Report - Archive Interim Report C510.Interimreport2021

Issuer: Congressional materials
Document type: Report
Case: Archive Interim Report C510.Interimreport2021

Summary

The interim report of the Texas Senate Committee on Business & Commerce to the 87th Texas Legislature, transmitted January 11, 2021 by Chairman Kelly Hancock to Lieutenant Governor Dan Patrick. Its table of contents lists seven interim charges, each with background, testimony and recommendations. The charges cover unmanned aerial vehicles, the electricity market, the cost of health care, and the implementation of Senate Bill 14, Senate Bill 1264, House Bill 2536 and Senate Bill 1004 (85th Legislature). The drone section reviews FAA restrictions, Chapter 423 of Texas law and written testimony on no-fly zones and privacy. The report closes with network node recommendations, urging the parties in litigation over Senate Bill 1004 to resolve the dispute given increased telecommunications needs from COVID-19.

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Cite this document

“Report - Archive Interim Report C510.Interimreport2021.” Original at senate.texas.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/archive-interim-report-c510-interimreport2021/, SHA-256 d32f2c99d8b2f9bbe29f0a7a0c7bc901883f1b3082e6bcd2176e6c43d014ef7f.

Full text

SENATE COMMITTEE ON BUSINESS & COMMERCE

TEXAS SENATE

INTERIM REPORT

A REPORT TO THE

TEXAS SENATE

87TH TEXAS LEGISLATURE

KELLY HANCOCK

CHAIRMAN
Senate Committee On
Business & Commerce

January 11, 2021

The Honorable Dan Patrick
Lieutenant Governor
Members of the Texas Senate
PO Box 12068
Austin, Texas 78711

Dear Governor Patrick and Fellow Senators:

Thank you for the opportunity to address important issues facing Texas today through your charges for
interim study. The Senate Committee on Business & Commerce is pleased to submit its final report with
recommendations for consideration by the 87th Texas Legislature.

Respectfully submitted,

_______________________
Kelly Hancock, Chairman

Robert Nichols, Vice-Chair Angela Paxton

Donna Campbell Charles Schwertner

Brandon Creighton
John Whitmire

José Menéndez
Judith Zaffirini

PO BOX 12068 • SAM HOUSTON BUILDING, ROOM 370 • AUSTIN, TEXAS 78711

512/463-0365 • FAX 512/463-1613
PO BOX 12068 • SAM HOUSTON BUILDING, ROOM 370 • AUSTIN, TEXAS 78711

512/463-0365 • FAX 512/463-1613
Table of Contents

1. Examine current state and local laws regulating unmanned aerial vehicles. Identify any legislative changes
needed to streamline regulation in a manner that promotes commerce and innovation while protecting public
safety and the privacy and property rights of Texans.

2. Assess the electricity market in Texas. Examine changes in customer demand, such as on-site storage,
distributed generation, and electric vehicles. Study the usage of "non-wires alternatives," including energy
storage, and recommend legislative changes if needed. Identify barriers to the electric market at the state or
local level. Make recommendations to maintain grid reliability and encourage the continued success of the
electric market.

3. Study the cost of health care in Texas. Make recommendations to increase access to affordable quality health
care. Explore potential opportunities and recommend best practices to continue to curb rising health care costs.
Study and report on ways to increase consumer health care options, provide flexibility in the market, and
decrease the uninsured rate in Texas, including 1115 and 1332 waivers.

4. Monitor the implementation of legislation addressed by the Senate Committee on Business and Commerce
passed by the 86th Legislature, as well as relevant agencies and programs under the committee's jurisdiction.
Specifically, make recommendations for any legislation needed to improve, enhance, or complete
implementation of the following: Senate Bill 14, relating to broadband service or facilities provided by an
electric cooperative.

Background ...................................................................................................................................................... 29
Testimony ........................................................................................................................................................ 29
Recommendations ..............................................................................................................................32
5. Monitor the implementation of legislation addressed by the Senate Committee on Business and Commerce
passed by the 86th Legislature, as well as relevant agencies and programs under the committee's jurisdiction.
Specifically, make recommendations for any legislation needed to improve, enhance, or complete
implementation of the following: Senate Bill 1264, relating to consumer protections against certain medical
and health care billing by certain out-of-network providers.

6. Monitor the implementation of legislation addressed by the Senate Committee on Business and Commerce
passed by the 86th Legislature, as well as relevant agencies and programs under the committee's jurisdiction.
Specifically, make recommendations for any legislation needed to improve, enhance, or complete
implementation of the following: House Bill 2536, relating to transparency related to drug costs.

7. Monitor the implementation of legislation addressed by the Senate Committee on Business and Commerce
passed by the 86th Legislature, as well as relevant agencies and programs under the committee's jurisdiction.
Specifically, make recommendations for any legislation needed to improve, enhance, or complete
implementation of the following: Senate Bill 1004 (85th Legislature), relating to the deployment of network
nodes in public right-of-way.

2
1. Unmanned Aerial Vehicles: Examine current state and local laws regulating
unmanned aerial vehicles. Identify any legislative changes needed to streamline
regulation in a manner that promotes commerce and innovation while protecting
public safety and the privacy and property rights of Texans.

Background
Unmanned Aerial Vehicles (UAV, colloquially drones) are aircraft subject to regulation by the Federal
Aviation Administration (FAA). However, there is no comprehensive federal law that protects the privacy
of personal data collected by UAVs1. Additionally, federal preemption does not extend to all state laws
regulating public safety, privacy and property rights. The rapid growth of the Unmanned Aircraft Systems
(UAS, also known as drones) industry has prompted localities and the state to regulate the industry or
otherwise try to address the potential concerns related to UAS through legislation.

The FAA currently imposes a number of restrictions on UAS operations which include: 2
 UAS weighing more than .55 pounds and fewer than 55 pounds must be registered with the FAA
and the registration number be visible on the device.
 UAS operators must have their FAA registration certificate in their possession when flying the
UAS and both recreational and commercial UAS operators must show their certificate to federal,
state, and local law enforcement upon request.
 UAS commercial operators must obtain a remote pilot certificate so that FAA per-flight permission
is unnecessary.
 UAS can not exceed a flight altitude of 400 feet above ground level.
 UAS flights can only be conducted within the operator's visual line of sight and during daytime
hours.
 UAS flights over individuals not participating in the UAS operation are prohibited.
However, more complex operations may need additional FAA certifications or waivers that exempt UAS
operations from certain FAA requirements. Based on the requirements of the U.S. Constitution Commerce
and Supremacy clause, the FAA has authority over the National Airspace System (NAS).3 While the FAA
has explicit authority of the NAS, the U.S. Government Accountability Office (GOA) found that as of
2019 forty-six states have enacted laws that relate to utilization of airspace for UAS operations, and at
least twenty-six of these states address privacy matters, including Texas. 4

FAA Modernization Act of 2012 directed the FAA to initiate a five year program to establish six UAS
test sites to support the FAA in integrating the UAS into the NAS. 5 In 2012, the Office of the Governor
requested that the Texas A&M University System pursue the FAA competitive selection process, and

1
Written Testimony, Michael Sanders (LSUASC) Response to Senate Committee on Business & Commerce Request for
Information of September 18,2020, LSUASC, (Sep. 18,2020) (on file with the committee)
2
14 C.F.R Part 107 (2016)
3
Written Testimony, Michael Sanders (LSUASC) Response to Senate Committee on Business & Commerce Request for
Information of September 18,2020, LSUASC, (Sep. 18,2020) (on file with the committee)
4
Id. at 3.
5
FAA Modernization Act of 2012, Pub L. No 112-95, § 332, 126 Stat. 11 2012

