Lake: Good morning. This meeting of the Public Utility Commission
of Texas will come to order to consider matters that have
been duly posted with the Secretary of State of Texas
for November 30, 2021. For the record, my name is
Peter Lake. And with me today are Will McAdams, Lori Cobos,
and Jimmy Glotfelty. At this time, we'll open
for public comment, oral comments related to a specific
agenda item will be heard when that item is taken
up. This is for general comments only. Speakers will
be limited to three minutes each. Mr. Journeay, do we
have anyone from the public signed up to speak?
Journeay: No, sir. No one signed up this morning.
Lake: Thank you, sir
Public comment is now closed. We'll start on our formal
agenda item number one, please, sir.
Journeay: I just would like to note on item number one, sir,
that Commissioner Cobos has recused herself.
Lake: Thank you
Alternate rate making mechanisms for water and
sewer utilities. Mr. Smeltzer, you filed a proposal
for adoption. Can you lay that out for us?
Smeltzer: Yes, sir.
David Smeltzer, Commission staff. This is the last piece
of Legislative implementation that we have from the
86th Session, so good to finally get that box checked.
This is a key rulemaking that we have to try and
help our water utilities and specifically, our
smaller water utilities, you know, a lot of times
they have a hard time with standardized rate making
packages because they either don't have enough information
or they don't have the ability to get counsel to help
them work through it. So this just provides a few alternatives.
Some of the changes that were made since the last draft
were all focused on trying to make it easier for staff
to review and trying to take down barriers and streamline
the process. So the most significant barriers were,
we eliminated a year long waiting period
that they had to wait after their rate case to make
it so they can come in and get the infrastructure built
that they need. We added some more formulas in it for
clarity. We eliminated some, a lot of potentially complicating
variables, such as, like multi step six and things like
that. And we also added a provision for the recovery
of rate case expenses while making sure that we deferred
that to the next full rate case so that it could be
done quickly and efficiently without, you know
increasing the rate cases will be required in that
provision. So, we think that it's a much better
product than it started off with and happy to answer
any questions.
Lake: Thank you, sir. Appreciate you laying
that out. A long time coming. And we have a lot of
things with this agency. A lot of times media and Leg
focuses on the power side of the building. But the
water and wastewater is just as important, it's a key part
of what makes Texas work. And this will go a long way
especially to improving how our water and wastewater
systems work, especially as regards the system improvements
to ensure and enhance quality of service. Think it's a
big, big step forward. Thoughts or comments?
McAdams: No, I agree with you
Mr Chairman. I think the ultimate goal of the policy
was to allow a streamlined and expedited mechanism
for at-need systems to be able to perform badly
needed upgrades to their system, to improve the quality
of the service and the water for their consumers and
to do it in a way that is gradual on a schedule
through the mechanisms that staff and stakeholders
have worked so tirelessly over the last two years to
to frame. And, at the end of the day, our goal
was always to be able to allow these systems to
impose or to build in those upgrades without
the sticker shock to the consumer, and I think
this is a great step forward. Good job, Mr. Smeltzer.
Glotfelty: I'm in agreement with all of it and ready to move forward.
Lake: In that case, is there a motion to approve the proposal
for adoption?
Glotfelty: So moved.
McAdams: Second.
Lake: All in favor say aye. Motion
passes. Thank you, sir. I don't have anything on Items
two through 5. Bring us to item number six. Mr.
Journeay.
Relating to electric service emergency
and operations plans, I know Mr Smeltzer's got--
Journeay: That's item 5 sir.
Smeltzer: I might have botched the cover sheet there. Sorry,
guys.
McAdams: Item number six?
Smeltzer: Yeah, So that is the
correct item. It was just item number five. I think.
Journeay: Project 51841.
Lake: Yes. Project 51841. Would you lay that out
for us, Mr Smeltzer?
Smeltzer: This was a Barksdale initiative
Barksdale: Good morning, Commissioners. Barksdale English
on behalf of Commission staff. And I have Mackenzie
Nunez here with me as well. Before you is a proposal
for publication which implements portions of Senate
Bill 3 that came out of the 87th legislature that
made revisions to an existing statute that requires
certain of our regulated entities on the power side
to provide emergency operations plans. The Legislature
wanted to make sure that we were getting regular annual
updates from these utilities and to make sure
that they were staying current with best practices
and that all of our regulated entities were doing
the best job possible to make sure that they were prepared
to be able to operate and respond to extreme weather
events, the changes that you have before you in
this proposal for publication look extensive since
its title to repeal and replace. But in fact, many
of the provisions that are in here are current in the
existing rule. They've just been reorganized to make
it a little bit more logical and to start to frame
out an outline for how staff would like to see these
emergency operations plans be filed in the future.
We consulted with a lot of folks to help us understand
some best practices, and with Mackenzie's help
we got really deep into some emergency management
best practices we worked with TDEM, the Texas
Department of Emergency Management. We used FEMA resources
to try to help really inform us on what were the current
best models for not only responding to imminent hazards
but also for interoperability between agencies, private
companies and the public. So we've come up with this
model as our first step in this rulemaking process
We do imagine that this will take a second phase likely
later into 2022, possibly into 23, depending on the
workload of the Commission. And with that, I am happy
to answer any questions that you might have. One thing
I would like to mention is that this morning I placed
before you an amendment to what was posted last
night. It's on page 12, line 17. It corrects
some language that we had inadvertently changed, which
we believe may have altered the applicability
of a particular section to the rule that we thought
was inappropriate.
