Electric utilities hustling to keep up with strong economic growth in Texas have hailed a series of bills working their way through the state’s rules-making process as catalysts for greater and faster investment in transmission and distribution infrastructure.
Lone Star legislators this spring passed a packet of legislative reforms that executives at big-name players such as Sempra and Entergy Corp. recently told analysts will reduce regulatory lags, lower their investment risk and put them in a better position to add to their capital spending budgets for coming years.
“This has been a very constructive legislative cycle in Texas,” Sempra Chairman, President and CEO Jeffrey Martin said after the parent company of Oncor reported its second-quarter results Aug. 3.
Among the changes coming to Texas’ regulatory process are:
• A shorter timeline—180 days rather than 365—to approve certificate of convenience and necessity applications;
• An allowance for a second tracker filing related to distribution investments, including in the same year as a general rate case is filed;
• The creation of a separate mechanism that will let companies recover hardening and other resiliency investments approved by the Public Utilities Commission of Texas.
• A directive for the PUCT and the Electric Reliability Council of Texas to draw up longer-range plans for transmission networks that would serve high-growth areas, which includes the Permian Basin oil patch, where a number of exploration and development companies are investing heavily in electrifying their operations.
The last of those changes and the CCN timeline acceleration, PNM Resources Inc. President and COO Don Tarry told analysts Aug. 4, will help his team look beyond must-do-now projects that stem from load growth and focus more on “getting ahead of higher-demand projects.”
“These transmission projects are generally recovered through the [transmission cost of service] mechanism and this approved legislation will help our projects move more efficiently to accommodate new load not only in West Texas, but across [Texas-New Mexico Power],” Tarry said.
Efficiency was a theme in the comments from utility executives when discussing the new Texas regulatory structure. Shorter lags between their investments and recoveries, they said, will enable them to invest more quickly to keep up with Texas’ growth—which led the nation in 2022, when the state’s GDP soared 7.0%. (Combined with extreme heat, that growth has been testing the electric grid’s capacity this summer: On Aug. 17, ERCOT officials asked customers to voluntarily their energy use where they could.)
“Earlier this year, Oncor increased its 2023-to-2027 capital plan to $19 billion,” Trevor Mihalik, Sempra CFO said. “With continued strong economic growth and the recent positive legislation, we now certainly anticipate upside when we roll forward the new five-year capital plan.”
Large capex budgets will filter through to the utilities’ earnings: Martin added that just the switch of distribution cost recovery filings to twice a year stands to boost Oncor’s earnings by $70 million to $90 million on an annual basis. He and his team said they are studying the potential impact of Texas’ new rules on capex and earnings and expect to provide more detail on the bigger picture later this year. Their peers laid out similar fall timelines, although some uncertainty remains about the full financial impact of the new laws.
“It's too early to do that at this point,” Entergy CFO Kimberly Fontan said on that company’s earnings call Aug. 2 after being asked about nudging up Entergy’s return-on-equity targets. “But certainly, they are positive tailwinds from our perspective that help us when we think about our overall outlook.”