3
Texas A&M University-Corpus Christi lead the effort.6 Since December 2013, Lone Star UAS Center of
Excellence and Innovation (LSUASC) - Texas A&M University-Corpus Christi has served as a nationally
designated UAS test site.7 LSUASC has conducted operations utilizing UAS that cover a wide-range of
research across several UAS cases such as: last-mile package and cargo delivery, small UAS Traffic
Management (UTM), Beyond Visual Line of Sight Operations (BVLOS), and passenger carriage as part
of the National Aeronautics and Space Administration (NASA) Advanced Air Mobility National
Campaign. 8

In 2013, as a response to the increase of UAV operations, the Texas Legislature enacted TEX. GOVT.
CODE § 423 to govern UAV operations. The enactment of Chapter 423 created two invasion of privacy
misdemeanor crimes:
(1) “use[ ] an unmanned aircraft to capture an image of an individual or privately owned property
. . . with the intent to conduct surveillance on the individual or property captured in the image” and
(2) to capture such an image and possess, disclose, display, distribute, or otherwise use it…"

The chapter also specifies twenty-one enumerated exceptions that permit certain individuals and
organizations to capture images using UAVs for information gathering for commercial purposes or
scholarly research and development. See TEX. GOV'T CODE §§ 423.002 (a)(1)-(21). The statutory
definition of a critical infrastructure facility encompasses several categories such as freight transportation
facilities, water treatment facilities, telecommunication services, and a number of facilities related to oil
and gas. Id. at § 423.0045(a)(1-a). Additionally, the chapter lists UAVs operational restrictions on
airspace over state buildings, sports venues, correctional facilities, and detention centers. Id. at §§
423.0045, 423.0046. The provisions in Chapter 423 also make it illegal to intentionally or knowingly
operate an UAV over such facilities at an elevation not higher than 400 feet.

FAA predicts that in 2024, there will be over 2.3 million small Unmanned Aircraft Systems (sUAS) non-
governmental aircraft operating in the NAS, with 36% (~830,000) engaged in commercial use.9 The
accelerated integration of UAS in the multimodal transportation system can be partially contributed to
online commerce demand for a fast, reliable, and affordable delivery service. Virginia Tech's study on the
economic impact of drone delivery in Austin, TX, within five years of launch, found that drones could:
 Save the average resident up to 56 hours per year by reducing unnecessary errands and trips (up to
101 hours per year for a parent with children, or 203 hours per year for a working professional) in
Austin. That is equivalent to $582.5 million in time savings for residents
 Generate up to $208,000 in additional sales each year for a local retailer, or up to $284,000 each
year for a restaurant. At scale, drone delivery could generate new business activity equivalent to
50-165% and 121-250% sales growth over the five year period and
 Save up to 294 million miles per year in avoidable travel, equivalent to taking 25,565 cars off the
road.10

6
Written Testimony, Michael Sanders (LSUASC) Response to Senate Committee on Business & Commerce Request for
Information of September 18,2020, LSUASC, (Sep. 18,2020) (on file with the committee)
7
Id. at 6.
8
Id. at 6.
9
Written Testimony, Michael Sanders (LSUASC) Response to Senate Committee on Business & Commerce Request for
Information of September 18,2020, LSUASC, (Sep. 18,2020) (on file with the committee)
10
Written Testimony, Wing Response to Senate Committee on Business & Commerce Request for Information of September
18,2020, Wing (Sep. 18,2020) (on file with the committee)

4
Testimony
State Regulation

The committee received written testimony that noted that the Untied States widespread deployment of
commercial drones has been slow due, in part, to the lack of clarity about federal and state roles regarding
drones and airspace management.11 In "Which States are Prepared for the Drone Industry? A 50-state
report card", the report contends that states should take the lead by creating drone highways that mirror
the paths of public roads. Texas ranks tenth in the nation for readiness to get new technology in the sky.12

Texas law allows airspace to be leased above local roads, state roads, and state property, a factor that
improved the state’s score in the report card.13 This law allows the state to create drone highways above
state and local roadways. The Connected and Autonomous Vehicle Task Force within the Texas
Department of Transportation is also viewed positively.14 The task force was created in 2019 by
Governor Abbott.15 The task force members include representatives from the drone industry, and part of
the task force's mission is to stimulate drone jobs and services in Texas.16

A NASA market study predicts that Urban Air Mobility (UAM) has the potential of being profitable
between 2028-2030 with up to 750 million annual passenger trips in 15 metropolitan areas, and the total
market projected on the low end at $2.5 billion and on the high end of $500 billion.17 In order for future
technological capabilities like UAM to thrive, Texas needs to continue to streamline UAV regulations to
promote commerce and innovation. The committee received testimony from Hyundai UAM Division that
notes that Texas has been proactive in creating a regulatory framework that allows for a favorable
landscape for the future development of both the UAV and UAM industry. The Legislature passed H.B.
1643, 85th Leg., Reg. Sess. (Tx. 2017) that prohibited a political subdivision from adopting or enforcing
an ordinance regarding the operation of UAVs, except in limited circumstances.18 This bill has been
instrumental in creating a harmonized landscape for UAV and UAM operations throughout the state. 19

Barriers for Unmanned Aerial Vehicles in Texas

The committee received an ample amount of written testimony stating that current Texas law prohibiting
UAS operations over various areas and facilities creates an unworkable patchwork of UAS no fly-

11
Written Testimony, Brent Skorup, Senior Research Fellow, Mercatus Center at George Mason University, Response to
Senate Committee on Business and Commerce Request for Information of September 18,2020, Brent Skorup, Senior
Research Fellow, Mercatus Center at George Mason University (Sep. 18,2020)(on file with committee)
12
Id. at 11.
13
Id. at 11.
14
Id. at 11.
15
Id. at 11.
16
Id. at 11.
17
Written Testimony, Michael Sanders (LSUASC) Response to Senate Committee on Business & Commerce Request for
Information of September 18,2020, LSUASC, (Sep. 18,2020) (on file with the committee)
https://www.nasa.gov/sites/default/files/atoms/files/bah_uam_executive_briefing_181005_tagged.pdf
18
Written Testimony, Nathan Trail, Manager of State & Local Policy, Hyundai UAM Division of Hyundai Motor Group,
Response to Senate Committee on Business & Commerce Request for Information of September 18,2020, Hyundai UAM
Division of Hyundai Motor Group (Sep. 18,2020) (on file with the committee)
19
Id. at 18.

5
zones.20 Testimony received by the committee contends that these laws are preempted by federal law
because the operation of UAS in the NAS may only be regulated by the federal government.
Furthermore, the FAA Extension, Safety, and Security Act of 2016 directs the Secretary of
Transportation to establish a process to allow applicants to petition the FAA to establish no-fly zones
over a narrow class of facilities, such as critical infrastructures. Industry stakeholders argue that the
adoption of this statute is further evidence that Congress has occupied the field with regard to UAS
operations.

The FAA has issued numerous letters to state and local governments cautioning against the adoption of
no-fly zones. Consumer Technology Association (CTA) referenced the State and Local Regulation of
UAS Fact Sheet that was released by the FAA Office of the Chief Counsel on December 17, 2015. 21
According to this fact sheet, "[s]ubstantial air safety issues are raised when state and local governments
attempt to regulate operation or flight of aircraft" and "[a] navigable airspace free from inconsistent state
and local restrictions is essential to the maintenance of a sage and sound airport system." Based on the
preceding information, industry stakeholders recommend the state refrain from adopting legislation
regarding UAS operations.

