Texas Distributed Power Generation Act

By: ___________________

H.B. No. _____

A BILL TO BE ENTITLED AN ACT

relating to the establishment of a Texas distributed power generation network and a two-tier locational value credit for new generation sited within designated load-zone nodes; coordinating with the Texas Energy and Intelligence Infrastructure Security Board.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. SHORT TITLE.

This Act may be cited as the Texas Distributed Power Generation Act.

SECTION 2. FINDINGS AND PURPOSE.

The legislature finds that:

(1)the Electric Reliability Council of Texas projects peak system demand growth that exceeds committed generation under existing market mechanisms;

(2)new generation sited closer to load centers reduces transmission line loss, congestion premiums paid by retail customers, and the public capital and private property required to build long-haul transmission corridors;

(3)the energy-only market established under Chapter 39, Utilities Code, does not currently provide a financial signal that reflects the locational service value of new generation;

(4)the additional system benefits of dispatch certainty, water recirculation, and committed community benefit that result from a voluntary Power Production Compact certified under Chapter 481A, Government Code, exceed the system benefits available from a non-certified generator sited at the same node, and warrant a separate locational value credit tier; and

(5)it is in the public interest of this state to establish a network of distributed generation nodes, organized by Electric Reliability Council of Texas load zone, and to establish a two-tier locational value credit payable to qualifying generators that provide measurable transmission-loss, congestion-premium, and transmission-capital avoidance benefits to the state's electric grid.

SECTION 3.

Subtitle B, Title 2, Utilities Code, is amended by adding Chapter 39A to read as follows:

CHAPTER 39A. TEXAS DISTRIBUTED POWER GENERATION NETWORK

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 39A.001. DEFINITIONS.

In this chapter:

(1)"Board" means the Texas Energy and Intelligence Infrastructure Security Board established under Chapter 481A, Government Code.

(2)"Certified Power Production Compact" or "certified PPC" means a voluntary Power Production Compact between a data center operator and a Texas generator that has been certified by the Board under Subchapter F, Chapter 481A, Government Code.

(3)"Commission" means the Public Utility Commission of Texas.

(4)"Distributed generation node" or "node" means a geographically defined area, established under Section 39A.003, in which new electric generation is sited to provide locational service to a load center within or adjacent to that area.

(5)"ERCOT" means the Electric Reliability Council of Texas.

(6)"ERCOT load zone" means a congestion zone designated by ERCOT for purposes of locational marginal pricing, consisting of the North, South, West, and Houston zones.

(7)"Locational value credit" means the credit established under Section 39A.005.

(8)"Network" means the Texas Distributed Power Generation Network established under Section 39A.002.

(9)"Qualifying generator" means an electric generator registered with ERCOT that is sited within a node licensed by the Board under Chapter 481A, Government Code, and that meets the eligibility standards under Section 39A.005(b).

(10)"Texas Energy Fund" means the fund established under Section 39.901.

Sec. 39A.002. NETWORK ESTABLISHED.

(a) The Texas Distributed Power Generation Network is established as a state framework for siting new electric generation within designated nodes organized by ERCOT load zone.

(b)The network consists of the 21 nodes described in Section 39A.003 and any additional node designated by the Board under Chapter 481A, Government Code.

(c)The commission and ERCOT shall coordinate with the Board to implement this chapter.

Sec. 39A.003. NODE DESIGNATION BY ERCOT LOAD ZONE.

(a) The following 21 distributed generation nodes are established, organized by ERCOT load zone and identified by county group:

(1)ERCOT North Zone:

(A)Node N1 (Tarrant-Dallas county group);

(B)Node N2 (Denton-Wise county group);

(C)Node N3 (Collin-Rockwall county group);

(D)Node X3 (southern Dallas county group); and

(E)Node X1 (McLennan county group);

(2)ERCOT Houston Zone:

(A)Node H1 (Harris county group);

(B)Node H2 (Brazoria-Galveston county group);

and

(C)Node H3 (Montgomery-Liberty county group);

(3)ERCOT South Zone:

(A)Node SC1 (Travis-Williamson county group);

