Texas Commission sets generation interconnection allowances

Proposal for Adoption

On February 12, 2024 Staff filed a Proposal for Adoption to amend Terms and Conditions for Transmission Service. The purpose of the proposed changes is to implement House Bill 1500, which requires the Commission to develop a reasonable allowance applicable to generation resources interconnecting directly with the ERCOT transmission system at transmission voltage after December 31, 2025.

Under Staff’s proposed rule, interconnections at or below 138 kilovolts (kV) would initially have an allowance of $14 million and interconnections above 138 kV would initially have an allowance of $22.5 million. The allowances will be adjusted annually to reflect year-over-year changes in the Consumer Price Index.

Open Meeting Discussion

At the February 15, 2024 Open Meeting, Texas PUC staff noted that this rule would change the way ERCOT handles generation interconnections, from a “load pays philosophy” for most costs in which generators are only responsible for a few things such as step-up transformers close to their facility. Under the new legislation, the Commission is required to adopt a reasonable allowance and generators will pay the costs above the allowance.

Staff noted that their recommendations focused on restraining outlier costs for disproportionately expensive projects, adding that if generators make good siting decisions and are within the normal bounds, they should enjoy the same cost-free, generation friendly interconnection process they have always had.

Staff explained that the cost drivers were not what they expected. They ended up determining that voltage level was a significant cost driver so, if they wanted to maintain siting discipline across all generator locations, they needed a two-tiered allowance based on voltage. Staff noted that they tried to keep some distance between the two allowances so there would be neutral siting decisions since there will be a trend toward higher voltage levels in the future.

Staff noted that they originally started with $12 million, adding that they believed outliers were the way to try to trim those, while continuing to incentivize prudent decisions. After further analysis, Staff increased the amount to $14.5 million because they found the cost difference between high-voltage and low-voltage lines to be approximately $4.5 million and they wanted to reduce their initial $10.5 million difference. Staff noted that there are more outliers with low voltage connections, compared to the high voltage connections.

Staff explained that some commenters noted that this legislation appears to be designed to have remote resources make better interconnection decisions. However, other commenters pointed out there are other things that drive high costs, such as proximity to load pockets, where land costs are higher. Staff believed this was not the intent of the legislation and they didn’t want to discourage generation from locating near load pockets.

Chairman Gleeson noted that he was comfortable with a $14.5 million allowance for lower voltage connections. The other commissioners agreed.

Chairman Gleason asked about the effect of lowering the high-voltage value to the 80^th percentile.

Staff replied that this would bring the interconnection cap to approximately $20.5 million.

Chairman Gleason stated that he was comfortable with a policy of 80%, with 20% representing the outlier percentage and, liking “simple numbers,” he would go with $20 million for the high-voltage allowance.

Commissioner Cobos noted that Staff’s analysis would support the reduction to $20 million but that some commenters and pointed out that as you go lower you run the risk of impacting marginal dispatchable generation. She stressed the need to ensure a balance between connecting resources and ensuring resource adequacy. She agreed that $20 million would be a good starting point.

Commissioner Glotfelty suggested that solar and storage are going to be built as close to load as possible so they would likely fall under the allowance. He believed that gas plants would not get built in nonattainment zones or built outside nonattainment zones so their interconnection costs would likely be higher. The commissioner added that there is not a lot of recent history on the cost of interconnecting natural gas generation so getting information over the next few years concerning what it will take to connect dispatchable resources to the system will be important. He supported having two different values, adding that it is very important to provide siting discipline to resources that are connecting at both voltage levels.

Commissioner Jackson believed that $14 million and $20 million, with a spread of $6 million, made sense to her.

Although noting that Staff had not supported the idea, Commissioner Glotfelty, leader of the Governor Abbott’s Texas Advanced Nuclear Reactor Working Group, discussed creating a good cause exception for nuclear plants. He noted that the governor and state leadership really want this resource, but at this time they don’t know their size and, therefore, what their interconnection costs will be. He suggested that an interconnection allowance for a nuclear plant might be 1.5 times that for a 345-kV connection.

Staff noted potential legal challenges to a good cause exception but suggested that the law could be interpreted to allow multiple tiers of generators. However, Staff noted that they were more comfortable with a modified allowance than a good cause exception, adding that exceptions could be “a slippery slope.”

Commissioner Cobos suggested that, since the rule doesn’t go into effect for a couple of years, the Commission has an opportunity to obtain more data and modify the rule in the future, if necessary.

Staff noted that under the Statute the rule must be reviewed at least every five years after it is implemented but it could be reviewed sooner.

Chairman Gleeson noted that this issue could be discussed with legislators during the next legislative session.

Commissioner Glotfelty noted that waiting five years to change this could miss the connection of the first nuclear reactors. He preferred creating a unique allowance but was comfortable bringing up the issue with the Legislature, believing the Legislature will act on lot of nuclear things during the next session.

Commissioner Glotfelty appreciated Staff’s consideration of adding new facilities at existing plants, as some generators are currently doing, noting that after 10 years you get a new allowance, which he believed “makes sense.”

The Commission voted to approve Staff’s recommendation, as modified by the Commission’s discussion.