Lake: Thank you. Appreciate all the hard work on this. And
under
an extraordinary workload already. Questions, comments?
Barksdale, Mackenzie.
Cobos: I just want to commend staff
Barksdale, you and your team, for your work on this
rule. It's It's a critically important rule, having
worked on this rule years ago when it was first put
in place, it is great to see that we
are making improvements to the rule and moving it up
and into priority, per the legislation that
was passed this past legislative session.
Lake: All right.
Glotfelty: Great job.
Lake: Is there a motion to approve the proposal for publication?
McAdams: So moved.
Cobos: Second.
Lake: All in favor say aye. Motion passes.
Barksdale: Are you sure you don't want to ask us to rewrite
the proposal and come back in two weeks with something
different, sir?
Lake: Sure. Barksdale. Well, belay that motion
McAdams: I didn't make it.
Lake: Let's do that, Barksdale. Thank you
Barksdale: Yes, sir. Thank you very much.
Lake: All right. Items seven through 10, I don't have anything.
Item number--or 7 through 9. Sorry, I got, on item 10, we have
I think an update from, staff's been working on this
rule.
Update from Project 52312.
Smeltzer: Oh. the penalties. Yeah, sorry, I
came up with that agenda. Yeah, I think that we just wanted to provide
some clarity on the administrative penalty rule.
I think there's been a lot of buzz in the press and
other places about the weatherization rule not having
penalties yet, so we wanted to clarify while we are
working on the rulemaking, you know, it takes time
to do these things, our million dollar penalty authority
that was given to us by SB3 is in effect by
statute, and Barksdale and his team will use it if
necessary. So before the December 1, you know, before
the filing date, when all the attestation are due, we
wanted to make it crystal clear that, you know, staff
believes it has that authority. And we think that's
an important clarification. And also, I think that
in one of the themes that we saw in the
comments was that a lot of folks are under the impression
that they can't be penalized until after a reasonable
period, a reasonable cure period, and the proposal
that we are going to be bringing to you has staff's
interpretation of the statute, which is, if you look
at it, we shall give a penalty if you don't cure
within a reasonable period of time. So it's we have
to, but you know, if there's something like a,
you know, bad faith efforts or repeated violations
of the same nature that are our standard, we may issue
a penalty for violations of our rule, holds, and so
we just wanted folks to not have any illusions. We
take this weatherization seriously, and they should
do.
Lake: And if power plants don't winterize, there'll
be penalty. There will be penalties. The penalty will
be significant. This winter.
Any other thoughts., Barksdale?
Barksdale: I just want to say that
I spent about an hour with my team yesterday morning
reviewing the kind of internal administrative process
for how we're going to be reviewing the winter weather
readiness reports that are due on the first. We've
been working very closely with ERCOT, Keith Rogus's
team and the Infrastructure division has set up a
great way for us to be able to have real time visibility
into the data that's going to be turned in. So we're
feeling very synchronized with the ERCOT on how all
this information is going to flow from the entities
to ERCOT to the Commission. And I believe that we
are, we've got the foundation for making sure that
we've got a good compliance regime in place for this
winter.
Lake: Nicely put, that's something that shouldn't
be understated. Not only do we have the authority to
implement the penalties, but the process in place to
identify the weatherization efforts that have been
implemented and, as importantly, any gaps in those
weatherization. So thank you for making sure that we
have a process in place to streamline between the
power plant to ERCOT to the Commission to make sure
that any gaps in weatherization are identified, identified
quickly, and either remedied or penalties levied so
that we know our power plant fleet will be in better
shape this winter than last winter.
Barksdale: Yes, sir.
Yes, sir. Thank you.
Lake: Any thoughts or comments?
Glotfelty: And mine is, mine's just a question. And that is
have we given any parameters by which we think
levels of penalties are appropriate for different
types of violations. I bring this up, as a,
I think back. I was part of the process when we,
when, after the 2003 blackout after FERC rules
were made mandatory, they have million
dollar, FERC has million dollar a day penalty authority
as well. But to my knowledge, none of it's ever been
used in that regard. There have been penalties, obviously
but the million dollar per day penalty is a, it's
a very stiff stick and I just didn't
know if there was any parameters around that. Is that
there occurring, you know, for the entity
that reoccurring and is not satisfying the
intent or the willful nature of rules like this. Or
you know, have we had that discussion yet or is it
pretty much a blank slate at this point in time?
