Energy and Utility Legislative Update

by Thomas Brocato, Georgia Crump, and Patrick Dinnin

During the 86th Texas Legislature, lawmakers filed more than 100 bills relating to gas and electric service and scores more
pertaining to issues of interest to municipalities. We have closely monitored this year’s legislative activity, and we can now report the final disposition of several key bills. Some of these legislative outcomes will benefit cities and ratepayers, while others present setbacks.

Gas Utility Matters

• HB 1767 (Murphy) – directs the Railroad Commission to presume the cost of employee compensation and benefits are reasonable for rate-setting purposes if those expenses are consistent with recent market compensation studies. Our analysis shows this legislation could lead to higher-than-necessary utility rates and potentially undermine reliability. This legislation was passed by the Legislature, and it was signed by the Governor on June 15. Effective date – immediately.

• HB 864 and HB 866 (Anchia) – These two bills are among a dozen or so filed by Rep. Rafael Anchia in response to a 2018 gas explosion that killed a 12-year-old girl in Dallas. HB 864 relates to reporting requirements for pipeline incidents. HB 866 relates to the replacement of certain gas pipelines with plastic pipes. Both bills were passed by the Legislature and were signed by the Governor. HB 864 is effective on September 1, 2019; HB 866 is effective immediately, as of June 2, 2019.

Electric Retail Customer Issues

• HB 1408 (Patterson) – This legislation would have barred the state from operating “a website that lists retail electric service plans or providers for the purpose of enabling or assisting a customer’s selection of a retail electric service plan.” This describes a key function of PowerToChoose.org, the state-sponsored website for electricity shopping. HB 1408 drew fire from The Dallas Morning News, who noted that the bill would effectively kill the PowerToChoose website that over the years has benefited consumers. This is our view also. This legislation died without receiving a hearing.

• SB 2066 (Menendez) – This is a consumer protection bill. SB 2066 would have created additional rules for distributed generation and solar contractors. While the Senate adopted this bill, it died in the House.

• SB 1497 (Zaffirini) – This legislation requires the registration and regulation of energy brokers at the Public Utility Commission (PUC). SB 1487 was passed by the legislature and signed by the Governor. Effective date – September 1, 2019.

• HB 1766 and HB 1768 (both Murphy) – These bills would have directed the PUC to presume the cost of employee compensation and benefits are reasonable and necessary for rate-setting purposes if those expenses are consistent with recent market compensation studies. Although this may sound reasonable on its face, this legislation could lead to higher-than-necessary rates. HB 1767 also included a similar provision for gas utility rates. Both HB 1766 and HB 1768 died without receiving a legislative hearing.

• SB 1941 (Hancock) – This bill would allow transmission and distribution utilities to enter into an agreement with generators to provide power from energy storage facilities. This legislation stems from a recommendation by the PUC that lately has contended with thorny requests from regulated transmission utilities seeking permission to operate utility-scale batteries. While the Senate adopted SB 1941, it died before getting to the House.

• SB 1211 (Hancock) – This bill concerns mergers and consolidations of power generation companies, and it follows a recommendation from the PUC’s Scope of Competition Report. Under this bill, a power generation company merging with another power generation company within ERCOT must receive PUC authorization if it’s projected that the newly merged company will own or control more than 10 percent of installed generation capacity within ERCOT. This is in contrast to current rules, in which the PUC reviews much smaller mergers. SB 1211 was passed by the legislature and was signed by the Governor. Effective date – September 1, 2019.

• SB 1938 (Hancock) – This bill relates “to certificates of convenience and necessity for the construction of transmission facilities.” The bill limits the ability of non-incumbent utilities to own and operate transmission facilities. That is, the legislation favors incumbent monopolies like Oncor and CenterPoint over transmission-only companies. This legislation has drawn opposition from the Trump Administration. SB 1938 was passed by the Legislature and was signed by the Governor on May 16, 2019. Effective – immediately.

