On June 4, 2019, Texas Governor Greg Abbott signed into law Texas Senate Bill (SB) 1211, which amends § 39.158 of the Texas Public Utility Regulatory Act (PURA) relating to prior approval of certain transactions by the Public Utility Commission of Texas (PUCT). The new law is effective on September 1, 2019, and applies to transactions that will close on or after September 1, 2019.
The bill accomplishes two important changes to PURA § 39.158. First, transactions to acquire passive, non-controlling equity interests in renewable generation companies will no longer require PUCT approval under PURA § 39.158. Second, the threshold trigger for determining whether other transactions require approval has been substantially increased.
Eversheds Sutherland represented a coalition of tax equity investors and generation developers that led the effort to pass this legislation.
Summary of SB 1211
Under SB 1211, a “power generation company” that sells electricity in Electric Reliability Council of Texas (ERCOT) and proposes a transaction to “merge, consolidate, or otherwise become affiliated with” another power generation company that sells electricity in ERCOT must first obtain the approval of the PUCT before closing, if the “merged, consolidated, or affiliated entity” would own and control more than 10% of the total installed generation capacity located in, or capable of delivering electricity to, ERCOT.
If the resulting entity owns 20% or less of such total installed capacity, then the PUCT must approve the transaction. Requests for approval must be filed at least 120 days before closing and are deemed approved if the PUCT does not rule within 120 days from the application date.
Key Changes From Current Law
The new law limits the scope of transactions that will require prior PUCT approval under PURA § 39.158 as follows:
1. Transaction must involve two Power Generation Companies operating in ERCOT.
The required approval is limited to transactions between two “Power Generation Companies” that each offer electricity for sale in ERCOT. A Power Generation Company (PGC) is a defined term in PURA and refers to an entity that generates electricity intended to be sold at wholesale. PGCs must register with the PUCT. This is a change from current law, which applies to “an owner of electric generation facilities” and which had been interpreted to include owners of passive equity interests in generation companies. SB 1211 also limits the transactions requiring approval to transactions in which both entities are registered to sell wholesale electricity in ERCOT, rather than anywhere within the entire state, as is the case under current law.
2. The threshold trigger is increased from 1% to 10%.
Under current law, if the merged or combined entity will own more than 1% of the total installed generation capacity located in, or capable of delivery into, ERCOT, then PUCT approval of the transaction is required. SB 1211 increases that threshold trigger to 10%. According to the PUCT Staff calculation issued on January 25, 2019, the total ERCOT installed capacity (including the capacity of the DC ties) is 89,348 MW. Thus, under SB 1211, the combined entity must own and control more than 8,934 MW located in or capable of delivery into, ERCOT before PUCT approval is required.
3. In calculating the threshold trigger, the combined entity must both own and control the generation.
To address the concerns of passive, tax equity investors, the bill was amended in committee to follow more closely the provisions in PURA § 39.154, which provides that no power generation company may own and control more than 20% of the total installed capacity within a power region, including ERCOT. Previously, the PUCT has focused only on an applicant and its affiliates’ ownership of generation and not on generation that is also controlled by the applicant and its affiliates. This change to PURA § 39.158 eliminates the need for approval of an acquisition of passive, non-controlling equity interests in a power generation company or its affiliate. In response to testimony by Eversheds Sutherland counsel, the legislative intent to exclude passive tax equity transactions was stated during the House and Senate committee hearings on the bill by the PUCT Executive Director and by the sponsors of SB 1211 and its companion bill, HB 2553.
4. Applications are deemed approved by the 121st day after the application filing date if the PUCT has not issued a final order.
Applicants must file for approval at least 120 days before closing the transaction, provided that the transaction requires approval as of September 1, 2019, when the new law becomes effective. If no ruling is made by the PUCT within 120 days of the application date, then the application is deemed approved on the 121st day after the application is filed.