Barksdale: Typically
the Commission has not publicized any kind of matrix
you know, kind of set formula for how it calculates
its penalties. The one exception being in the state
safety world, we do have formulas that are transparent
to the industry and part of that is because the nature
of each individual violation is rather unique. And
so we take a very fact specific approach for determining
those penalty amounts, they are formula based in
terms of, you know, kind of the number of violations
multiplied by, you know, kind of a penalty per violation
and then multiplied by the number of days, and
then we look at that number and determine the reasonableness
of it. I've got one open case right now that I can't
get into too many specifics, but the formula would
have calculated a penalty of something like $42 million
and it was just it was wholly unreasonable. And so
we came back off of that to something that was more
appropriate to, you know, the entity at play, its
financial resources and and the value of an administrative
penalty not necessarily being to fill the general revenues
coffers. That's not my primary concern. My primary
concern is getting compliance with the rules because
that's what the public is interested in. Secondly,
I would also say that this is our first year with this
rule in place, and we need some experience learning
what those violations look like before, I would feel
comfortable coming up with some sort of matrix. Of
course, if you all decide that there's a good policy
reason for determining what a classification system
might look like we'll do our best to take a crack at it.
Glotfelty: I'm not advocating for one yet. And I think
we need to just follow your lead and suggest that maybe
we take some time and look at them and see what comes
in. But you know, I'm open, and I just appreciate your
efforts in this regard.
McAdams: I would also highlight that
many of these facilities, most of these facilities, subject
to this inspection, subject to this rule and
other rules that we have taken up recently are also
subject to enforcement penalties by TCEQ, you know
for environmental standards. And right now, the way
the regulatory discretion allowed to enforcement
to size the penalties accordingly to the infraction
is, mirrors TCEQ's process where they go in, and again,
if we adopt a blanket formula and they have not,
then we may restrict ourselves to where the penalties
does not outweigh the cost of just running to fail.
And again, we don't want to run to fail. So, I
believe that's why TCEQ and EPA has never gone
down that road, not sure what (???) did, but in future
I'd like to leave us the flexibility to cater a penalty
that deters, you know, bad action.
Smeltzer: So Commissioners
on, just to, I do wanna let you guys know that we, as
part of, you had asked Commissioner Glotfelty, if we had considered
this. And so I want to let you know that several of
the commenters did file comments suggesting, suggesting
possible classification regimes. So you'll be able to
have a more sort of thoughtful discussion of that when
we get the draft to you, where you can sort of hear
the other side of the coin to what we've been articulating
because maybe they'll change your mind, right?
That's always, it's always a chance. And also just to
flesh out Barksdale's discussion, I want to say the
we, as part of it, we do have statutory and in our rules
factors that go towards sort of mitigating and aggravating
factors that are considered in every case. And so that
list is available to you if interested.
Cobos: Well, I just
want to echo Commissioner McAdams statements. I
think it's important to maintain enforcement flexibility
these administrative penalties that, the administrative
penalty authority that the Legislature
provided us is extremely important, the number
one goal is to maintain a reliable and resilient grid.
And so I don't want to tie our hands either. And, you
know, come up with some kind of calculation that ultimately
becomes the cost of doing business for the entities
that are required to comply with the weatherization
preparedness standards. Our number one priority is
to maintain reliability for the public. And that's
what we need to use the administrative penalty authority for.
Glotfelty: Let me clarify one thing. And that is, when
NERC got this authority, it was a very big
stick for the industry to comply with these regulations.
To my knowledge, NERC has never and none of the
regional entities have ever levied $1 million dollar
a day penalty. So my point is not to tie the hands
My point is to say that, you know, if you get to
some level of infraction. You know, you're gonna be
fined. You know, if we have a million dollar
a day authority and for the next 20 years, biggest
fine, we ever give is $50,000 a day. Well, guess what?
Everybody knows that it's just $50,000 a day and the semantics
of $1 million dollars a day goes by the wayside. So
it's my hope that we use the full extent of our
penalty authority when the when an infraction warrants
that. And it's not just a placeholder, for, you know
some--
Lake: Absolutely and my primary hope is we don't
have a lot of infractions. We have a lot of compliance.
But to the extent we do have infractions, flexibility
does not mean leniency. At the end of the day,
thanks to these efforts, our generation fleet will
be much more resilient this winter than it was last winter.
Barksdale: And Commissioners, we understand the policy
direction from the statute, and I hear very loud and
clear your discussion right now that the full
range of penalties needs to be on the table and applied
appropriately.
Lake: All day, every day.
Barksdale: All day, every day
Lake: Okay. All right. Thank you, gentlemen. Next up, we
have item 11. Project number 52345. Mr Smeltzer, you're up.
Smeltzer: Thank you, sir. That may have been item 10. I may have
botched that as well.
Lake: All right, we're gonna go by project numbers
Smeltzer: We filed things late. So this is, this is one
of the key, this is one of our statutory deadlines.
We have until December 1 to adopt this. So that's
worth knowing that that's tomorrow, so we got in
there. So this is the key, like one of
the key coordination efforts that we've had between
agencies. I mean, as everyone knows, one of the
failings, from the state's perspective in February
coming out of Uri was a lack of coordination between
the electric and gas industries. We got clear direction
from the Legislature. That can't happen again. And
one of the, one of the aspects of that was the,
you know, electricity not going to the gas people that
we needed to be sending gas to the electric people
that needed to make the electricity. So it's sort of
a cycle and so in our effort to get past that, we've
been meeting regularly. Our project team has been meeting
with members from the Railroad Commission twice a week.
