Texas Energy Fund Update

On November 7, 2023, Texas voters approved a constitutional amendment creating the Texas Energy Fund (“TEF”).  The TEF, which will be administered by the Public Utility Commission of Texas (“PUCT”) with assistance from a private contractor, will provide up to $5 billion of state funds for three distinct programs:

1. Low-interest loans and completion bonus grants to finance the construction of new, or the upgrade of existing, dispatchable electric generation facilities located within the ERCOT power region resulting in a net increase of at least 100 megawatts (“MW”) of capacity (excluding energy storage resources).
2. Grants to finance facility modernization, facility weatherization, reliability and resiliency facility enhancements, and vegetation management for transmission, distribution or generation facilities in Texas outside of the ERCOT power region.
3. Grants and loans to certain backup power package facilities of less than 2.5 MW each that do not participate in the ERCOT electric market.

The PUCT is currently in the process of developing implementing rules necessary for these TEF programs.  In developing these rules, the PUCT will make important determinations regarding TEF program administration, including eligibility criteria, application processes, performance standards, fund disbursement mechanisms, and standard form agreements for program participation, among others.

In-ERCOT Loan and Completion Bonus Grant Programs

The PUCT has opened a TEF rulemaking project for the ERCOT loan program.  On November 20, 2023, the PUCT issued a proposal for publication (i.e., draft rule) in this project, and requested public comments by January 5, 2024.  Additionally, the PUCT Staff held a public hearing on January 25, 2024, to further develop public feedback on certain discussion topics.  The PUCT must begin accepting loan applications by June 1, 2024, and make initial disbursements for all approved loans by December 31, 2025.  To meet this statutory timeline, the PUCT has tentatively committed to approving final rules governing this program by spring 2024.

The PUCT has also opened a TEF rulemaking project for the ERCOT completion bonus grant program.  On November 20, 2023, the PUCT issued a proposal for publication in this project and requested public comments by January 5, 2024.  No party requested a public hearing regarding the proposed rules for this program.  Similar to the ERCOT loan program timeline, the PUCT anticipates adopting final rules governing this program by spring 2024.

Out-of-ERCOT Grant Program

The PUCT has not yet initiated a rulemaking project relating to the grant program for power infrastructure located outside of ERCOT.  Unlike the ERCOT loan program, the Texas Legislature did not impose a hard statutory deadline by which applications must be submitted or awards disbursed for the out-of-ERCOT program.  Nevertheless, the PUCT has tentatively indicated its intention to issue a proposed rule governing the out-of-ERCOT program by spring 2024.

Backup Power Package Program

On November 3, 2023, the PUCT adopted a new rule establishing an advisory committee, as required by the statute, to advise the PUCT on the administration of the Texas backup power package program.  On January 17, 2024, the PUCT announced the appointment of nine members to serve on the advisory committee.  The new rule requires the advisory committee to, by October 1, 2024, submit to the PUCT (1) written recommendations for the types of Texas backup power package projects that should be funded by loans and those that should be funded by grants, and (2) a report with recommendations for procedures for the application for and awarding of a grant or loan in accordance with the governing statute.  These reports will be filed in Project No. 55407.

The Advisory Committee’s first meeting was held on February 8, 2024.

Contractor to Administer TEF

The PUCT issued a request for proposals to solicit a contractor to manage the TEF programs.  Six contractors have submitted proposals.  As of February 1, 2024, the PUCT has not publicly announced which, if any, of these contractors it will select to administer the TEF.

With so many moving pieces, companies interested in potentially participating in TEF programs should begin gathering materials now in advance of final rule implementation.  For assistance in developing TEF grant or loan application packages, please contact V&E attorneys Mike Tomsu, Winston Skinner, and 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.