Privacy and Security

The testimony received from stakeholders recognized that federal preemption does not extend to all state
laws impacting UAS operations, for example privacy laws. There is no comprehensive federal UAS-
specific law that protects the privacy or security of data collected from a UAS. Texas has the authority
to enact legislation to protect property and privacy rights.

Currently, Texas law does not expressly provide air rights to landowners. This raises the risk of
litigation for drone operators, because landowners do not know the extent of their property rights. 22 In
"Jump-Starting the Drone Industry: Which States are Ready to Fly?", the author argues that laws vesting
air rights with landowners clarifies the state's right to exercise its policing powers and defines property
rights. These laws can also inform drone operators and residents about the extent of homeowners'
property rights, which mitigates the risk of litigation for drone operators and homeowners.

LSUAC recommends that the legislature consider studying compensation legislation to address privacy
concerns and the unauthorized use of data collection from UAV operators for commercial purposes.
Currently, low altitude commercial drone operators are not required to compensate property owners for
the use of a landowners immediate airspace.23 Also, UAV operators are not required to gain consent

20
Written Testimony, Douglas K. Johnson, Vice President, Technology Policy, CTA, Response to Senate Committee on
Business & Commerce Request for Information of September 18,2020, CTA (Sep. 18,2020) (on file with the committee)
21
Id. at 20.
22
Written Testimony, Brent Skorup, Senior Research Fellow, Mercatus Center at George Mason University, Response to
Senate Committee on Business and Commerce Request for Information of September 18,2020, Mercatus Center at George
Mason University (Sep. 18,2020)(on file with committee)
23
Written Testimony, Michael Sanders (LSUASC) Response to Senate Committee on Business & Commerce Request for
Information of September 18,2020, LSUASC, (Sep. 18,2020) (on file with the committee)

6
from property owners or compensate property owners for the data that is collected and exploited for
commercial purposes.

As noted by industry stakeholders and the Texas Department of Public Safety in their submitted written
testimony, "surveillance" is not defined in this section of the Government Code. Therefore, it can be
argued that anything not specifically listed in statute would be conducting surveillance in violation of
the law.24 It has been suggested to clarify the statute and define “surveillance” specifically in this section
of the Government Code. In order to address the "right to privacy", LSUSAC recommends adding
explicit language covering UAV photography and suggests studying Florida and California law that
have such statutes.

Industry stakeholders stress the importance of having laws and regulations that address actions and not
the technology used. Wing, the first FAA-certified Air Carrier for commercial drone operations, states in
their testimony that restrictions for privacy or security should be technology neutral. For example,
prohibitions on the collection of images should be expressed in terms of harm and intent, not in terms of
the technology used for collection. Industry stakeholders caution that a technology-specific regulatory
structure could impede the entrants of new technologies.

Conclusion
The expansion of UAS industry and the continued development of the multimodal transportation system
has warranted the state to propose legislation that protects public safety, privacy and property rights.
However, state laws affecting UAS operations should be harmonized with the federal regulatory
framework to ensure air safety. The FAA lacks the authority to issue or enforce regulations to address
privacy concerns.25 While the code contains privacy provisions that pertain to images of private property
and property owners, the code does not adequately address exploitation of data gathered by drone
operators from a property owners immediate airspace. Furthermore, the code does not define
"surveillance" and does not adequately address UAV operations that include surveillance. The Texas
Legislature should continue to review and examine regulations and promote technology-neutral legislation
that protects public safety, privacy and property rights and fosters an environment that allows the UAV
industry to flourish.

Recommendations
The Committee recommends the following:

 The Legislature reexamine and, if found prudent, propose legislation that addresses matters
relating to the use of surveillance in UAV operations and define "surveillance".
 The Legislature continues to study the exceptions that are in statute to ensure that the exceptions
are FAA compliant and promotes air safety.

24
Written Testimony, Texas Department of Public Safety, Response to Senate Committee on Business & Commerce Request
for Information of September 18,2020, Tex. Dep. of Public Safety (Sep. 18,2020) (on file with the committee)
25
Unmanned Aircraft Systems: Current Jurisdictional, Property, and Privacy Legal Issues Regarding the Commercial and
Recreational Use of Drones, https://www.gao.gov/assets/710/709371.pdf

7
2. Electricity: Assess the electricity market in Texas. Examine changes in
customer demand, such as on-site storage, distributed generation, and
electric vehicles. Study the usage of "non-wires alternatives,"
including energy storage, and recommend legislative changes if
needed. Identify barriers to the electric market at the state or local
level. Make recommendations to maintain grid reliability and
encourage the continued success of the electric market.

Background

The Texas electric market has continued to evolve since the decision to deregulate the fully integrated
electric utilities in ERCOT over 20 years ago. The passage of Senate Bill 7 by the 76th Legislature
created an energy-only market design, defining distinct roles for electric generators, transmission and
distribution providers, and retail electric providers in competitive areas of the state, while codifying the
vertically integrated monopoly status of public power systems and electric cooperatives. Since that time,
the mix of resources in the electric wholesale market has undergone much change, adding new resources
to meet demand and replacing some assets with more fuel efficient alternatives.

Public power utilities own approximately 10,500 megawatts (MW) of generation capacity and other
smaller public power companies contract through purchase power agreements in the wholesale market
approximately 5,800 MW. Electric cooperatives own approximately 5,000 MW of generation in ERCOT
and another 2,200 MW in other parts of the state.

The rest of the wholesale generation electric fleet is owned and operated by private entities. Opening the
generation market to investors and allowing transparency in pricing signals to drive investment has
reshaped the generation fleet to consist of more efficient and low-fuel-cost generation resources. This in
turn has allowed the state to offer competitively priced wholesale power and maintain rigorous
reliability standards, both of which are of paramount importance to attract businesses for which
electricity is a significant portion of operating expenses such as manufacturing and high-tech.

ERCOT’s all-time peak demand record of 74,820 MW was set on Aug. 12, 2019.26 The Summer 2020
peak, however, occurred on Aug. 13, reaching 74,328 MW.27 The slightly lower Summer 2020 peak is
not directly attributable to the impacts of COVID-19, rather increased Summer 2020 wind production

26
ERCOT news release, 'ERCOT Reserve Margin Up for Summer 2020, Energy Alerts Still Possible.' May 13, 2020.
http://www.ercot.com/news/releases/show/206275
27
Ibid.

8
and an increase of solar generation of approximately 2,100 MW since Summer 2019.28 The latest
ERCOT CDR, released in December 2020 forecasts a planning reserve margin for summer 2021 of
15.5%, based on resource updates provided to ERCOT from generation developers and an updated peak
demand forecast.29

Aggregate demand is expected to continue to rise in the coming years. ERCOT's latest Capacity and
Demand Report (CDR) estimates that 2021 demand will reach 78, 299 MW and 80,108 in 2022.30

The chart below shows the change in the composition of the electric generation fleet since the time of
deregulation in the late 1990s to Fall 2020 that meets ERCOT's growing demand.

Composition of ERCOT Generation Fleet Since Deregulation

28
Public Presentation: Summer 2020 Review, October 13, 2020.
http://www.ercot.com/content/wcm/lists/197392/2020_Summer_Review_FINAL.pdf
29
ERCOT Report on Capacity, Demand, and Reserves (CDR) in the ERCOT Region, 2021-2030, December 16, 2020.
http://www.ercot.com/content/wcm/lists/197379/CapacityDemandandReservesReport_Dec2020.pdf
30
Ibid.