Learning each other's language, learning how things
overlapped with one another, and that's just
this one critical load project team that, you know
the mapping team and other teams have been meeting
regularly as well, so I think that the, we offered
a proposal for publication. And the Railroad Commission
offered a proposal for publication a couple of months ago
and I think that there was a general sense that it
needed to be a little bit tighter, this is all
about, this rule is all about sort of information, what
folks need, when they need it, and how they're going
to get to it. And so people wanted a lot more clarity
on those things. So I think later today we're expecting
the Railroad Commission to adopt their version of the
rule, and it's gonna have a lot of tightening of the
aspects that they control. So, like the number of entities
that are eligible to be critical entities and
the ability to opt out. Those are gonna
be tightened significantly. But it's premature for
me to discuss that in too much detail because they're
adopting it later today. On our side, we also made
a number of changes that I think people are gonna like
or you know, it's going to make it more effective.
We added a definition of energy emergency, and
it's sort of a, it's an odd definition, but it's because
we wanted to make sure that it was clear that this
captures areas outside of ERCOT. I think that the
focus has been on the ERCOT, but I think the Legislature
made clear that our efforts and the critical gas area
need to be Statewide. So you know and that's true
because we need the map of critical infrastructure
to be Statewide, we need the weatherization requirements
for both us and the natural gas industry to apply Statewide
and some of those are tied to this critical, you know
gas investigation.
McAdams: I'm sure FERC will appreciate this to.
Smeltzer: That's right. And, yes, that's right, and
you know, all the utilities statewide
need this information for their loadshed purposes
And on that point specifically, I will say that we
were cognizant our friends from SPP SWEPCO pointed
out to us that they do have these FERC obligations
So we did put language in the rule. We didn't want
to create a conflict of laws to where, if they are
taking actions to follow the directions of
their regional transmission organization, that is not
going to be a compliance issue with this rule. So we
need, we're trying to organize between all these different
entities. So we want it to be clear that they
need to be collecting this information and using it
to the extent that they can, but it's not going to
impede their federal obligations. Some other things
that I think are definite improvements, last time at
the rule, the last version of the joint effort
didn't have a very consolidated away for
the information to flow. But we've worked with Railroad
Commission, and they're gonna be laying out today a one
form solution. So the natural gas operators can
just fill out one form. It's got all the information
that are that our TDUs, MOUs, and Co-Ops say that
they need, and they're going to be able to email it
to their coop and send it to ERCOT. We will have,
the two agency rules and ERCOT will have access
to this through a unified portal for ease of use. And
it should be a lot easier for the utilities to sort
of integrate this data and use it in a meaningful way.
The other thing is, you know, we put some
more boundaries on the exchange of information, and
so, you know, the, if your designated critical as a
critical natural gas operator, you want to know that
and so we had required our utilities to tell them
that right away, our utilities asked for a little bit
more time, and so we're giving them 10 days to sort
of let people know,
did they get all the information they need and what
further information do they need? But we also recognize
that our utilities, it's probably, I've never done it,
but it's hard probably to integrate and classify all
these different sorts of loads. So we put in a provision
that allows them to update that later. So as you know
the different seasons come, they're gonna have more
flexibility and the ability to sort of, you know, get
it right. We also added some clarity around the
self designation process. Before it was not
clear, you know, so we've had this huge effort over
the last couple months to get all of the natural gas
facilities to be filling out this voluntary form, and
we didn't want all of that to suddenly be rendered
moot. And so we made it clear that the utilities can
continue to use the voluntary designations for as long
as they need to before they can integrate this new
data. We didn't want to put on, we didn't want to put
a hard deadline because we wanted to give them the
flexibility to use the information that they have available
to them as best they can. We also, yeah, clarified (mumbled).
So I think those are some of the big changes
that we made, if you have any questions, I'm happy
to answer them. And I also want to just recognize that,
bad form on me for missing it on the water rule earlier,
but, you know, on the water rule, you know that that
that one started off with Emily Sears getting
the project started, and in the final legs, Darryl
Tietjen, and Keith Rogas and Tammy Benter put a huge amount
of hours on that, and it wouldn't have gotten to the
finish line without Mackenzie Arthur and Connie Corona
making me take a day off, and like, picking up
the draft and running with it, and they did the ,same
they did the same on this draft. The project team here
on the Railroad Commission was Natalie Dubiel and Haley
Cochran. Our friends from the Railroad Commission.
They're great. We met with them often, and
then also, you know, our markets experts Eureka
Busman and Rama put in a lot of hours, and they're
also coordinating with ERCOT to make sure that any
of the designation issues at ERCOT are also lining
up with our efforts here. We also had a Romney Orama
Swami Albert and Nabarage who are engineers, were
all working with sonnet. And again would have made it
past the finish line without Rebecca, Connie and Mackenzie
helping get this draft together, last minute. So I just
wanted to thank all those staffers for their
contributions.
Lake: Well put, I'll echo those thanks.
I can't conceive how many countless hours went
into this. I know there were a lot of hours over Thanksgiving
from the team. Thank you. That's not the
way we want to spend Thanksgiving. But thank you so
much for your work on this critical rule.
I know y'all were meeting with Natalie and her team
at the Railroad Commission multiple times a week for months.
So that is no small effort. And that is just
a small indication of amount of cooperation between
the Commission and the Railroad Commission. I appreciate
their efforts as well. The rule was written to
parallel the rule that we expect from them this afternoon
And this is a fundamental part of why the Texas power
grid will be more resilient this winter than last winter.
