 1.6 percent from the 2019 capacity. The statewide remaining cubic yards capacity increased by approximately 82.8 million cubic yards or approximately 3.0 percent from the 2019 capacity.

TCEQ Releases 2021 Recycling Market Development Plan. In August 2021, TCEQ released the 2021 “Recycling Market Development Plan” as a follow up to the 2017 Study on the Economic Impacts of Recycling in Texas. The 2021 plan by Burns & McDonnell studies the use of recyclable materials as feedstock in processing and manufacturing and includes an update of economic impacts for the recycling industry. The 2021 plan indicates that the recycling industry currently represents $4.8 billion of the Texas economy. The plan also discusses tools and mechanisms that can be used for material specific and cross-material strategies and opportunities to increase market development, decrease barriers, and promote recycling in the State of Texas.

Texas Water Development Board (“TWDB”)

TWDB Invites Applications for Clean and Drinking Water State Revolving Funds (“SRF”) Program Funding. TWDB is inviting entities to submit information on projects to be included in the upcoming fiscal year’s SRF program’s Intended Use Plans. Entities must submit a completed Project Information Form through TWDB’s online application, https://ola.twdb.texas.gov/, or submit a Microsoft Word version. Project Information Forms must be received by midnight CST on March 4, 2022. The Infrastructure Investment and Jobs Act provided additional funds for SRF programs, including appropriations available for all eligible activities in the SFY 2023 Intended Use Plan, along with funds restricted to special eligibilities such as LSL replacement or emerging contaminants. TWDB offers principal forgiveness to entities that qualify as disadvantaged communities or small/rural disadvantaged systems, for projects with green components, for urgent need situations, or for emergency preparedness. Project Information Forms submitted last year must be updated to be included in the SFY 2023 Intended Use Plan list.

Public Utility Commission of Texas (“PUC”)

Five New Appointees Named to the ERCOT Board of Directors. Five new appointees have been named to the Electric Reliability Council of Texas (“ERCOT”) Board of Directors, leaving only three seats vacant.

The first two new appointments — Paul Foster and Carlos Aguilar — were announced on October 12, 2021 by the ERCOT Board Selection Committee, which was created in accordance with Senate Bill 2 from the most recent legislative session. An additional three directors — U.S. Congressman Bill Flores, business executive Elaine Mendoza and renewable energy businessman Zin Smati — were named on November 1, 2021. The ERCOT Selection Committee also designated Mr. Flores to serve as Vice Chair of the ERCOT board. The newest members will join the Public Utility Commission Chair, the Public Utility Counsel and the ERCOT CEO. The ERCOT Board Selection Committee members are Arch “Beaver” Aplin, G. Brint Ryan, and Bill Jones. These members were respectively appointed by the Governor, Lieutenant Governor, and Speaker in accordance with Senate Bill 2, passed in the 87th regular session.

Market Redesign Moves Along Slower than Anticipated. Reforming the Texas power market remains a top priority at the PUC with debate continuing over possible new capacity mandates, adjustments to an existing price-ladder system and the creation of new cost requirements for renewable energy generators. The PUC is making changes to improve reliability in response to last February’s winter storm. The agency’s intense focus on these highly technical issues and others comes in response to last February’s statewide energy crisis that left 4 million Texans without power. The PUC has conducted multiple workshops and has called upon market participants to provide recommendations — all with the goal of getting new policies in place by the year’s end.

The Commissioners, however, remain divided on key issues, and the path ahead remains unclear. Much of the debate so far has veered between two broad priorities: on the one hand, resolving operational issues that contributed to last February’s outages; on the other, overhauling the ERCOT power market to incentivize new investment. Many of the stakeholders weighing in during the proceedings have urged the Commissioners to address operational issues first, and then move to broader market issues later on.