(B)Node SC2 (Bexar county group);

(C)Node SC3 (Hays county group);

(D)Node C1 (Nueces county group);

(E)Node C2 (San Patricio-Aransas county group);

(F)Node S1 (Hidalgo county group); and

(G)Node S2 (Webb-Zapata county group);

(4)ERCOT West Zone:

(A)Node W1 (Ector-Midland county group);

(B)Node W2 (Upton-Reagan county group);

(C)Node P1 (Potter-Randall county group);

(D)Node P2 (Lubbock county group); and

(E)Node X2 (Tom Green county group); and

(5)ERCOT East boundary subzones:

(A)Node E1 (Smith-Gregg county group);

(B)Node E2 (Nacogdoches-Angelina county group);

and

(C)Node CC1 (Sabine-Panola county group).

(b)The Board has sole state authority to designate specific sites for facilities sited within a node and to issue the operating license required for each facility under Subchapter C, Chapter 481A, Government Code.

(c)This section may not be construed to grant the commission, ERCOT, or any other state agency siting authority over specific parcels of real property within a node. Site-specific designation is governed by Chapter 481A, Government Code.

Sec. 39A.004. CAPACITY TARGETS AND MILESTONES.

(a) The network has an aggregate distributed generation capacity target of 34,200 megawatts to be installed and operational not later than December 31, 2035.

(b)The network has an interim distributed generation capacity milestone of 15,000 megawatts to be installed and operational not later than December 31, 2030.

(c)The commission, in coordination with ERCOT and the Board, shall publish an annual progress report under Section 39A.008.

(d)A target or milestone under this section is a planning benchmark and does not, by itself, create a private right of action.

Sec. 39A.005. LOCATIONAL VALUE CREDIT; TWO TIERS.

(a) The locational value credit is established as a per-megawatt-hour credit payable to a qualifying generator for energy delivered to ERCOT from a facility sited within a node licensed by the Board, in two tiers as described by this section.

(b)BASELINE TIER. (1) The baseline tier is paid to a qualifying generator that is registered with ERCOT and sited within a node licensed by the Board.

(2)The baseline tier is calculated quarterly and equals the sum of:

(A)the documented avoided line-loss attributable to the generator's location, as measured against the load-zone weighted transmission line-loss factor for the same period;

(B)the documented congestion-premium reduction attributable to the generator's location, as measured against the locational marginal price differential between the node and the ERCOT system reference price for the same period; and

(C)the documented avoided transmission capital cost attributable to the generator's location, as measured against the commission-approved transmission capital cost recovery factor for the load zone for the same period.

(c)ENHANCED TIER. (1) The enhanced tier is paid in addition to the baseline tier to a qualifying generator that is sited within a node licensed by the Board and that is a party to a certified Power Production Compact under Subchapter F, Chapter 481A, Government Code, in effect during the relevant reporting period.

(2)The enhanced tier is calculated quarterly and reflects the additional system benefits available to the grid as a direct result of certified PPC participation, including:

(A)the value of contracted dispatch certainty demonstrated by the off-take agreement between the generator and the certified data center operator;

(B)the value of committed water recirculation under the Net Water Neutrality standard adopted by the Board under Subchapter K, Chapter 481A, Government Code; and

(C)the value of the certified community benefit contributions made under Subchapter H, Chapter 481A, Government Code.

(3)The Board, in consultation with the commission and ERCOT, shall, by rule, adopt the methodology for calculating the enhanced tier and the cap, if any, applicable to a single qualifying generator during a reporting period.

(d)ELIGIBILITY. A generator is eligible for either tier under this section only if the generator:

(1)is registered with ERCOT;

(2)is sited within a node licensed by the Board under Chapter 481A, Government Code;

(3)holds a valid operating license, if required, under Chapter 481A, Government Code, or is co-located with a facility that holds that license; and

(4)meets the metering, reporting, and verification requirements adopted by the commission under Subsection (g).

(e)FUNDING. (1) Each tier of the credit is funded only from:

(A)the Texas Energy Fund, in the manner described in Section 39A.006; and

(B)fees collected by the Board under Subchapter L, Chapter 481A, Government Code.