9
The state's generation fleet has been transformed since deregulation. Notably, the overall share of coal-
fired resources has shrunk from 28.6 percent of the overall generation capacity to 15.2 percent, while
gas now occupies 52.4 percent of overall resources, the newest of which are primarily efficient
combined cycle gas turbines, an outcome consistent with the falling price of natural gas.31 During the
last 20 years, natural gas has widely fluctuated, selling for an average annual spot price as high as $8.86
per Metric Million British Thermal Unit (MMBtu) in 2008, trending down since that 20-year average
annual high, and selling for an average annual spot price of $2.56 per MMBtu in 2019.32

The emergence of wind and solar resources from nearly non-existent status to comprise 23.3 percent and
3.4 percent of the state's capacity, respectively, in ERCOT has been the most striking change. While
Texas's geography supports these assets, the approximately $6.8 billion investment in transmission lines
known as Competitive Renewable Energy Zones (CREZ) was foundational to creating the infrastructure
needed to transfer the electricity generated from those assets to the state's population centers. Senate Bill
20, passed in 2005 and codified in the Utilities Code Section 39.904, established Texas's Renewable
Energy Program and directed the PUC to identify Competitive Renewable Energy Zones. A CREZ is a
geographic area with optimal conditions for the economic development of wind power generation
facilities. In response to this legislative action, the Texas Public Utility Commission (PUC) issued a
final order in Docket No. 33672 in 2008, establishing five CREZ Zones in Texas (McCamey, Central,
Central West, Panhandle A, Panhandle B) and designating a number of transmission projects to be
constructed to transmit wind power from the CREZs to the highly populated metropolitan areas of the
state.

A robust transmission system along with transparent price signals in the ERCOT market have led
wholesale market participants, both existing companies and new entrants, to invest it more efficient
generation assets that reflect the state's natural resources and geography.

The following is a snapshot of ERCOT's interconnection queue as of Fall 2020, which estimates new
generation projects. The trends that have dominated the last 20 years are expected to continue: new,
fuel-efficient resources, more wind and solar, but also the emergence of additional energy storage
projects.

31
ERCOT Generation Fleet Data
32
Energy Information Agency. Natural Gas Futures Prices (NYMEX). https://www.eia.gov/dnav/ng/hist/rngwhhdA.htm

10
Planned Project Resource Mix in ERCOT

Electric generation resources that wish to connect to the grid must obtain necessary gas and air permits,
sign an interconnection agreement, and complete and agreement with a Transmission Service Provider
to connect the new project to the grid. The chart on the left includes potential resources in ERCOT's
interconnection queue that have completed those necessary steps and are, therefore, eligible to be
included in ERCOT's Capacity and Demand Report (CDR). The other planned resources are in the
initial study phase and have not completed the requirements necessary to be considered in the CDR.
Based on the resources in the interconnection queue, the ability of the ERCOT market to meet future
increases in system-wide demand will be more dependent on intermittent resources. It is notable that
solar resources, a smaller component of overall generation today, correlate more closely with Texas's
electric demand profile since they produce at a higher capacity factor during summer peak hours.

11
Distributed Solar Generation

ERCOT estimates that there are approximately 710 MW of distributed rooftop solar power currently in
the competitive choice, municipal, and electric cooperative areas. 33 Estimates of growth vary widely
based on a variety of modeling assumptions, but installations continue, and moderate estimates foresee
as much as 3,000 MW by 2024. ERCOT continues to develop tools to more accurately reflect that
resource so that its impact on reliability may be included in system-wide reliability assessments.34

Battery Storage in ERCOT

While there is significant interest in battery storage projects by ERCOT market participants, there is
only a small amount of battery storage capacity currently on the ERCOT grid, approximately 173
MW. Most of this capacity is limited duration resources designed specifically to participate in the
ancillary service markets. More than 18,000 MW of new battery energy storage capacity is currently in
the ERCOT interconnection queue. ERCOT also has a significant number of interconnection requests
for battery projects that are co-located with wind and solar facilities since batteries can complement
wind and solar resources and take advantage of other project savings. Newer projects are expected to be
designed with longer storage durations and will likely be able to provide energy to serve customer
demands during peak periods. ERCOT and stakeholders are discussing how to account for these
resources in future resource adequacy assessments.

Electric Vehicles

The Texas Department of Motor Vehicles (TxDMV) defines electric vehicles as those that are wholly
powered by electricity and use battery packs to store and release energy. As of late 2019, TxDMV
reported in that were 29,540 electric vehicles registered in Texas which equals about 0.12 percent of the
market.35 Although they are only a fraction of the total vehicles registered in Texas, EVs represented the
largest proportional increase of any alternatively fueled vehicle type year-over-year, increasing 252
percent from 21,143 since FY 2016. 36 TxDMV will release an updated report on 2020's registered
alternatively fueled vehicles in December of 2020.

Also of note, SB 604 passed in 86 (R) transferred certain TxDOT functions to the TxDMV. The bill
required TxDMV to submit a report to the legislature by December 1, 2020 that included a study of the
impact of alternatively fueled vehicles to the state. The report will include, among many fee and state
highway impact measures, the projected impact of alternatively fueled vehicles to the state’s power grids

33
Presentation at ERCOT's Supply Analysis Working Group:
http://www.ercot.com/content/wcm/key_documents_lists/195745/SAWG_April_2020_Solar_PV_Growth_Projection_Discus
sion.pptx
34
Ibid.
35
Texas Department of Motor Vehicles, 2019 Alternatively Fueled Vehicle Report,
36
Ibid.

12
and electricity markets. According to the industry participants polled in the study, including wholesale,
transmission, electric cooperatives, and municipally owned utilities , each segment expected to be able
to meet the increase in electricity demand expected from increased demand from electric vehicles and
any associated increases on electric infrastructure.37

ERCOT performs a biennial Long-Term System Assessment (LTSA) using scenario-analysis techniques
to assess the potential needs of the ERCOT system up to 15 years into the future. The LTSA includes
various forward-looking assessments to help ensure continued system reliability and efficiency. The last
LTSA completed in 2018 included a scenario focused on emerging technology, including an assumed
increase in electric demand based on the adoption of three million electric cars, 80,000 short-haul trucks
and buses, and 200,000 long-haul trucks.38 The 2018 LTSA Emerging Technology scenario included
estimated electric usage that reflected the type of EV, and assumed charging patterns (power drawn from
the electric grid corresponding to time of day). For this study, most cars were assumed to charge
overnight, and trucks and buses were assumed to charge around noon and again overnight. These
assumptions were built into a 2033 model along with other expected trends in electric consumption. This
future scenario estimated the total peak charging demand to be over 18,500 MW at midnight.
Approximately 5,000 to 6,000 MW of charging demand was expected during the hours from 3:00-6:00
PM, but increased EV demand in the evening was expected to shift the system-wide summer peak from
the hour ending 6:00 PM to the hour ending 10:00 PM.

Testimony

The Senate Business and Commerce Committee heard in-person testimony on February 6, 2019 from
the following participants:

DeAnn Walker, Chairman of Public Utility Commission of Texas;
Arthur D'Andrea, Commissioner of Public Utility Commission of Texas;
Bill Magness, President and CEO of ERCOT;
Steve Reedy, Acting Director, Potomac Economics.

Julia Rathgeber, President of Association of Electric Companies of Texas (AECT);
Michelle Gregg, Executive Director of Texas Competitive Power Association (TCPA);
Julia Harvey, Director of Regulatory Affairs, Texas Electric Cooperatives;
Russ Keene, Executive Director, Texas Public Power Association.