The Commissioners have created a market redesign roadmap with scheduled workshops and various other milestones. One of the first steps came on October 20, when PUC Chair Peter Lake issued a detailed memo outlining his reform priorities. PUC staff released a set of 16 stakeholder questions a few days later and then received 53 sets of responses to those questions. The Commission also conducted work sessions throughout October, November, and December. Commission Staff issued the 2nd strawman of the Final Blueprint on December 6, which included both Phase I and Phase II changes. At its December 16 meeting, the Commissioners voted to adopt the blueprint as it applies to Phase I.

Weather Preparation Rules Approved. In October, Texas regulators adopted weather preparation rules and standards for electric generators and transmission and distribution utilities, and set quick deadlines for implementation.

The new rules and standards were included in a 100-page plus document prepared by PUC Staff, under Docket No. 51840 on the agency’s website. The PUC adopted the rules and standards by a 4-0 vote on Oct. 21.

That vote, however, represented only a first step in a two-phase weatherization effort now underway at the agency. During the second phase, the agency will develop performance standards based on a weather study that remains under development by ERCOT in consultation with the State Climatologist (information about ERCOT’s weather study can be found in PUC Project No. 52691).

The basic elements of the 51840 weatherization rules and standards adopted on Oct. 21 are as follows:

• Generation Resources must implement winter weather readiness recommendations included in a 2012 document, the Report on Extreme Weather Preparedness Best Practices by Quanta Technology.
• Transmission Service Providers must implement key recommendations contained in a 2011 document, the Report on Outages and Curtailments during the Southwest Cold Weather Event on February 1-5, 2011, jointly prepared by the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation.
• Generation Resources and Transmission Service Providers must fix any known, acute issues that arose from winter weather conditions during the 2020-2021 winter weather season.
• ERCOT must develop a program to conduct on-site readiness inspections of Generation Resources and Transmission Service Provider facilities.
• Entities that have experienced repeated or major weather-related forced service interruptions must hire an outside professional engineer to assess its weather emergency preparation measures.

The new standards and rules also included very tight compliance deadlines, including a December 1 deadline for generation units to implement weather emergency preparation measures; to install various weatherization devices; to conduct weather preparation training; and to submit to ERCOT and the PUC a winter weather report that includes a notarized attestation by each entity’s highest-ranking officer with binding authority. ERCOT also has committed to completing hundreds of on-site inspections by the end of 2021.

Update on PUC Rulemaking Projects. The PUC continues to implement market redesign changes required by the 87th Texas Legislature. PUC Staff has opened various new rulemaking projects and has published a rulemaking calendar in Project No. 51715, providing insight about the rulemaking and implementation process the agency will undertake to address the recently enacted legislation. The PUC has published the following list of upcoming, pending, or completed rulemakings, among others:

• Project No. 51830, Review of Certain Retail Electric Customer Protection Rules
• Project No. 51840, Rulemaking to Establish Weatherization Standards
• Project No. 51841, Review of 16 TAC § 25.53 Relating to Electric Service Emergency Operations Plans
• Project No. 51871, Review of the ERCOT Scarcity Pricing Mechanism
• Project No. 51888, Review of Critical Load Standards and Processes
• Project No. 52287, Power Outage Alert Criteria
• Project No. 52301, ERCOT Governance and Related Issues
• Project No. 52312, Review of Administrative Penalty Authority
• Project No. 52313, Review of Statutory Definitions
• Project No. 52322, Application of ERCOT for a Debt Obligation Order to Finance Uplift Balances Under PURA Chapter 39, Subchapter N, and For a Good Cause Exception
• Project No. 52345, Critical Natural Gas Facilities and Entities
• Project No. 52367, RFP for Consulting Services with Respect to the Structure and Pricing of Securities Related to Securitized Financing of System Restoration Costs
• Project No. 52373, Review of Wholesale Electric Market Design
• Project No. 52631, Review of 25.505
• Project No. 52682, Project for Commission-Ordered Transmission Facilities
• Project No. 52683, Petition of ERCOT for Expedited Approval of Bylaws Amendment
• Project No. 52691, Project for ERCOT Weather Study to Implement Reliability Standards Under PURA 35.0021 and 38.075
• Project No. 52757, Review of Chapter 25- Rules Applicable to Electric Service Providers
• Project No. 52785, ERCOT Comprehensive Checklist Forms Pursuant to 16 TAC § 25.55(C)(3)
• Project No. 52786, ERCOT Compliance Reports of Generation Resource Winter Readiness Pursuant to 16 TAC § 25.55(C)(4)
• Project No. 52787, ERCOT Compliance Reports of Transmission System Winter Readiness Pursuant to 16 TAC § 25.55(F)(3)