It's a fundamental change between the relationship
between natural gas industry and the electric generation
industry. For the first time ever, we've got
our utilities, our power transmission, power lines
and poles companies. We'll know where the critical
natural gas facilities are from production to conveyance
gathering and midstream to power plants,
we'll know where the big pieces are that are
required to stay on. That will cover the vast majority
of gas generation in the state, which is critical to
keep the power plants running, which, of course, is
critical to keep the gas facilities running, the
circular reference you mentioned earlier
And for the first time ever, both of those industries
will know where the key pieces are and how to keep
both sides of that equation functioning in an extreme
winter event.
The bottom line is we'll have a much more resilient
grid this winter, both on the gas supply side and on
the power generation side. As we talked about earlier,
with Barksdale's efforts, implementation is just as important
as having the rule in place. And the single form for
information submittal is a big part of streamlining
that process, and we have a lot of this information
already, as you mentioned, Smeltzer, as we've
discussed in the various work sessions, in some parts
of the state, we went from 10 or 15 critical
natural gas facilities to over 700 at which point we
have too many critical natural gas facility. So some
of this effort is making sure, going in this winter,
we can focus on the ones that are truly critical
and this is not the end of this process. As our mapping
process moves forward, we'll get more specific and
more granular detail about the vast natural gas supply
chain in our state, so we can bring even more precision
and accuracy to critical infrastructure, natural gas
infrastructure to keep the gas flowing to the power
plants, which can keep the lights and heat on in our
homes in extreme weather events. So thank you, thanks
to our entire staff. Thank you for the Railroad Commission
leadership and their staff for the work on this, tremendous,
tremendous effort that fundamentally changes the way
we deliver Gas and Power in Texas. Connie?
Connie: Chairman, if I may, I wanted to echo the thanks that David
put out to the PUC staff and the Railroad Commission
staff. I do want to clarify that that day, he said
he took off was Sunday. I'd also like to thank each
of your offices and your respective staffs for
being available to us on an as-needed basis, whenever
and however we needed to bounce ideas off of each
of you and your advisors to make sure we got the
best rule possible. And to the experts in the industry
who were answering our technical questions pretty much
around the clock for the last few weeks.
Lake: Yeah,
thank you, Connie, and there's no shortage of thanks
about the utilities and only gas sector. Those companies
in both industries provided a lot of information. Put
in a lot of work to get to the point we are
today. This was not a straightforward process.
It was not an easy process. And so we commend both
of those industries for helping us deliver this fundamental
change to the way gas and power works in Texas. Thoughts,
comments?
Cobos: I want to echo the chairman's statements.
Having worked through the February 2011 event and
Winter Storm Yuri, this rule is a landmark rule
that for the first time ever will recognize
the importance of the inter-relationship between electric
generation and the natural gas supply system and will
go a long way to ensuring that we have a reliable and
resilient grid in the future.
McAdams: Yeah. Thank you, Mr Chairman, I just want to highlight,
I think we've all been reading the newspapers. I mean
it's part of our responsibilities here is to be responsive
to the public concerns. I think it is important
to emphasize as a part of this proceeding. Many thanks
to the staffs of both respective agencies, that
of the Legislature, the Governor's office, those responsible
for passing the landmark legislation that allowed us
to come together. It's important to realize that we
are acting in concert with the Texas Railroad Commission
and they are our partners in forming a consistent policy
approach that allows the government to move forward
and ensure that the people of Texas, and especially
the ERCOT system in this particular case, remain
safe during weather-related or any natural disaster
that may come along to impact service. With
this rule, I want to highlight that I believe our utilities
have the discretion to prioritize those natural gas
entities that are designated as critical, so that no
matter what scenario comes along, they can adjust in
a timely way to ensure that the lights, the heat, the
electric service remains on so that, you know, people
remain safe. I would like to compliment the work that
Railroad Commission has done, this has not been
easy for them. They have a vast industry that they
regulate as well with a lot of small and mid sized
actors. I mean, truly mom and pop businesses out there
that they're trying to get their arms around. But ultimately
they've made vast strides in accounting for storage
transmission, and production to allow
us to have the numbers that we need to move forward
into this winter and safely say that the heat is gonna
stay on. Those consumers and ERCOT will have service.
And I would just like to compliment the unified
effort and the unified approach that both agencies
have taken over the last six months.
Glotfelty: You know, I hate to be a broken record here, but
I appreciate the staff as well. I don't know that
I yet have an appreciation of how many hours go into
it. But when you say all those names and all the weekends
and nights and all of that, getting emails from you
in wee hours of the morning, I begin to learn how
much time goes into this. So I very much appreciate
that. I echo all of my colleagues comments.
You know, I think this is an important rule, this
is critical to address issues from this
past year. This is a paradigm shift in how these industries
are working together, and I think following
what the Legislature told us to do, it's important
that we get it done. So and I think we've done it
in a fair and right way.
