In the aftermath of Winter Storm Uri, the Texas Legislature passed Senate Bill 3, which among other things required the Public Utility Commission of Texas to adopt certain market-related rules. A key component of Senate Bill 3 required the Commission to adopt weatherization rules no later than Dec. 1. This new rule will require both power generation companies and transmission service providers to quickly assess a company’s ability to comply with the new rule or navigate the potentially treacherous waters of a good cause exception for noncompliance.
On Oct. 21, the Commission formally adopted new winter weatherization requirements for power generation entities (generators) and transmission service providers (TSPs). The new rule (16 TAC § 25.55), which only addresses winter weather readiness requirements, represents the first of two phases in the Commission’s development of new weather emergency preparation measures intended to increase ERCOT grid reliability during severe weather events. At some undefined future date, the Commission will commence “phase two” of the program by promulgating a more comprehensive, year-round set of weatherization standards.
Winter Weather Emergency Preparation Measures
The new rules target the protection of “cold weather critical components” – equipment that is susceptible to freezing or icing, the occurrence of which is likely to “significantly hinder the ability of a generation resource or transmission system to function as intended.” While generators and TSPs are subject to distinct weatherization protocols enumerated in the rule, the following general requirements are applicable to both types of entities. By Dec. 1, generators and TSPs both must:
- Use best efforts to implement weather emergency preparation measures intended to ensure the sustained operation of certain critical equipment during winter weather conditions, including: weatherization, staffing plans, operational readiness and structural preparations; securing sufficient chemicals and fuel supplies; and ensuring sufficient personnel are available to operate the facilities.
- Use best efforts to address any weather-related failures that occurred during Winter Storm Uri or during the period from Nov. 30, 2020, through March 1, 2021.
- Provide winter weather preparation and operations training to relevant personnel.
- Determine the minimum operating limitations of equipment based on temperature, precipitation, humidity, wind speed and wind direction.
In addition, generators must undertake winter weather preparation measures for each resource under its control, including, but not limited to, installing protective devices and monitoring systems for cold weather critical components, confirming the operability of instrument air moisture prevention systems, and establishing a schedule for monthly testing of freeze protection components during the period from November through March. TSPs are also required, among other things, to confirm that the sulfur hexafluoride gas in breakers and metering and other electrical equipment is at the correct pressure and temperature to operate in winter weather emergencies, and to confirm the operability of power transformers and auto transformers in winter weather emergencies.
Winter Weather Readiness Report Filing Requirement
The new rule requires entities to submit a “winter weather readiness report” that describes the efforts the entity is taking to implement the weatherization standards outlined in the rule. This report must be submitted to the Commission by Dec. 1 on a form prescribed by ERCOT and developed in consultation with the Commission staff. The draft report form can be found on the ERCOT’s Winter Weather Readiness page. ERCOT began providing the final Docusign form to each resource entity and transmission provider on Nov. 12. The report must include a notarized attestation sworn to by the entity’s highest ranking representative, official or officer with binding authority attesting to the accuracy and veracity of the information contained in the report.
Good Cause Exceptions for Noncompliance with the Rule Requirements
If a generator or TSP believes it has good cause for not complying with a specific weatherization rule requirement, it may include within its winter readiness report a notice asserting good cause for noncompliance with the winter weather preparation requirements of the rule. In the event that the Commission disagrees with an initial assertion of good cause, the rule provides an opportunity to submit a request for approval of a good cause exception on a temporary or permanent basis.
The rule states that the Commission will work with ERCOT to expeditiously review notices asserting good cause for noncompliance but does not provide a specific deadline by which the Commission must determine the validity of such requests. It is also worth noting that the mere submission of a good cause assertion does not delay the deadline for compliance with the underlying weatherization requirements if the Commission disagrees with the assertion of good cause. In other words, a generator or TSP that has its request for a good cause exception denied will not necessarily be allotted additional time to comply.
ERCOT Required Inspections
ERCOT will be conducting inspections of generation resources and transmission facilities to determine compliance with the rule for the 2021-2022 winter season. During an inspection, ERCOT may also make determinations on requested good cause exceptions. In prioritizing these inspections, ERCOT may consider among other factors the “risk level” and “vulnerability” of a resource or facility. However, ERCOT has not yet determined the number, extent or content of these inspections.
If ERCOT finds a generator or TSP to be in violation of one of the rule’s provisions, ERCOT must provide the entity a reasonable period of time to cure any violations. Violations that are not remedied within the cure period will be reported to the Commission, and the entity in noncompliance may be subject to enforcement actions, including penalties of up to $25,000 per violation per day.
Generators and TSPs that experience repeated or major weather-related forced interruptions of service are required to hire an independent engineer to conduct an assessment of their weather emergency preparedness. This assessment must then be submitted to the Commission for review. ERCOT will adopt rules specifying the scope and content of this assessment, as well as the circumstances in which it will apply. To date, no such rules have been proposed.
Questions Facing General Counsels
General counsel at power generation companies and TSPs now have several key decisions to make on a very short timeline.
First, is it feasible to complete the necessary tasks within the timeline offered by the Commission or does a company need to seek a good cause exception? This decision is laced with potential risks. Weatherization in Texas is a tinder box ready to ignite. There are countless political, media and shareholder risks involved with any admission that a company has failed met the Commission’s weatherization requirements or needs more time to do so. At the same time, operational realities as well as budget pressures may make full compliance by Dec. 1 simply infeasible.
Second, a general counsel must consider whether seeking a good cause exception will provide any actual protection from noncompliance. As discussed above, a filed notice of a good cause exception is not a safe harbor. It is more of a request for leniency that the Commission may or may not grant. Given this dynamic, prudence would suggest only seeking a good cause exception when full compliance is not possible prior to the submission deadline.
A third consideration or question that general counsel should consider is whether seeking a good cause exception will invite additional scrutiny in other compliance areas. For example, interplay exists between the Commission’s new rule and NERC regulations. Will an admission of noncompliance through a good cause exception shine an undesirable light on a company’s activities under certain NERC or other compliance obligations? Each of these considerations and more are facing this industry in short order. Many crucial decisions will need to be made considering both operational realities and the political pressures that have resulted from a frosty week in February.
Mike Tomsu is a partner in V&E’s Austin office. He specializes in electric power, utility and energy regulation law.
Jaren Taylor is a partner in V&E’s Dallas office. His practice also focuses on energy and electric power regulation.