Senate Bill 6 Positions Texas to Better Manage Large Electrical Loads and Strengthen Grid Reliability

Key Provisions

S.B. 6 amends multiple sections of the Texas Utilities Code and introduces new provisions designed to ensure that large load customers fairly contribute to system costs and can be reliably managed during grid emergencies. 

1. Planning and Interconnection Standards for Large Loads 

The Public Utility Commission of Texas (PUC) must adopt rules governing the interconnection of “large load customers.” Large load customers are defined as customers requesting interconnection exceeding 75 megawatts at a single site (unless the PUC lowers the threshold). [New Sections 37.0561(a) and 37.0561(c) of the Texas Utilities Code]. The rules established by the PUC must: 1) support business development while minimizing stranded infrastructure investment and maintaining system reliability [Id. at subsection (b)]; 2) require large load customers to disclose to the utility[1] concurrent interconnection requests elsewhere in Texas that could result in a material change in or withdrawal of the interconnection request [Id. at subsection (d)]; 3) require large load customers to disclose to the interconnecting utility information about the customer’s “on-site backup generating facilities,” which is defined as generation that cannot be exported to ERCOT and can serve, in the aggregate, at least 50% of on-site demand [Id. at subsection (e)]; and 4) allow ERCOT to direct large load customers to either deploy the customer’s on-site backup generation facilities or curtail load in an energy emergency. [Id.].

2. Study Fees and Financial Commitment Requirements

Under S.B. 6, the PUC must set a flat screening study fee of at least $100,000 owed to the interconnecting utility. Large load customers requesting additional capacity after the screening study must pay an additional fee. Unused fees can be credited towards satisfying financial obligations for procurement or interconnection agreements at the same geographic site. [Id. at subsection (f)]. 

The PUC must also require large load customers to demonstrate site control for the proposed load location [Id. at subsection (g)] and create uniform financial commitment requirements for transmission infrastructure development necessary to serve large load customers. [Id. at subsection (h)]. Acceptable proof of financial commitment includes: 1) refundable security provided on a dollar per megawatt basis as set by the PUC [Id. at subsections (h)(1) and (i)]; 2) construction contributions; 3) security under an agreement requiring a large load customer to pay for significant equipment and services before signing an electronic delivery service agreement; or 4) other forms of financial commitment acceptable by the PUC. [Id. at subsections (h)(2)–(4)]. 

3. Oversight of Net Metering Arrangements with Co-Located Generation

When a large load customer proposes to net meter with an existing generation resource, the generation owner must provide advance notice to ERCOT. [New Section 39.169(a) of the Texas Utilities Code]. ERCOT must complete a reliability impact study within 120 days and submit its findings to the PUC, which has 60 days to approve, deny, or condition the arrangement. [Id. at subsection (d)]. Conditions must require a generation resource that produces dispatchable power to make available to ERCOT in the event of an emergency at least the same amount of power the generator was providing prior to the net metering arrangement. [Id.] PUC conditions may also include load reduction, dispatchable generation obligations, or assurance that system users are held harmless for stranded or underutilized asset costs. [Id. at subsections (d)(1)–(3)]. If the PUC does not act on the reliability impact study, the arrangement is approved by default. [Id. at subsection (e)]. Any non-time-limited conditions must be reviewed at least every 5 years. [Id. at subsection (f)]. 

4. Demand Management and Reliability Services

Under S.B. 6, ERCOT must create a large load demand management service for customers with demand of at least 75 megawatts. [New Section 39.170(b) of the Texas Utilities Code]. The protocol includes: establishing when the service may be used; requiring at least a 24-hour notice and curtailment during the entirety of an energy emergency; and prohibiting participation by customers already curtailing in response to electricity prices or participating in other reliability or ancillary services. [Id. at subsection (b)(1)-(3)].  Also, with certain exceptions, the PUC must require ERCOT to ensure that the utilities have protocols and equipment necessary to curtail the load of new large “transmission-voltage” customers, before the customer is interconnected. [Id. at subsection (a)]. 

5. Limited Electricity Generation by Water Utilities

S.B. 6 adds a new section to the Texas Water Code, allowing water supply and sewer service companies to generate electricity for internal operations, including water pumping and treatment. [New Section 67.0115(a) of the Texas Water Code]. In counties with fewer than 350,000 people, water and sewer service companies may sell excess power into the ERCOT market if the power is primarily used for water or sewer operations [Id. at subsection (b)(1)] and the company registers as a power generation company under Texas Utilities Code § 39.351 (establishing a registration requirement for power generation companies). [Id. at subsection (b)(2)]. Revenue from these sales must be used solely for production costs (including administrative, employees, equipment, fuel, and maintenance costs) or statutory purposes as enumerated in Texas Water Code § 67.002 (listing water supply, sewer service, flood control, and drainage systems as the statutory purposes). [Id. at subsection (c)].

6. Review of Transmission Cost Allocation Methodologies

S.B. 6 mandates the PUC to review the current four coincident peak methodology used to allocate wholesale transmission costs under Texas Utilities Code § 35.004(d) (providing a transmission-cost formula based on the postage stamp pricing method). The PUC must evaluate whether: 1) the four coincident peak methodology ensures that all loads appropriately contribute to utilities’ transmission-access cost recovery; 2) alternative methods (e.g., consideration of multiple seasonal peak demands, demand during different length daily intervals, or peak energy intervals) would be more appropriate to calculate wholesale transmission rates; and 3) transmission-access costs should be non-bypassable, consistent with S.B. 6’s new Section 35.004(c-1) of the Texas Utilities Code (ensuring that large load customers contribute to utilities’ transmission-access cost recovery). [S.B. 6, Section 6(a)]. In addition, S.B. 6 mandates that the PUC evaluate its retail ratemaking practices to ensure that transmission-cost recovery appropriately charges the system costs used by each customer class. [Id. at subsection (b)].

Implications for Load-Intensive Facilities and Grid Planning

S.B. 6 reflects growing concern in Texas over the impact of energy-intensive facilities on grid reliability, especially considering recent expansion in data center, AI compute, and cryptocurrency mining operations. While the bill imposes stricter standards for grid interconnection and introduces new mechanisms to ensure that large loads contribute appropriately to infrastructure costs and reliability planning, it also introduces clearer rules and emergency provisions to avoid grid failures and unfair cost shifting.  Assuming the PUC and ERCOT propose thoughtful rule implementation, including engagement with industry, Texas should be able to successfully position itself for the anticipated expansion of large load customers while maintaining grid stability. 

Large load customers should review their current and planned interconnection arrangements for compliance with the new disclosure, cost, and backup generation requirements. Entities engaged in behind-the-meter generation or net metering should also be aware of the ERCOT study and PUC approval process. 

About Foley’s Energy & Infrastructure Sector

Foley’s cross-disciplinary Energy & Infrastructure team of more than 200 attorneys regularly represents clients in the traditional and renewable power, oil & gas, and infrastructure and energy transition industries. Along with our Government Solutions practice group, we are well-positioned to advise you on the implications of this and other state or federal legislation that might affect the way you do business.

Special thanks to Chance Fraser, a summer associate in Foley’s Houston office, for his contributions to this article.
 

[1] As used in this client alert, “utility” refers to “electric cooperative, electric utility, and municipally owned utility,” as those terms are used throughout S.B. 6.