The one thing that I want to say that sticks out in
my mind as a result of this is, when I was
helping build gas fired power plants, the best place
to locate a power plant was where there was transmission
which I think we understand how secure transmission
is, gas, and water. And we've got two of them under control
and one of them is to better perhaps understand how
the megawatts that are created using water in big steam
boilers or heat recovery steam generators or all that
might be affected in the future in terms of critical
infrastructure. A lot of these gas plants take effluent
water from wastewater treatment plants from cities
which seemed to have some problems this past winter
as well, and it might be an area to explore going
forward, but obviously not part of this rule. Let's
get this one done, and that's something that we can
think about in the future. But thank you.
Smeltzer: And to your
point, Commissioner. Once we you know, we're going
to get more information from this mapping initiative,
but we will revisit this rule as needed, once or more
than once if we need to. We got to get it right,
and so we'll keep coming back to it as we need to.
And I do appreciate all the credit, but the the late
night hours are often due to the, you know, Rebecca
and I both have children under two, and so they
are they're the maybe the most active members of the
project team.
Lake: Well, well put. Mr Smeltzer and Jimmy
I will say thankfully, Texas Water Development
Board has a robust state water planning process that
takes a concerted account for power generation.
Glotfelty: Under your leadership as well, I'm sure.
Lake: Well, that was there
long long before I got there.
Glotfelty: But we know who perfected both of them.
Smeltzer: Commission staff is happy to take credit for that as well if needed.
Lake: Make sure the public understands that the water
issue is not just languishing out there. There
have been substantial efforts on that. All right, is
there a motion to approve the proposal for adoption?
McAdams: So moved.
Cobos: Second.
Lake: All in favor say aye. None
oppose, the motion passes. Well done, Mr Smeltzer. Team,
thank you all. So, so much. An incredible effort. I
don't have anything on the next item. Which brings
us to project 52631, rule concerning the establishment
of H-Cap under 25.505 We've held off on
this because we've had a lot of discussions and analysis
on, yeah, discussion analysis on the RDC changes.
Obviously H-CAPS are part of that. We want to make
sure. I think that Mr Cobos, good, good insight
that we want to make sure this we want to address by
this particular element of the rule by the end of the
calendar year. Want to make sure we take formal action
on it this Thursday at our open meeting, but ahead
of that want to get, have a conversation about what
that, what you all think about that H-Cap number,
any updated thoughts so we can give staff
some direction as they prepare the proposal for adoption.
I know, we started Commissioner McAdams took leadership
on this with an initial-- He did, didn't he?
McAdams: I did. I took a swing
We'll see if I did anything.
Lake: Well done that. It's not easy. Started
out at 4500. There have been discussions which
50% off of the 9000 we had when we all walked
into this job that we've had a lot of different scenarios
run a lot of different, and we don't H-Cap is the
only thing we need to solve today. There are a lot
of other variables that go into the RDC equation
So I know you started 4500 have been a lot of discussion
about various different numbers. I'll open it up for
discussion. Loved to hear your thoughts first.
McAdams: Well, sir, there have been many conversations
since our our last workshop where we discussed H-Cap
ORDC specifically. I think, firstly
we need to recognize, okay, what is ORDC?
Is it the saving grace for reliability moving
forward? Meaning resource adequacy, because again
you ably articulated that it is not designed to
incent the building of new generation on its own.
Man, the holidays. And with that, are we
designing ORDC moving forward to account for rucking,
to account for competitive forces of increased
solar penetration coming in. So, in my view, and I
have asserted that ORDC was a stabilizing force,
should be designed and implemented, changes
should be implemented with the intent, with the goal
of stabilizing our existing fleet, providing them revenues
and the right price incentives to behave the
way they should in the real time market, so
that they are online when we believe scarcity, the
likelihood, the probability of scarcity is growing.
We have continually said that the longer tails
go out, renewables do benefit to an extent.
Now, ORDC, in theory, would not engage until
the bulk of renewables are not performing as they
normally do. Again, wind. Primarily driven by wind.
Yes, sir. And again, that will be sort of a wind
scenario. Right? Because wind drops off at night.
Lake: Especially in the winter, as it gets caught in like
the summer. The load goes up as it gets colder and
the sunsets early.
McAdams: And then that cold front phenomenon
that you see. So I view ORDC as
a component of the broader framework that we are discussing
here. So I am not trying to bake a whole lot
in to what ORDC should accomplish. I insist we
need to use it to stabilize the current market
conditions within ERCOT, provide our generators with
a reasonable expectation that they will have adders
at the right time so that they prepare and execute
as we expect them to. And so I stand by my memo
from last week, and I do believe that given the
feedback that I've had a MCL of 3000 provides
us, again, that breathing room to where it is advanced
from EEA conditions. And we also have the ability
to build in reserve metrics that we follow to appropriately
deploy ERS after the MCL. Which again, for those
in the broader public, the minimum contingency level
implies that high cap is achieved, and so scarcity
pricing, the prices are in effect. I also believe that
5000 is an appropriate level, given the the insistence
of load resources that they need higher prices again
to, they need to see higher prices to justify turning
off their facilities and responding to real time price
conditions. And it's not the 6000, but it's also not
4500, and historically 5000 was was an enormous number.
Over the history of the deregulated market design.
And it still is compared to other ISOs
in this country.
Lake: What's the next highest?
