In 2021, the Texas Senate passed a bill that went largely unnoticed by both the public and the electric utilities it affects. The bill’s contents drastically change how municipally-owned utilities are required to operate regarding solar installations. Upon close reading of the bill: SB 398, it becomes clear that many Texas utilities are violating both the legislation and the right of their customers to own solar panels. 

Distributed Generation, or DG, is a technology that has recently been popularized across the state of Texas for its ability to interconnect energy source installations into the distribution grid. It has a 10 megawatt cap set by the Texas Public Utility Commission, and it mainly takes the form of rooftop solar panels installed for homes or small businesses. Many Texans find DG appealing because it provides renewable energy directly to their home or business, saving them money from avoided utility costs. It is also appealing at a policy level for those interested in promoting the spread of renewable energy sources. 

Many utilities across Texas are also embracing DG technology because interconnected panels send excess energy back into the local distribution grid. This reduces the amount of energy that utilities must purchase from the Electric Reliability Council of Texas (ERCOT) and lowers stress on the utility in times of high energy demand. Despite these advantages, many municipally- owned utilities across the state have placed stringent restrictions or outright bans on DG, denying utility customers full usage of solar technology. SB 398 aims to remedy this issue, and so this article assesses the background and contents of the bill before discussing some of its little-known implications for municipalities. 

The circumstances that triggered the legislative action are helpful for understanding the bill and its effects. In February of 2021, Winter Storm Uri ravaged Texas. The storm crippled the ERCOT grid – which serves around 90 percent of the state – and shut off most Texans’ power and water for a week. It was the biggest ERCOT failure in history and stirred up backlash toward the grid for its failure to control the situation. 

Grocery and gas giants H-E-B and Buc-ee’s, however, did not lose power. Both companies are customers of Enchanted Rock, a Texas company focused on providing resilient, low-emissions microgrids to buyers. These microgrids utilize DG powered by renewables, such as solar panels, to provide reliable electricity as backup when the power grid is down. Since the solar energy was an energy source independent of the ERCOT distribution lines, Buc-ee’s and H-E-B were able to use the energy to continue operating during the ERCOT blackout. This occurrence did not go unnoticed by the legislators flooded with complaints following the mass outage. SB 398 was their solution.

The bulk of the bill in Section 3 describes in detail how “food supply chains” in many areas of the ERCOT region can interconnect their DG to sell power wholesale to the municipality. The language of the bill specifies “food supply chains” in reference to H-E-B and Buc-ee’s because the legislature saw during Uri how vital such businesses are – they are hoping DG could help prevent another catastrophic outage. Since Section 3 comprises most of the bill, this is what most utilities interpret the bill to mean, and very few recognize the implications of the other sections. 

The section more relevant to this article is Section 2, which is very short and frequently overlooked. The section states: “a municipality may not prohibit or restrict the installation of a solar energy device by a residential or small commercial customer except to the extent…” that either a property owners’ association prohibits the installation, or that it could harm the distribution system. Nowhere in the section does it limit the application of this rule to ERCOT, “food supply chains,” or any other qualifier, so therefore it can be broadly applied to the state of Texas as a whole. 

Such broad application makes Section 2 extremely powerful. No Texas municipality can reject a customer’s application to install a DG facility unless it would endanger the distribution system. In the official bill analysis, SB 398’s main author, Sen. Jose Menéndez, describes the prohibition of municipality restriction in a generalized sense. He does not mention Section 3 or food supply chains, signaling his intention for Section 2 to be the most impactful. Solar Energy Industries Association, an organization that led lobbying efforts on the bill, seems to be in agreement with Menéndez. The association views the legislation as a positive step for the Texas solar industry and protection of Texas’ energy independence. Given these two experts’ insight, it seems clear that Section 2 of SB 398 should have widespread authority and influence, so it is baffling that few in the Texas energy industry appear to be aware of it. 

Perhaps Section 2 was merely overlooked due to Section 3 comprising the bulk of the bill and having a publicized background – which is unlikely – or perhaps cities are feigning ignorance in hopes customers remain unaware of Section 2’s ramifications. Either way, the lack of awareness and comprehension has resulted in municipalities across the state violating the law. Some of them have put arbitrary caps on the amount of DG they will permit. One example is the City of Burnet, which caps residential DG at 10 kilowatts and commercial DG at 20 kilowatts for seemingly no reason. Other municipally-owned utilities, such as the cities of Electra and Bellville, have no DG policy and show no indication of creating such a policy in the future. These municipalities, among many others, are in direct violation of SB 398 and are preventing their citizens from utilizing DG technology.

Section 2 implies these violators can and should be held accountable by the state. Such municipalities are ignoring state law to arbitrarily limit or outright ban DG simply because they think it is too much of a hassle to implement. The legislature is most likely aware of these violations because ERCOT is known within the industry for disliking public power, and viewing them as technologically backwards. Therefore, the legislature will almost certainly enforce Section 2 when solar energy becomes profitable enough they feel they need to address the issue, or in the event the federal government succeeds in transitioning more substantially to alternative energy.

Either way, municipalities should be reprimanded for violation of SB 398 and forced to institute DG interconnection policies. As the focus on solar energy in the state increases and the federal government tightens its stance on renewable energy, utilities’ time of reckoning approaches. They are likely to be required to implement DG policies in line with Public Utility Commission and ERCOT guidelines sooner rather than later, so it would be prudent for them to accept the inevitable. Ideally, municipally-owned utilities would give in and put acceptable DG policies in place before they are chastised by the legislature, but even the more obstinate utilities should be proactive and have a policy drafted for when the Senate comes knocking. This will give them time to actually think through the policy, consider its effects on the city, and troubleshoot any potential problems. Required DG policies for all municipalities are imminent, and violators would be wise to be prepared for it.