The Texas Energy Fund Becomes Law. Now What?
On Tuesday, November 7, 2023, Texas voters approved Proposition 7, a constitutional amendment creating the Texas Energy Fund (“TEF”). The TEF will provide electric infrastructure grant and loan programs established by Senate Bill 2627, enacted by the Texas Legislature and signed by Governor Greg Abbott in early 2023.
The TEF, which will be administered by the Public Utility Commission of Texas (“PUCT”), will provide up to $5 billion of state funds for three distinct programs.
The largest of these programs authorizes the PUCT to distribute completion grants and low-interest loans to new “dispatchable” electric generating facilities within the Texas intrastate power grid known as the Electric Reliability Council of Texas (“ERCOT”). “Dispatchable” generation refers to power sources primarily under human control, with a focus on natural gas. Energy storage facilities, though ostensibly “dispatchable,” are excluded from this portion of the TEF program.
The loans, which must have a term of 20 years with an interest rate of 3.0%, may be used to either (1) finance upgrades to existing dispatchable generation facilities that would result in a net increase of at least 100 megawatts (“MW”) of capacity, or (2) finance the construction of new dispatchable generation with at least 100 MW capacity. New dispatchable generation projects also may qualify for a completion bonus grant of up to $120,000 per MW of capacity — if interconnected before June 1, 2026 — or up to $80,000 per MW of capacity if interconnected before June 1, 2029. The loans and grants, considered together, may finance no more than 10,000 MW of new generation capacity.
The TEF also gives the PUCT the ability to fund power infrastructure outside the ERCOT region, as well as certain backup power package facilities of less than 2.5 MW each that do not participate in the electric market.
Next Steps for ERCOT Dispatchable Generation Facilities
The PUCT will continue ongoing efforts to develop implementing rules necessary for the ERCOT generation grant and loan programs. The PUCT must begin accepting loan applications by June 1, 2024, and make initial disbursements for approved loans by December 31, 2025. To meet this tight statutory timeline, the PUCT has already taken the following steps:
- Opened up a general TEF rule-making project to solicit stakeholder feedback on the establishment of rules (Project No. 54999);
- Opened up a rulemaking project devoted specifically to the TEF completion bonus program (Project No. 55812);
- Opened up a project to solicit a contractor to manage the TEF programs (Project No. 55562);
- Adopted rules establishing a committee to advise the PUCT on the administration of the Texas backup power package program; and
- Hosted a public workshop on September 19, 2023 in order to receive initial input on the development of TEF rules.
In the coming weeks, PUCT staff will begin releasing draft rules, soliciting additional comments from stakeholders, and then submitting the rules for PUCT review and adoption. The PUCT has tentatively indicated its intention to adopt rules governing the loan and grant program for ERCOT facilities by spring 2024, and begin accepting loan applications by June 2024, as required by the statute.
In developing rules, the PUCT will make important determinations regarding the administration of the TEF programs, including:
- program eligibility criteria;
- application processes;
- performance standards;
- fund disbursement mechanisms; and
- the establishment of any other factors the PUCT considers appropriate.
Interested stakeholders should strongly consider participating in these rulemaking processes before submitting loan or grant applications. Having a clear understanding not only of the adopted rules but also key decisionmaker expectations will best position applicants to achieve optimal results. For more information, please contact V&E attorneys Mike Tomsu, Winston Skinner, or Steve Weinberger.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.