Katie Coleman, Government and Regulatory Counsel, Texas Association of Manufacturers;
Bill Peacock, Vice-President of Research, Texas Public Policy Foundation;
Cyrus Reed, Director, Lone Star Chapter, Sierra Club;

37
Texas Department of Motor Vehicles, Study on Imposing Fees on Alternatively Fueled Vehicles, December 1, 2020.
https://www.txdmv.gov/reports-and-data
38
ERCOT System Planning: 2018 Long-term System Assessment for the ERCOT Regiona, December 2018,
http://www.ercot.com/content/wcm/lists/144927/2018_LTSA_Report.pdf

13
Suzanne Bertin, Executive Director, Texas Advanced Energy Business Alliance;

Charlie Hemmeline, Executive Director, Texas Solar Power Association;
Tom Rose, CMG Consulting;
Josh Prueher, CFO, Broad Reach Power;
Pat Wood, former PUC Chairman (1995-2001) and FERC Chairman (2001-2005).
Chairman DeAnn Walker

Chairman DeAnn Walker's testimony focused on actions the PUC has taken to address ERCOT reserve
margins, which triggered energy emergency alerts (EEA) days the week of August 13, 2019, and some
of the drivers of demand in Texas such as energy exploration in the Permian Basin and industrial growth
on the Texas Gulf Coast. Chairman Walker noted an increased reserve margin forecast from the
December 2019 Capacity Demand Report (CDR) for Summer 2020 of 10.6 percent, which is an increase
from the 8.6 percent CDR forecast for summer 2018. Chairman Walker spoke about the PUC’s decision
to make changes to the operating reserve demand curve (ORDC), a scarcity pricing mechanism that
increases power prices as reserve margins tighten, in January of 2019 that took effect in two parts. The
purpose of this change was to give more accurate prices signals to the market and to increase availability
from existing generation through maintenance and plant upgrades. Chairman Walker noted that this
allows consumers to reduce load as prices climb and engage in demand response programs to voluntarily
reduce power consumption.

Bill Magness, CEO of ERCOT

Mr. Magness noted that ERCOT entered Summer 2019 with a historically low reserve margin and that
June and July were comparatively mild to prior years, but that August was very hot, and September was
well above normal expectations. The ERCOT system reached a new all-time record for peak electricity
demand set on Aug. 12, 2019 (74,820 MW). The changes to pricing mechanisms performed as expected,
resulting in excellent generation performance and significant participation by consumers to reduce
demand. Mr. Magness noted an anomaly in Summer 2019's consumption pattern, he pointed out that the
tightest reserve margin conditions occurred earlier than the time of peak demand. ERCOT experienced
two EEA days, reaching only EEA level one, in which ERCOT works with consumers that have agreed
to temporarily curtail usage to balance the electric grid. The two EEA days, August 13 and 15, 2019,
while not as high as previous system-wide peak days, resulted from a combination of an
underperformance from wind generation and an increase in outages from other resources.

Mr. Magness noted that current electricity consumption in the ERCOT system consists primarily of
natural gas resources, at about 47 percent of generated electricity, and that electricity produced from
coal and wind resources were almost equal for the first time, at approximately 20 percent of the
electricity for the ERCOT system. Looking ahead, the ERCOT interconnection queue, which reflects
future electric generation resources, consists primarily of renewable resources with commercial solar
expected to emerge as a category of its own.

14
Mr. Magness noted that ERCOT is one of the new regions in which electricity demand is growing
consistently year to year, resulting from the growth in both population and industrial load, and
recommended a number of measures that will be taken to manage the grid. Those include:

 Real-time Cooptimization, a market management efficiency system that will be fully
implemented by 2024.
 Implementing market rules and IT systems for electric storage resources and distribution-level
resources that are not on the traditional transmission system.
Commissioner Arthur D'Andrea

Commissioner D'Andrea's comments focused on cyber-security bills passed by the Senate B&C
committee in 86 (R): SB 64, SB 475, and SB 936. The bills accomplished two big things:

 The creation of the Grid Security Council, which includes Chairman DeAnn Walker and ERCOT
CEO Bill Magness, and an appointee of the Governor's office. The Council researches best
practices for grid security, and analyzes how those might impact the state's emergency operations
plans for recovery in the event of an attack on the electric grid. The Council is required to report
their findings to the legislature.
 The creation of a Cyber Security Monitor, a contracted entity chosen by the PUC and ERCOT
that meets with all of the utilities in the state - large and small - to share findings about emerging
cyber security threats, share industry practices, and to identify and correct vulnerabilities. The
Public Utility Commission has signed a contract with a private company called Securitas to
perform these duties. The Monitor's findings will be reported to the Commission monthly,
quarterly, and annually. The findings will be available to the legislature.
Steve Reedy, acting director of the ERCOT Market Monitor group, Potomac Economics

Mr. Reedy testified to the committee that shortage prices, which drive investment in an energy-only
market, did not occur as expected in the summer of 2018 as they had in previous summers. In most years
the price of electricity effectively tracks closely with the price of natural gas, indicating that the cost of
electricity reflects the cost of production. However, in 2011 and 2019, there were significant shortage
pricing, indicating that there was not sufficient electricity production to meet both demand and desired
reserves. That shortage is important to incent future investment in an energy-only market. The January
17, 2019 decision to change the Operating Reserve Demand Curve (ORDC), which means the shortage
pricing would be higher in most cases, is reflected in an increase in shortage pricing of summer 2019.
These adjustments can result in changes to both the production (generation) side of the market, such as
incremental increases in the ability of generators to produce more electricity, and to the load
(consumption) side of the market, in which users may decrease their consumption when prices are
higher. One indication of the effectiveness of price signals in ERCOT is the reduction in generator
availability, which dropped significantly in 2019, when prices were expected to be high. Anecdotally,
there was an increase in demand-response from large consumers.

15
Julia Rathgaber, Association of Electric Companies of Texas (AECT)

Mrs. Rathgaber testified to the committee that though the state entered Summer 2019 with historically
low reserve margins, the grid was able to effectively meet demand and offer relatively low prices, all
within these new constraints. AECT members responded to the reliability concerns with a variety of
measures. Generation members made upgrades prior to the summer to maximize output, transmission
and distribution utilities deferred maintenance and coordinated their activities with ERCOT, and retail
electric providers offered low rates. The rates offered are on average approximately 10 percent lower
than the rest of the United States for residential consumers and among the lowest in the nation for large
commercial and industrial consumers. Concerns about adequate reserves in the future remain as a result
of the expected increase in the Texas population and the growing economy at a time when investment in
traditional thermal generation lags. Forward prices are increasing, but not to the level that justify
additional investment in new thermal generation. AECT members plan to continue to complete the same
summer preparation as needed at every level of the market. New energy technologies will also play a
significant role in meeting demand, such as distributed solar generation, energy storage, and demand
response, which are made possible with the market's push to install electronic smart meters. All these
and other innovations will be required to power new technology such as electric vehicles, and AECT
members are preparing to meet the increased demand expected in the state.