• HB 1595 (Paddie) – This legislation concerns the deployment of advanced metering and meter information networks in certain areas outside ERCOT. HB 1595 is one of several bills intended to encourage the roll out of advanced meter networks by non-ERCOT utilities. The Legislature passed HB 1595 and Governor Abbott signed it on May 14. Effective date – immediately.

Electric Grid Security

• SB 936 (Hancock) – This bill “relat[es] to cybersecurity monitor[ing] for certain electric utilities,” and allows the PUC to create a new “cybersecurity monitor.” This monitor will manage a comprehensive cybersecurity outreach program for monitored utilities; meet regularly with monitored utilities to discuss emerging threats, best business practices, and training opportunities; review self-assessments by monitored utilities of cybersecurity efforts; research and develop best business practices regarding cybersecurity; and report to the PUC on monitored utility cybersecurity preparedness. SB 936 was passed by the Legislature and signed by the Governor. Effective date – September 1, 2019.

• SB 475 (Hancock) – This bill establishes the Texas Electric Grid Security Council to facilitate the creation and dissemination of grid security best practices for the electric industry. The bill authorizes a council member to apply for federal secret security clearance and prohibits a member from accessing classified information or participating in a briefing or meeting involving classified information unless the member has such clearance. The bill authorizes the Council to prepare a non-classified report and deliver it to the Governor, Lieutenant Governor, and Legislature immediately preceding the next regular session of the Legislature. The Legislature passed SB 475 and Governor Abbott signed it on June 7, 2019. Effective date – immediately.

Renewable Energy and Federal Tax Credits

• HB 2908 (Patterson) – This bill would have required the PUC and ERCOT to study how federal tax credits for wind production distort electric pricing within ERCOT. The study would also include consideration of peak price formation, negative pricing, ancillary services, congestion, reserve margins and transmission and distribution costs. As originally crafted, the legislation would have directed the PUC to draft rules to eliminate the effect of such renewable energy tax credits, and craft rules to eliminate the effect of the Operational Reserve Demand Curve. The House Committee on State Affairs adopted the committee substitute on April 12, but HB 2908 died without proceeding further in the legislative process.

• SB 2232 (Hancock) – This bill would have directed the PUC to study the effects of renewable energy subsidies on the ERCOT market. The legislation also would direct the PUC to identify a range of potential actions to eliminate the effects of these subsidies, and it would require the PUC to report its findings back to the Legislature. The Senate adopted SB 2232 on April 24, but it died without having received consideration in the House.

Issue of Interest to Municipalities

• HB 795 (Patterson) – This bill concerned a municipality’s ability to enforce zoning and other land-use regulations against electric companies. Identical to unsuccessful legislation filed in 2017, this bill provided additional clarity regarding the rights of a city to enforce zoning laws, even if those laws conflict with PUC decisions. The City of The Colony has been embroiled in such a dispute with an electric cooperative, and that dispute remains pending on appeal. This bill died in the House.

• HB 2263 (Phelan) – This bill related to the sale of electric power to certain customers. HB 2263 eliminated the energy sales program operated by the General Land Office, a program that sells power to cities and other political subdivisions. The legislation also prohibits the charging of the miscellaneous gross receipts tax (“MGRT”) on electric sales to school districts. It does not extend this prohibition against charging the MGRT to other political subdivisions, such as cities. The Legislature passed this bill and Governor Abbott signed it on May 17, 2019. This bill is effective immediately, except Section 182.022(d) of the Texas Tax Code, which takes effect January 1, 2024.

• HB 281 (Middleton) – This bill would bar the governing body of a political subdivision from spending public money to influence or attempt to influence state legislation. It would not bar an officer or employee of a political subdivision from attempting to influence legislation. This bill died in the House.