(2)Neither tier of the credit may be funded through a surcharge on retail electric customers.

(f)An eligible generator is paid only one tier per megawatt-hour during a reporting period. A generator entitled to the enhanced tier is paid the enhanced tier in lieu of, and not in addition to, the baseline tier for the same megawatt-hour.

(g)The commission, in coordination with the Board, shall, by rule, adopt the metering, reporting, verification, and audit procedures necessary to administer this section. The rules must require quarterly publication of credit calculations and payments in a publicly accessible registry, by node and by tier.

Sec. 39A.006. FUNDING; TEXAS ENERGY FUND EXTENSION.

(a) The Texas Energy Fund may extend low-interest loan financing under Section 39.901 to a qualifying generator sited within a node licensed by the Board.

(b)The commission, in coordination with the comptroller and the Board, shall reserve a portion of the Texas Energy Fund authority for generation projects sited within a node and may give priority to projects participating in a certified Power Production Compact under Subchapter F, Chapter 481A, Government Code.

(c)The legislature may not appropriate from general revenue to fund the locational value credit unless the appropriation is made in a general appropriations act and specifies the credit as the purpose of the appropriation.

Sec. 39A.007. COORDINATION WITH THE TEXAS ENERGY AND INTELLIGENCE INFRASTRUCTURE SECURITY BOARD.

(a) The commission, ERCOT, and the Board shall enter into a memorandum of understanding to coordinate the licensing, siting, interconnection, and reliability functions of the network.

(b)The Board has sole state authority to:

(1)designate specific sites within a node for licensed facilities;

(2)issue, condition, suspend, and revoke a data center operating license under Chapter 481A, Government Code; and

(3)certify a voluntary Power Production Compact under Subchapter F, Chapter 481A, Government Code, that qualifies a participating generator for the enhanced tier of the locational value credit under Section 39A.005(c).

(c)The commission and ERCOT retain their existing authority over wholesale market design, transmission planning, and reliability standards, subject to the locational value credit administered under this chapter.

Sec. 39A.008. REPORTING TO THE LEGISLATURE.

(a) Not later than December 1 of each even-numbered year, the commission, in coordination with ERCOT and the Board, shall submit to the governor, the lieutenant governor, the speaker of the house of representatives, and the standing committees of each house with primary jurisdiction over electric utility matters a report on:

(1)the installed capacity of each node;

(2)the aggregate progress toward the targets under Section 39A.004;

(3)the total amount of locational value credit paid during the reporting period, by node, by tier, and by funding source;

(4)the documented line-loss, congestion-premium, and transmission-capital avoidance attributable to the network; and

(5)any recommended statutory changes.

(b)The report is a public record under Chapter 552, Government Code.

SECTION 4.

Section 39.901, Utilities Code, is amended by adding Subsection (k) to read as follows:

<u>(k) The fund may extend low-interest loan financing to a generator sited within a distributed generation node licensed by the Texas Energy and Intelligence Infrastructure Security Board under Chapter 481A, Government Code. The commission may reserve a portion of the fund authority for projects qualifying under Chapter 39A of this code and may give priority to projects participating in a certified Power Production Compact under Subchapter F, Chapter 481A, Government Code.</u>

SECTION 5. SAVING AND TRANSITION.

(a) The changes in law made by this Act apply to a generation project for which an application for ERCOT registration, interconnection, or operating license under Chapter 481A, Government Code, is submitted on or after the effective date of this Act.

(b)A generation project for which an application described by Subsection (a) is pending on the effective date of this Act may, at the option of the applicant, elect to proceed under the law in effect on the date the application was submitted or under this Act. The election must be made in writing and filed with the commission not later than the 90th day after the effective date of this Act.

(c)The former law is continued in effect for an application that does not elect to proceed under this Act.

SECTION 6. EFFECTIVE DATE.

This Act takes effect September 1, 2027.

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Drafted by Will Campbell for Texas, HD-109 — Pre-filing Draft v1.0

90th Texas Legislature, Regular Session