McAdams: Well, so SPP is 2000. Just to put it in context. Now
PJM, may be 14,000, but I do not...
Lake: I heard a lot of things about that.
McAdams: There's a lot of things about PJM, so
with that, I would, again, I'm setting the table. Those
are, that's the prism that I'm viewing ORDC
through at this time.
Lake: So we don't need to figure out
MCL today, but you're saying, you're basing, H-Cap 5000.
Also throwing, your saying 3000 MCL?
McAdams: I would also point
out, sir, some have asserted the separation of VOLL.
As a part of this rulemaking, we did not separate value
of lost load from high cap. So again, it's not addressed
in the rulemaking. So I don't think we have an open
door to address the VOLL as a part of the calculation
for ORDC at this time, and we can speak
to staff about that, and correct me if I'm wrong, but
again, we just changed the number, and there are constraints
upon this Commission that we cannot take up at this
time without going through and then reopening scarcity
pricing.
Smeltzer: So I hadn't thought about that in this context
because I haven't been following the other discussion
but I'd say, you know, the two sort of questions you
wanna ask yourself about this usually are we impacting
people in a way that, are we impacting people
that wouldn't have been impacted otherwise under the
proposal? Or we imposing a much higher regulatory burden
than we would have been otherwise.
And I guess sort of another relevant question
is always like did the stakeholders or did
the public have adequate notice that a change
might be adopted? And so I'm inclined to think that
there might be some fudge room on this because if absolutely
needed. But I would say that the messaging from the
dais on this rule was pretty clear about what you guys
wanted this rule to be, so I mean, we'll
write the draft you guys want us to write, but...
Lake: I think, well pu. But I think for the purpose of the Thursday
it's H cap, and, we've also, this Commission has also
recognized that we're, at the moment in an extraordinary
set of circumstances. We've expedited rulemaking before
to achieve key goals. So
the overall objective is to reduce H-Cap before, as
Commissioner Cobos highlighted, before it resets in
January to make sure the people of Texas are not exposed
to those extraordinary high prices when the when the
calendar rolls over 2022. So that's the overarching
objective. ORDC is the, agree with many
your comments on that, and I'm perfectly comfortable
for the purpose of H-cap of 5000. Any other thought?
Cobos: Thank you, Chairman Lake and Commissioner McAdams,
for your thoughts on the H-Cap.
Many of the comments you've made, Commissioner McAdams
and Chairman Lake, I agree with. You know, ORDC
is a tool that's been in the market for
several years now. And it's an important reliability
tool that we've had in our market since about 2013.
And, you know, we've got to balance the ORDC
in a way that we are bringing reserves online earlier,
we're still incenting demand response participation.
We are using the ORDC as an operational
reliability tool by having reserves come on that
would normally be reupped in the recent past,.
And to also account for the additional reserves
that ERCOT is carrying, through their conservative
operations to maintain a higher margin of reliability
And so the goal of the ORDC, I agree
is, you know, both an operational reliability tool
as far as a revenue adequacy tool, I don't
believe that the ORDC is not necessarily
intended to drive new Greenfield investment, but
as you commented, the ORDC will help stabilize
the existing generation and potentially drive investment,
incremental investment in existing generation like
upgrades, adding additional unit to an existing
power plant or uprates, which will squeeze out more
megawatts from an existing power plant. While you
know, we recognize this fact, I think it's important
to again note that the changes that we're making to
ORDC through our reform efforts here are very
important. They are, you know, we don't want to minimize
the importance of the changes we're making to ORDC
because these are every parameter of the
ORDC, whether it's the H-cap, the minimum contingency
level or even a consideration of a standard deviation
which is not on the table right now, have been highly
contested debated issues in the past. So what we are
doing here, we are taking extraordinary aggressive action
to reform the ORDC to maintain operational reliability
and drive revenue adequacy to existing generation.
And it is by no means low hanging fruit. And so I
wanted to again reiterate that to the public, to
the stakeholders out there. And so, given all those
comments I, you know, with respect to the H-cap itself,
I am an agreement, I think 5000 seems to
be a good a good spot, I know the 6000 was
was considered only to help drive more demand response
on the system. But to try to sort of, you know, really
gear the ORDC to incent operational
liability and revenue adequacy to dispatchable generation
resources. I think that is a good starting point
to go ahead and modify our proposal for adoption and
insert in there. Right now, at this time, I'm at
a 3000 MCL as well. Because of the fact that
that would bring on the operational reserve demand
curve earlier to get reserves on earlier on the system
to maintain reliability so we can help prevent conservation
and emergency events. And so that's that's where I'm
at right now. And I continue to reiterate that I think
we should adopt the rule, you know, this
Thursday so we can get the price cap in place before
January 1, but also to go ahead and approve
ORDC changes in a timely fashion so that we can
have the ORDC, the modified ORDC in place
for this winter so that we can ensure that reserves
come on earlier, that we're driving demand response
participation, and helping, using the ORDC to
help maintain reliability this upcoming winter season.
Lake: Nicely said.