Julia Harvey, Texas Electric Cooperatives

Mrs. Harvey testified on the role of the integrated, member-owned, not-for-profit electric cooperatives in
the Texas wholesale market. Cooperatives are authorized to own generation, transmission, and
distribution resources to serve retail customers within a defined service area. Electric cooperatives make
capital investment in generation to serve the customers in these areas at the least cost. Electric
cooperatives own a diverse portfolio of generation resources, including coal, natural gas, and renewable
resources, which allow them to provide stability to the customers they serve. As load grows in
cooperatives' service territory, they will continue to invest in generation or procure wholesale power
from the market, which serves overall resource adequacy in ERCOT as the cooperatives build in
response to their own load growth. While members do pay for their own generation investments, market
revenue from power generation is credited back to members to offset those costs. Market dynamics in
ERCOT are important to electric cooperatives, and they adjust to wholesale markets with a measured
approach toward risk when considering whether to invest in new thermal resources or procure power. In
summer 2019, the cooperative generation fleet performed well, experiencing very few forced outages
over peak periods. Cooperatives have made targeted investments to ensure the availability of their
generation resources over peak demand periods, decisions that are driven by the market's price signals.
In addition to generation, cooperative members made significant voluntary reductions during critical
periods. Cooperatives provide stability in the ERCOT market through capital investment that responds
to load growth and remains focused on system readiness to ensure reliable outcomes in future summers.

16
Michelle Richmond, Texas Competitive Power Associates (TCPA)

Mrs. Richmond testified that members of TCPA provide approximately 70 percent of the generating
capacity in ERCOT. TCPA members' investments are primarily in thermal generation, and only make a
return when they are selected to generate, as opposed to capacity payments in other markets that pay
generators to be available. Therefore, generators must cover fixed and variable costs through market
performance. Prior to Summer 2019, TCPA members invested hundreds of millions of dollars in Texas
to produce additional generating capacity and also returned a "mothballed" facility to service, adding
nearly 400 MW of additional capacity to the system entering the summer. Members plan to continue
service of all existing facilities without retirements and make additional investment decisions based on
expected return on investment. Members continue to invest in their generation fleets, though some have
concerns about the extension of the federal wind production tax credit (PTC), which is expected to lead
to further investment in wind resources but also to volatility, highlighting the importance of resources
that can quickly start up to offer power to the system as needed. TCPA members collectively have
approximately 600 MW of resources in the interconnection queue. Market principles have made ERCOT
one of the most successful markets in the world and has served Texas well, and TCPA believes that
remaining faithful to those without providing subsidies to new or existing technologies will help
maintain a healthy market. TCPA members urge the committee to be vigilant about maintaining low
transmission costs, which are borne by all market participants, and to not initiate further buildout of
transmission that favors renewable resources that are coming online.

Russ Keene, Texas Public Power Association (TPPA)

Mr. Keene testified that TPPA includes 72 Municipally Owned Utilities in Texas serving urban,
suburban and rural Texas. Members vary in size from large, vertically integrated utilities to small
distribution systems, serving approximately 5 million Texans in these cities and towns. Sixty-two
members operate within ERCOT and ten are on the Southwest Power Pool or Midcontinent Independent
System Operator grids. Municipally Owned Utilities (or “MOUs”) offer a long track record of stability
and play an essential role in providing secure and reliable power to the Texas electricity market, with
many member systems providing power to communities in Texas for over 100 years. MOUs have a
diverse portfolio of generation assets and long-term power purchase agreements that contribute to cost-
effective, secure and stable power supply. This diverse fuel portfolio contributes to stability and
reliability to both TPPA communities and the ERCOT market. Nine TPPA MOUs own a total of 35
generation facilities totaling 10,551 MW. In high demand periods of 73,000 MW, at full production
these assets would account for 14 percent of ERCOT’s generation load. Ten larger TPPA members have
60 long-term PPAs resulting in 5,900 MW of new generation built since 2013 on-line/or being delivered
through 2022. Sources include gas, landfill gas, solar, wind. A stable customer base and high bond
ratings allow members to either build their own generation or enter into long-term power supply
agreements with other public power and investor-owned generators based on market dynamics. Nine
MOU systems that own generation have a very diverse fuel base including coal, gas, gas peakers,
nuclear, and hydroelectric. ERCOT requires all utilities that generate power in ERCOT, whether public
or private, to sell into the competitive wholesale power market, including MOUs, which serves retail

17
providers of electricity that buy generation from the market to serve their customers. During summer
2019 MOU generation and transmission assets performed very well and played an important role in a
successful summer for the ERCOT market. MOU generation and transmission activities are regulated by
the PUC and ERCOT. TPPA member company managers and operators participate in the PUC’s
summer readiness workshop, and the MOU segment has long held a board seat at ERCOT. MOUs
participate in demand response programs in ERCOT, reducing demand when the power supply was
tight. MOUs stand ready to engage with policymakers and stakeholders, to ensure that Texans continue
to maintain the stability, reliability, affordability and safety of the ERCOT grid.

Katie Coleman, Texas Association of Manufacturers (TAM)

Ms. Coleman Testified that TAM members are the largest electric consumers in the state. Electricity
costs are often in the top three production costs for TAM members, up to 70 percent of total overhead
costs for some. Cost of electricity is something that manufacturers consider when deciding where to
invest. TAM members consider the summer of 2018 and 2019 an indication of the success of the energy-
only market that allows demand and supply to balance one another. This results in a highly efficient
market without mandates to pay for unnecessary reserves, unlike other Real Time Operating Systems
(RTOs) that have reserve margin requirements of 15 percent or more. ERCOT went through the last two
summers with reserve margins between 8 and 10 percent without genuine reliability concerns. ERCOT's
lean and efficient market saves customers money and promotes economic development without
compromising reliability. Other RTOs where TAM members operate continue to call maximum
generation events even with full regulation and mandated reserve margins. TAM members believe the
key to maintain success in ERCOT is to concentrate performance incentives across peak demand
periods. Generators make much of their profit when they meet peak demand in times of scarcity, which
creates both strong performance incentives for the generators and allows sophisticated consumers to
respond to high prices by reducing electric consumption. TAM members take advantage of demand
response incentives and would like to see this opportunity for lower consumption market participants
take advantage of prices in this way as well.

Cyrus Reed, LoneStar Chapter of the Sierra Club

Mr. Reed testified that the Sierra Club believes the market is working well and that an efficient market
favors newer, cleaner technology. Over the last two years, the percentage of coal plants' contribution to
electricity in ERCOT has reduced from approximately 35 percent to about 20 percent. New gas
development consists of faster more efficient peaker plants, and there is a significant amount of energy
storage in the queue. Regarding the ORDC, the Sierra Club believes that an ORDC shift was necessary,
but that the measures taken were perhaps a little generous. The Sierra Club favors real-time
cooptimization and believes the battery working group at ERCOT is improving the market for that
resource in the future. The group urges further transparency regarding participation in demand response
products and distributed generation resources.

The Sierra Club suggested certain policy goals such as:

18
 Improved customer access to their own smart-meter usage data, which would allow third-party
access to small consumers' data and allow them to better participate in demand response.
 More robust energy efficiency programs. Texas has an energy efficiency goal for our utilities,
which have accomplished much, but focus largely on demand response. Those programs could
focus more on energy-efficiency in order to be directed at residential consumers as demand
response becomes more of a market mechanism.
Bill Peacock, Texas Public Policy Foundation (TPPF)

Mr. Peacock testified that Texas' electric energy-only market provides reliable and affordable electricity,
but the market is threatened by increased market interventions which can distort price formation and
result in a higher cost for a less reliable resource. The most significant market interventions include
renewable energy subsidies and the ORDC, which fundamentally alter the competitiveness of the
market. Renewable energy subsides are the genesis of the need for ORDC price signals. TPPF estimates
that renewable generation companies received over $2.5 billion in federal subsidies, and that the ORDC
added up to $3.9 billion to electricity costs for consumers. These measures have not contributed to the
reliability of the system, yet unreliable resources continue to dominate new planned generation. Rather
than create another market subsidy such as the ORDC to balance the distortions of federal renewable
subsidies, the proper response should be to remove state-level subsidies such as Chapter 312 and
Chapter 313 tax abatements that many wind and solar generators have taken advantage of, as well as
eliminating the state's Renewable Portfolio Standard. Those measures will not be sufficient to remove
the distortions of the federal production tax credit and investment tax credit for renewable resources.
The state should develop mechanisms that require renewable generators to pay for the costs that they
place on the grid.