• SB 702 (Bettencourt) – This bill would require political subdivisions that spend money on lobbying to receive authorization for those expenditures through a vote of the political subdivision’s governing body during an open meeting and as a stand-alone item. The governing body must report to the Texas Ethics Commission the identity of their lobbyists, the amount of money used for lobbying, and an electronic copy of any contract for services. While this bill received Senate approval, it died before making it to the House.

• SB 29 (Bettencourt) – This legislation, as originally drafted, would prohibit cities and other political subdivisions from spending money on lobbyists. SB 29 received approval in the Senate but it died when the House voted it down.

• SB 65 (Nelson) – This bill relates to oversight of state agency contracting and procurement. However, a House amendment to the bill would require “a political subdivision that enters or has entered into a contract for consulting services with a state agency” to disclose lobby contracts in budget documents and on political subdivision websites. The Legislature passed SB 65 with the House’s amendment, and Governor Abbott signed it on June 14, 2019. Effective Date – September 1, 2019.

Telecommunications, Cable, and Broadband

• SB 1152 (Hancock) – While cities are still coming to terms with HB 1004 from the 85th Legislative Session, which drastically reduced the right-of-way rental revenues received by cities from wireless providers occupying the public right-of-way, they are now faced with losing even more revenues as a result of SB 1152. This bill amends Texas Local Government Code § 283.051, and Texas Utilities Code § 66.005. These statutory provisions require telecommunications providers and cable television providers to pay access line fees and cable franchise fees, respectively, to municipalities for the privilege of occupying the public rights-of-way for the conduct of their businesses. However, the amendments to these laws mean that any company that is a member of an “affiliated group” whose members provide both telecommunications and cable television services will only have to pay one of the fees. The affiliated group will aggregate all of the fees paid to all of the cities in the state under both provisions, and will only pay the higher of the fees. As a result, cities stand to lose either access line fees or cable franchise fees from these companies. And, cities won’t know until October 1 of each year which of the two fees they will receive from each company for the upcoming calendar year. The law goes into effect on September 1, 2019, and it applies to payments made on or after January 1, 2020, based on the amounts actually paid between July 1, 2018 and June 30, 2019.

• SB 14 (Nichols) – Electric cooperatives wanting to install fiber optic cable and other facilities to provide broadband services to their members may now use easements, rights-of-way, licenses, and other property rights they own or use in order to do so under this new law, which adds § 181.048 to the Texas Utilities Code. Originally intended to provide a blanket expansion of the permitted uses of easements for electric transmission and distribution, the law as passed contains provisions that require the cooperative to first provide written notice to the property owner of its intent to expand the use of the easement, and prohibit the installation if the property owner protests the use of the easement or other property right for that purpose.

• HB 1960 (Perry) – This bill adds a new Chapter 490H to the Texas Government Code, which creates the Governor’s Broadband Development Council. This new Council is tasked with researching the progress of broadband development in unserved areas, identifying barriers to residential and commercial deployment in such areas, studying technology-neutral solutions to overcome these barriers, and analyzing how statewide access to broadband would benefit (i) economic development, (ii) the delivery of educational opportunities, (iii) state and local law enforcement, (iv) state emergency preparedness, and (v) the delivery of health care services, including telemedicine and telehealth. The Council will have 17 voting members, including representatives from internet service provider industry associations, the health information technology industry, agricultural advocacy organizations, hospital and medical advocacy organizations, county and municipal elected officials, higher education institutions, school districts and libraries, and state senate and house members. The first annual report from the Council to the Governor and the Legislature is due November 1, 2020.

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Thomas Brocato is a Principal, Georgia Crump is the Chair, and Patrick Dinnin is an Associate in the Firm’s Energy and Utility Pracitce Group. If you have any questions concerning legislative issues affecting Energy and Utilities or would like additional information, please contact Thomas at 512.322.5857 or tbrocato@lglawfirm.com, Georgia at 512.322.5832 or gcrump@lglawfirm.com, or Patrick at 512.322.5848 or pdinnin@lglawfirm.com.