Update on Project Number 51841: Review of 16 TAC § 25.53 Relating to the Electric Service Emergency Operations Plan. On November 30, 2021, the Commission approved Staff’s Proposal for Publication in this Project. By approving Staff’s Proposal for Publication, the Commission repeals the old version of 16 TAC
§ 25.53 and replaces it with the new version. The Commission is accepting comments on this proposal through January 4, 2022.

This rule applies to the following entities: (1) electric utilities; (2) transmission and distribution utilities; (3) power generation companies; (4) municipally owned utilities; (5) electric cooperatives; (6) retail electric providers; and (7) ERCOT. The rule requires all entities to annually file an Emergency Operations Plan (“EOP”) with the Commission under this rule. In 2022, the EOP must be filed by April 1, 2022, and every following year the EOP must be filed by February 15th of that year. To be satisfactory, the EOP must adhere to several requirements listed in the new rule, including filing an updated EOP with the Commission and submitting it to ERCOT when the entity makes a significant change to the EOP that would have a material impact on how the entity responds to an emergency. Several other changes include the timeliness of the filings, the high level of detail required in each EOP, and the transparency in the common operational functions used for every type of emergency or instances of hazards and threats.

The additional reporting and testing requirements distinguish the newly revised rule from the previous version. Commission Staff is expected to conduct a hearing on this rulemaking on January 11, 2022; however, if no such hearing is requested, it will be canceled.

Energy Advisory Panel Appointments. Gov. Greg Abbott announced four appointments to a new energy advisory panel that will issue market reform recommendations for the Texas Legislature.

The panel — the State Energy Plan Advisory Committee — was created as part of Senate Bill 3 (“SB 3”), which state lawmakers adopted this year in response to February’s power crisis. Under SB 3, the committee must prepare a comprehensive state energy plan by September 2022, and that in turn could set the stage for additional market reform legislation during the 2023 regular session. According to the governor’s office, the new appointees are Daniel Hall of Oncor, Castlen Moore Kennedy of the Apache Corporation, Phil Wilson of the Lower Colorado River Authority, and Joel Mickey, a power consultant. Eventually the committee will have 12 members, with the lieutenant governor and House speaker also making four appointments each.

The governor’s office did not set term lengths for the four new appointees, but rather said that they will serve at the governor’s pleasure.

PUC Adopts Alternative Ratemaking Mechanisms for Water and Sewer Utilities and the System Improvement Charge. On November 30, 2021, the Commission adopted 16 TAC §§ 24.75, 24.76:

16 TAC § 24.75
The alternative ratemaking methodologies for utilities that provide water and sewer service presented in this rule are multi-step rates, the cash needs method for establishing a utility’s revenue requirement, and adding new customer classes outside the filing of a rate change proceeding. This rule allows the adoption of multi-step rates, or implementing one or more rates over time without filing multiple rate applications. A water or sewer utility can implement multi-step rates only as established in a comprehensive rate proceeding or by the Commission on its own motion or at the request of the utility or another interested party. If the multi-step rate is established in a comprehensive rate proceeding, it will replace any multi-step rates already in effect or previously approved by the Commission.

For Class C and D utilities, the Commission may approve the use of the cash needs method to establish a utility’s revenue requirement in a comprehensive rate change proceeding.