Suzanne Bertin, Texas Advanced Energy Business Alliance (TAEBA)

Ms. Bertin testified that advanced energy technologies bring many opportunities to the State of Texas,
and in particular the development of competitive, market-based resources such as distributed energy
resources (DERs), which include distributed generation, energy storage, energy efficiency, demand
response, and electric vehicles. DERs are often smaller, but can be aggregated to form a virtual power
plant or micro-grid. They are distributed closer to the load they serve, and are connected to the
distribution grid rather than the bulk transmission grid. DERs are typically modular, flexible in size -
able to be added in increments - and they are two-way, able to consume from the grid and deliver power
back to the grid, providing benefits to each level of the grid. DERs are a low-cost tool to add reliability
and resiliency to the grid, and are able to contribute to sustainability and renewable energy goals, either
policy-mandated or corporate.

During the 86 (R) session, Chairman Hancock proposed legislation (S.B. 1941) that focused on battery
energy storage and would have clarified that storage is a competitive service rather than an asset to be
owned directly by utilities. This bill also would have created new opportunities for utilities to contract
for battery-based “non-wires solutions” to reap some of the savings discussed above by deferring or
avoiding traditional infrastructure buildout. S.B. 1941 passed the full Senate unanimously, and

19
successfully passed out of the House State Affairs Committee, but failed to receive a vote before the full
House of Representatives. TAEBA appreciates that the Legislative leadership has charged this
committee with continuing to consider DERs and in particular opportunities for non-wires solutions.
TAEBA supported and participated in the multi-stakeholder group to establish a proposed non-wires
solution process framework for ERCOT. Going forward, TAEBA would like to see the concepts set
forth in S.B. 1941 expanded to include DERs more broadly — not just batteries — though without a
market-wide cap that would limit the opportunity for these competitive solutions to develop.

Charlie Hemmeline, Texas Solar Power Association (TSPA)

Mr. Hemmeline testified that TSPA members serve customers in both wholesale and retail markets, and
include largescale power plant developers, manufacturers, residential and commercial rooftop
integrators, and others across the full supply chain. The solar industry employs over 13,000 Texans. The
cost of electricity from solar has fallen almost 90 percent in the last 10 years. Homeowners and
commercial facilities are increasingly investing in solar as a way to self-generate and lower their
electricity bills. Larger corporate customers too have become particularly active. Companies such as
Anheuser-Busch, Target, Google, Honda, McDonalds, and others have all recently signed long-term
contracts for generation from solar power plants in Texas. Solar’s low, predictable prices are affordable
and help companies meet corporate sustainability goals.

By the summer of 2022, solar is projected to add over 7,000 MW of on-peak power and grow to about
10 percent of ERCOT’s total peak generation capacity. Solar is expected to boost ERCOT’s planning
reserve margin well above the 13.75 percent target, without which the reserve margin would remain
below the target. Fifty different counties have large-scale solar projects online or a signed agreements
for grid interconnection. Solar installations are modular, able to be placed almost anywhere and sized to
the a given need, which developers are using to place solar resources where they works best in the
market, using existing grid infrastructure. The industry plans to bring Texas a new wave of low-cost, on-
peak power they can depend on for years to come.

Tom Rose, NET Policy Group

Mr. Rose testified that Electric Vehicles (EVs) projections vary widely, which requires Texas
policymakers to make a measured approach as it relates to the impact on the electric grid. There are
three types of chargers, levels one, two, and three. Level one chargers which serve typical consumer
vehicles use standard 120V circuits common to homes and used by most electronics, and are unlikely to
have significant impact on the grid. Level two chargers use 240V electrical circuits similar to home
appliance, and are used in most public charging stations. A charge from this sort of station could equal
the load the size of nearly half of a home. Level three, or fast-DC chargers, use ultra high-power 480V
stations, and can equal a load equivalent of the power consumed by 7-10 homes. The growth in electric
vehicles can plausibly accumulate to equal thousands of megawatts of electricity on the grid. To prepare
for this sort of growth, the grid should look toward providing rules to automate and integrate EVs as
resources with the grid, primarily on the distribution system, including digital control systems monitor

20
and manage intermittent generation and loads in real time and more efficient design and operation of the
system using automated data systems.

Policy makers can do a few things to prepare for increased use of electric vehicles in ERCOT:

 Consider whether the proper incentives exist for utilities to meet the needs of additional
infrastructure to meet the increased demand associated with EVs.
 Evaluate utility planning and regulatory processes to ensure utilities efficiently invest in
traditional and non-traditional technologies to manage reliability and cost of adding DERs/EVs
 Provide consumer education on charging electric vehicles, especially during peak load periods
 Clear the way for “Time of Use” pricing to incent charging during off-peak periods in both the
regulated and competitive markets with regulated “time of use” rate tariffs and competitive “Free
nights and weekends” type of pricing plans.
Josh Prueher, Broad Reach Power

Mr. Prueher testified that Broad Reach’s core business thesis is to locate energy storage assets in
markets where we can operate them on a “merchant” basis, earning revenues in the wholesale electricity
markets, as opposed to the traditional approach of contracting projects for the long-term with a utility,
corporate, or retail electricity offtaker. In well-functioning markets such as ERCOT, energy storage
projects can earn an attractive merchant returns while improving the efficiency and reliability of the
electrical grid. Broad Reach builds energy storage systems to operate on land drilling rigs, artificial lift
pumps, and gas compression sites in Texas and around the world. In 2016, lithium ion battery costs
began to fall rapidly as global manufacturing capacity grew to meet electric vehicle demand and today,
those low costs have enabled the beginning of widespread deployment of energy storage on the grid.

ERCOT is a particularly inviting market for energy storage primarily because its wholesale power and
ancillary service prices are market-driven. The long-term trend toward increased renewable generation
while lowering energy prices also creates localized price volatility that incentivizes energy storage
projects. Increased load in certain areas, due to the state’s economic growth, creates congestion and
additional localized price volatility. Because ERCOT leaves system sizing to the developer’s discretion,
shorter duration energy storage projects that more economically address system reliability and efficiency
are able to economically operate.

In response to these ERCOT market signals, Broad Reach submitted 52 interconnection applications
with several of the Texas Transmission Distribution Service Providers for individual 9.95 megawatt
energy storage projects in 2019. Of those, 18 were accepted by ERCOT and the company is currently
preparing those projects for completion in 2020. These projects will interconnect at the distribution level
and participate in the ERCOT markets. These projects are in locations where grid system constraints
generally cause higher prices and higher price volatility and where energy storage can help alleviate
those constraints.

21
Broad Reach is also developing a number of additional sites in Texas with an ultimate goal of deploying
1 gigawatt of energy storage in the state by the end of 2021. Many of these sites have the same 9.95
megawatt configuration as the current projects, but several are larger – as large as 200 megawatts –
located in remote areas of the state where transmission constraints are most severe.

Broad Reach offers a strong endorsement of Texas utilities they partner with to bring storage to the
market and to ERCOT’s current market rules that allow market participants to build and operate energy
storage at lower costs and improve system reliability for Texas electricity customers.

