Relating to a capacity cost recovery rider for certain electric utilities, the official text

S.B. No. 1856

AN ACT

relating to a capacity cost recovery rider for certain electric

utilities.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter E, Chapter 36, Utilities Code, is

amended by adding Section 36.216 to read as follows:

Sec. 36.216. RECOVERY OF ANNUAL CAPACITY-RELATED COSTS.

(a) This section applies only to an electric utility that operates

solely outside of ERCOT in areas of this state included in the

Southeastern Electric Reliability Council.

(b) It is the intent of the legislature that certain changes

to the level of an electric utility's capacity-related costs and

capacity-related revenues due to wholesale rate decisions and

determinations by a federal agency or a regional transmission

organization subject to federal jurisdiction should be timely

reflected in the utility's rates.

(c) On application by an electric utility that has not

exceeded the utility's authorized return on equity as shown in the

utility's most recent earnings monitoring report at the time of the

application, the commission shall establish a capacity cost

recovery rider that must be annually updated and that allows:

(1) recovery of the utility's costs that are eligible

as provided by Subsection (d); and

(2) return to ratepayers of the utility's revenues

that are eligible as provided by Subsection (d).

(d) In this section, eligible costs and revenues are

capacity-related costs and revenues associated with the electric

utility's participation in a multi-state capacity auction operated

by a regional transmission organization or independent system

organization authorized by the Federal Energy Regulatory

Commission, to the extent the costs and revenues are not already

being recovered through the utility's base rates.

(e) Amounts recovered through a capacity cost recovery

rider are subject to reconciliation in the next base rate

proceeding for the electric utility. As part of the

reconciliation, the commission shall review the costs and revenues

to determine if they were reasonable and prudently incurred and to

ensure the electric utility is only recovering costs allocable to

retail customers in this state and is not over-recovering costs. In

each base rate proceeding following the establishment of a capacity

cost recovery rider, the commission shall remove from the electric

utility's base rates all cost and revenue items eligible for

recovery through the electric utility's capacity cost recovery

rider.

(f) The annual revenue requirement and rates for a proposed

capacity cost recovery rider must include:

(1) the electric utility's calculated costs and

revenues for the upcoming year beginning on the June 1 associated

with the utility's participation in a multi-state capacity auction;

and

(2) a true-up amount that accounts for any difference

between the utility's actual eligible costs and revenues and the

utility's actual collections under any capacity cost recovery rider

put into effect two years before the proposed effective date of the

proposed rider, plus:

(A) an amount to account for any mathematical

error identified in the utility's most recent capacity cost

recovery rider application proceeding; and

(B) an amount to account for any refunds or

surcharges ordered by the Federal Energy Regulatory Commission or

by a regional transmission organization or independent system

organization related to a previous year's capacity auction that:

(i) are identified on a regional

transmission organization or independent system operator

settlement statement; or

(ii) were directed by a Federal Energy

Regulatory Commission order issued in the preceding 12-month

period.

(g) The capacity cost recovery rider charges must be derived

using:

(1) the same production demand allocation factors

approved in the electric utility's most recent base rate case; and

(2) the projected billing determinants for the rate

effective period.

(h) The billing determinants must be derived using each

customer class's projected kilowatt-hour usage, except for

customer classes with demand meters for which the billing

determinants must be derived using each customer class's projected

kilowatt billing demand.

(i) Until the time the electric utility removes from base

rates the costs eligible for rider recovery under Subsection (d),

and the costs eligible for rider recovery described in Subsection

(g)(2), and these costs are recovered solely through the capacity

cost recovery rider, the calculation of the capacity cost recovery

rider must include a load growth adjustment to take into account

changes in the number of the utility's customers and the effects, on

a weather-normalized basis, that energy consumption and energy

demand have on the amount of revenue recovered through the

utility's base rates.

(j) The commission shall process an application to

establish or update a capacity cost recovery rider in accordance

with Subsections (k)-(o).

(k) For a capacity cost recovery rider that will include an

electric utility's costs to be incurred beginning on June 1 of a

given year, the utility must submit the rider application not later

than:

(1) May 15 of that year; or

(2) if the regional transmission organization or

independent system operator publishes its capacity auction cost

results after the 20th business day of April of that year, a date

that is the same number of days after May 15 of that year as the

number of days after the 20th business day of April the results were

published.

(l) The application must be fully documented, including

testimony and all supporting work papers in native format.

(m) A response to the electric utility's filing that is made

by commission staff or an intervenor:

(1) must be filed not later than the 15th day after the

date of the utility's filing; and

(2) may address only whether the application conforms

with any rule the commission adopts to implement this section and

the mathematical accuracy of the utility's proposed capacity cost

recovery rider revenue requirement and rates.

(n) Any other inaccuracy identified under Subsection (m)(2)

may be addressed only in the electric utility's next capacity cost

recovery rider application.

(o) The commission may review costs and revenues and shall

issue an order approving, modifying, or denying an electric

utility's proposed or updated capacity cost recovery rider not

later than the 60th day after the date the application is filed.

(p) This section expires September 1, 2035.

SECTION 2. An electric utility to which Section 36.216,

Utilities Code, as added by this Act, applies may file an

application with the Public Utility Commission of Texas to recover

eligible costs described by Section 36.216(d), Utilities Code, as

added by this Act, to be incurred before September 1, 2026,

regardless of whether the commission has adopted any rules

regarding capacity cost recovery riders. Not later than the 60th

day after the date the application is filed, the commission shall

issue an order approving, modifying, or denying the proposed or

updated capacity cost recovery rider. The electric utility shall

begin imposing the rates approved by the commission for service

rendered during or after the first billing cycle of the month

following the issuance of the order.

SECTION 3. This Act takes effect immediately if it receives

a vote of two-thirds of all the members elected to each house, as

provided by Section 39, Article III, Texas Constitution. If this

Act does not receive the vote necessary for immediate effect, this

Act takes effect September 1, 2025.

______________________________
______________________________

President of the Senate
Speaker of the House

I hereby certify that S.B. No. 1856 passed the Senate on

May 9, 2025, by the following vote: Yeas 31, Nays 0.

______________________________

Secretary of the Senate

I hereby certify that S.B. No. 1856 passed the House on

May 24, 2025, by the following vote: Yeas 129, Nays 4, two

present not voting.

______________________________

Chief Clerk of the House

Approved:

______________________________

Date

______________________________

Governor