Glotfelty: Thank you. Appreciate all your comments. Appreciate
your work, Commissioner McAdams. I'm totally okay
with doing a price cap at 5000. The one thing
that I do want to say is, you know, I think
all of these changes that we are considering are
expensive. Expensive is relative
to problems. We're trying to to push off
problems so that they do not appear this winter, and
they do not appear on the system. And I think it's
warranted based upon what we've, what we have experienced,
what all Texans have experienced, so I think this
is the right policy to move forward at 5000 and at 3000
MCL. I have some other thoughts that
I want to explore in the future. Some other analysis.
That it is probably not the right time, because we're
kind of, we're in a unique time, and I think we need
to do what's right for today. So
I'm supportive of this effort and appreciate your
efforts.
McAdams: One factoid, if I may, Mr. Chairman
on that note, talking about it with staff earlier,
ORDC has been modified, we believe 10 times since
its inception.
Lake: Eight years ago.
McAdams: 2014.
So I just want to highlight that for the
public, but also the stakeholders who are gonna naturally
clamor at our door, this is inadequate or, you know
this is low hanging fruit, or any of the arguments that
will be made, but this is a tool that was always
designed to be moved dependent on the conditions
of the grid. And we are taking the appropriate action
with this move. And I think we have consensus on
this dais to that effect. But it's not to say that
it cannot be refined still further, not necessarily
to the, that is not a threat to our generation community.
That is, no, we're going to continue to look at this
in the near term, over the next two years, as the broader
framework evolves that we're considering as a part
Lake: of the the redesign effort here.
Absolutely. That's
a promise to our citizens that we're going to
continue to balance reliability with affordability.
Cobos: Great comments. Yes, and and well put Commissioner
McAdams. We have performed many surgeries on ORDC
in the last, you know, seven years or so,
and, I think it's a matter of due diligence. We
should continue to examine the ORDC in the future
to make sure we are striking that balance between reliability
and customer affordability.
Lake: Well put on all
accounts. Jimmy always appreciate you reining in our
relentless pursuit for reliability and reminding us
that affordability is still important. And
well put on the promise to keep reviewing this
and balancing reliability and affordability. And I'll
close by highlighting what Commissioner Cobos said in
that a big part of this is moving MCL out.
We're reducing almost 50% the high cap price that our
homes and businesses are exposed to, while at the same
time moving that price point further out from
the 00 supply. And so we're reducing liability and
exposure both on the, to our citizens and our
businesses, both on the degree of the price, of
the extreme price that can be charged. But we're also
making sure that our marketplace gets that price sooner
and so that all resources are brought to bear, the generation
that, the generation fleet that comes in at various
price points, the demand response, that all of these
resources are brought to bear through market based
mechanisms. Before as Commissioner Cobos said, before
we ask citizens to turn off their homes and businesses
which is a big departure from the way business has
been done in the past, and that's something
that is extremely important. It should not be overlooked
in our in our efforts that are being made today and in
conjunction with ERS. Again, another extraordinary
move that is a dramatic departure from business as
usual. That goes a long way to increasing reliability
of their power grid. Thank you all for all the work
on this. In terms of direction to staff, I think
what y'all need from us is that 5000 number.
Smeltzer: Yes, sir, this feels like it's a big decision where it's going
to affect a lot of money. So right now we have
enough direction to write a draft. But the way we would
do that would be to go back and look at this transcript
and try and pick out the key points of this extended
discussion. If you would prefer, one of you could
make a definitive policy statement right now about
the motivations for developing this, or file a memo
that says, like these are the reasons why we think
this strikes the right balance. If you want. We're
happy. It's just whether or not you want to control
the messaging that goes into this draft or if you want
staff to do the policy analysis based on the discussion
you just had, we're happy to go either way. Does my
question--
McAdams: What I'm hearing is you expect us to get
sued and you want to-- (laughter).
Smeltzer: I'm not saying, what I'm saying
is if we miss the mark, I'd rather find out about that
before Thursday.
Lake: Aren't you glad you filed that memo?
McAdams: So glad. I'm going to get deposed.
Lake: They didn't tell you that in this job application?
Smeltzer: We have sufficient direction to move forward. If that's
what you, if that's your preference.
Cobos: Can you draft something
and circulate it down the hall?
Smeltzer: We sure can. We, you
know, we don't want to, we want to be careful about
open meetings act, so if we're gonna be getting, we
could take substantive input from any two of you.
Lake: How about I take a crack at it and
we'll say we, after the extreme weather events Of February
2021, this Commission recognized that the extremely
high price of 9000 was an extraordinary liability on
market participants and customers of ERCOT. Therefore
with the intention of reducing that financial liability
to all market participants and customers in ERCOT
while also maintaining appropriate market signals and
price signals for both generators and demand response
participants in ERCOT, the Commission is asking staff
to strike that balance at an H-cap of $5, 000 in order
to ensure appropriate generation brought to the market
using market-based, brought to bear using market-based
mechanisms while also incentivizing demand response
while limiting extraordinary financial liability
for all participants and customers of ERCOT.
Smeltzer: Good answer. That will save staff a considerable
amount of time. Thank you, Lake: Anything else?
Smeltzer: For the record, I don't
even own a cell phone. We're good.
Thank you. Thanks, sir.
Lake: That's all we need, all the business we need
to cover on that item. I don't have anything else..
So there being no further business before the Commission
this meeting, the Public Utility Commission of Texas
is hereby adjourned.