16 TAC § 24.76
This new Commission rule allows water and sewer utilities to recover a portion of the utility’s eligible plant that is not already included in the utility’s rates, ensuring timely recovery of infrastructure investments. There are a few basic requirements in applying to establish or amend a System Improvement Charge (“SIC”). First, the utility must only have one SIC in effect for water and one SIC in effect for sewer for each of its rate schedules at any given time. Also, a utility can only apply to establish or amend a SIC once a calendar year and must apply to establish or amend multiple SIC in a calendar year in a single application. The time of year this application may be filed is limited to a specific quarter that is dependent on the last two digits of the utility’s certificate of convenience and necessity (“CCN”). If the utility has multiple CCNs, it can file an application in any quarter that it is eligible. Additionally, a utility cannot apply to establish or amend a SIC while it has a comprehensive rate proceeding pending before the Commission.

The scope of a SIC proceeding should not include a prudence evaluation, unless good cause exists to address prudence. However, costs recovered through the SIC are subject to reconciliation in the next comprehensive rate proceeding. If the Commission files an order approving a utility’s request for a SIC, the utility must file a comprehensive rate case proceeding within the following timelines from the date of the final order approving the SIC: Class A utility—4 years; Class B utility—6 years; Class C and D utilities—8 years.

Additional application requirements exist for the SIC, as well as applying a specific formula to obtain the SIC revenue requirement.

Railroad Commission of Texas (“RRC”)

Critical Infrastructure Rule and Amendment Adopted. At its open meeting on November 30, 2021, the RRC adopted new rule 16 TAC § 3.65 and amendments to 16 TAC § 3.107 regarding critical infrastructure designation pursuant to SB 3 and House Bill (“HB”) 3648 from the 87th Legislative Session. The rule and amendments were effective as of December 20, 2021. In this rulemaking, the RRC took into consideration many of the comments from stakeholders. Several of the changes to the initially proposed rule, based upon stakeholder comments, include adopting the PUC definition of energy emergency, narrowing the criteria for designation as critical, identifying some customer categories not eligible for an exception, and revising the reporting form and requirement of where the form must be filed.

Proposed Changes to Curtailment Rule. The RRC put in motion proposed changes to a long-standing curtailment rule, § 7.455. The proposed rule establishes that firm deliveries have a higher priority than interruptible deliveries, allows a utility to provide interruptible deliveries to human needs customers, and removes current language, citing that interstate pipelines and Natural Gas Policy Act, § 311(b) pipelines are subject to the jurisdiction of the Federal Energy Regulatory Commission. Comments for these proposed changes are due by January 7, 2022.

Gas Securitization Update. Following up from the last issue on the fallout from Winter Storm Uri and House Bill 1520, and after months of negotiations and discussions, the parties in the 7061 Docket reached a settlement. On November 10, 2021, the Railroad Commission unanimously approved that settlement, which allows eight gas companies to regain close to $3.4 billion due to lost revenue from Winter Storm Uri over a defined period of time. This affects customers throughout the state, where the gas companies will have the ability to raise costs of customers’ monthly bills to help regain these funds. The costs that customers will see vary by gas utility, but the increase was reduced from the initial companies’ requests, due to the efforts of several city groups which negotiated fiercely to lower the costs for customers throughout the state. According to the newly passed law, the Railroad Commission has 90 days to submit a financing order to the Texas Public Finance Authority (“TPFA”), directing it to issue bonds. Once the TPFA receives this directive, the TPFA has 180 days to issue bonds. This timeline could reach into mid-2022.

“Agency Highlights” is prepared by Danielle Lam in the Firm’s Water and Districts Practice Groups; Sam Ballard in the Firm’s Air and Waste Practice Group; and Taylor Denison 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 Danielle at 512.322.5810 or dlam@lglawfirm.com, Sam at 512.322.5825 or sballard@lglawfirm.com, or Taylor at 512.322.5874 or tdenison@lglawfirm.com.