Pat Wood , Former Chairman of both the Public Utility Commission of Texas and the Federal
Energy Regulatory Commission

Chairman Wood offered a high-level historical view of the process of deregulating the Texas market,
which began with the notion of putting the consumer first as opposed to governmental authority. He
highlighted the benefits of the competitive market in Texas, noting the rate change since the time of
deregulation, which adjusted for inflation, is a reduction of nearly half. The savings that have come to
ERCOT since deregulation are derived from three mains sources:

 Putting power plants into an efficient marketplace, which required them to bear the costs of their
management and operational decisions.
 Reduced profit margins. Rather than receiving a formula-based rate from the commission,
producers now receive a market-based return that rewards efficient operations.
 Excess cost of capacity. A competitive market bears the risk of the excess cost of generation
capacity. This allows the market to efficiently sort and reward the best power producers.
Chairman Wood highlighted the continuing benefits of an open ERCOT, which has created fertile
ground for new tools and innovations such as demand response, which allows the market to regulate
against abuse rather than relying on regulators. Other innovations such as small modular nuclear
generation is being developed and may become more economical.

Chairman Wood pointed out several ways to keep the ERCOT market attractive to new investment and
innovation:

 Put the customer first,
 Continue to ring-fence the monopoly TDUs,
 Welcome new technological innovation and business models to the market by reducing barriers
to entry and allow new ideas to flourish.
 Maintain a stable, bi-partisan regulatory environment in the legislature and the state.
The full audio and video recording of the hearing is available on the Texas Senate archive.

22
Recommendations

As the interconnection queue indicates, Texas continues to attract interest from power generation
investors from a variety of generation resources. The committee should strive to maintain a stable
regulatory environment that allows our market-driven design maximum consistency and transparency so
that energy investors and businesses continue to see Texas as a destination. It is notable that the
interconnection queue consists almost entirely of intermittent wind and solar resources, and that electric
energy storage is expected to advance in the near future, all at a time in which the state's aggregate
power demand continues to grow. These resources can be complimentary, and the committee should
look for opportunities to foster an environment in which these smaller, modular resources can
effectively contribute to grid stability and resource adequacy to meet the needs of the state's growing
economy.

23
3. Health Care Costs: Study the cost of health care in Texas. Make
recommendations to increase access to affordable quality health care.
Explore potential opportunities and recommend best practices to
continue to curb rising health care costs. Study and report on ways to
increase consumer health care options, provide flexibility in the market,
and decrease the uninsured rate in Texas, including 1115 and 1332
waivers.
Background
Across the nation and in Texas, healthcare costs are increasing. 39 A recent study finds that health care
costs in Texas in 2018 exceeded the national average of about $5,900.1 Nationally, spending jumped 18
percent to about $5,900 from about $5,000 in 2014, but not necessarily because patients are seeing doctors
more frequently, according to the report.40

Reports show that the increase is attributable to the rising pharmaceutical and medical prices. Those costs
account for 74 percent of the increases that occurred between 2014 and 2018. In Texas, drug spending
climbed 17 percent to $1,196 in 2018 while the cost of a hospital visit increased 10 percent to $1,205.41
Out-of-pocket costs, or those that insurance does not pay for, also increased by 14.5 percent, or $114.
Spending on emergency room visits increased most dramatically, from an average of $368 in 2014 to $503
in 2018, a 36 percent difference.

A recent study found that pricing failure, over-treatment, low-value care, and fraud and abuse are
responsible for 50 percent of wasteful spending in health care — pricing failure alone accounts for 30
percent of U.S. health care waste.42

The Senate Committee on Business and Commerce is focused on passing legislation targeted at protecting
Texas' most vulnerable patients. The Committee continues to look for ways to help Texans afford their
health care by reviewing best practices and reporting on ways to increase health care options, access and
to decrease the cost.

Testimony

Lower Health Insurance Premiums - 1332 Waivers

39
Irene Papanicolas, Liana R. Woskie, and Ashish Jha, Healthcare Care Spending in the United States and Other
High-Income Countries (Nov. 2, 2020, 2:15PM), https://www.commonwealthfund.org/publications/journal-
article/2018/mar/health-care-spending-united-states-and-other-high-income.
40
Health Care Expenditures by State of Residence (in millions), Kaiser Family Foundation, available at
https://www.kff.org/other/state-indicator/health-care-expenditures-by-state-of-residence-in-millions/?state=TX
41
Id.
42
William H. Shrank, MD, MSHS, Teresa L. Rogstad, MPH; Natasha Parekh, MD, MS, Waste in the US Health
Care System, JAMA, (Nov. 2, 2020, 2:00PM), https://jamanetwork.com/journals/jama/article-abstract/2752664.

24
One way to address the rising cost of health insurance premiums is for Texas to apply for a 1332 waiver.
A 1332 waiver allows states to forgo portions of the Affordable Care Act (ACA).43 Also called State
Innovation Waivers, these waivers were available beginning January 1, 2017. In 2018, the federal
government revised the guidance on Section 1332 waivers making them easier to get approved and more
attractive for states to participate in. The waivers are approved for five-year periods with an option to be
renewed, and must not increase the Federal deficit.44

In recent years 16 states have submitted 1332 waivers to help reduce health insurance premiums in the
individual and small group insurance markets, and those waivers have been approved by the Centers for
Medicare and Medicaid. 45

The Committee received written testimony from the Texas Department of Insurance (TDI) that explains
that the agency is using authority granted in SB 1940 (86R, 2019) that allows TDI to revise and administer,
through the use of a 1332 waiver, the temporary health insurance risk pool or another type of reinsurance
model to the extent federal funds are available. TDI is currently reviewing requests for proposals (RFP)
for an actuarial analysis as authorized by TEX. INS CODE § 1510.002.46

The actuarial analysis will examine the costs and options for three possible 1332 waiver strategies:

 A reinsurance program to cover a portion of claim costs above an attachment point for each insured
individual.
 A high-risk pool, in which high-risk individuals are rated separately and possibly offered different
plans from healthy individuals, and waiver funds cover a portion of claim costs for the high-risk
pool.
 An invisible high-risk pool, in which high-risk individuals are offered the same plans and rated the
same as healthy individuals, and waiver funds cover a portion of claim costs for high-risk
individuals.

The actuarial analysis will enable stakeholders to evaluate the potential effects of a waiver on: overall
enrollment in the individual market; enrollment by county and on/off exchange; enrollment by age and
health status; average premium by rating area and on/off exchange; estimated federal pass-through
funding; and estimated cost to the state.47

43
Section 1332: State Innovation Waivers, Centers for Medicare & Medicaid Services (Nov. 2, 2020, 2:00 PM),
https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-
Waivers/Section_1332_State_Innovation_Waivers-.
44
Written testimony, TDI Response to Senate Business and Commerce Committee Request for Information of
September 18, 2020, Tex. Dep't. of Insur., (Sep. 18, 2020) (on file with committee).
45
Tracking Section 1332 State Innovation Waivers, Kaiser Family Foundation, available at
https://www.kff.org/health-reform/fact-sheet/tracking-section-1332-state-innovation-waivers/ (Nov. 3, 2020 at
1:00PM)
46
Written testimony, TDI Response to Senate Business and Commerce Committee Request for Information of
September 18, 2020, Tex. Dep't. of Insur., (Sep. 18, 2020) (on file with committee).
47
Id.

25
Most patient advocacy groups and other stakeholders that submitted testimony to the committee wrote in
support of the use of a 1332 waiver in order to reduce the cost of premiums in the individual and small
group health insurance markets.48

Access to Care and Competition

The Committee received testimony addressing the issue of industry competition.49 Hospital systems,
provider groups, drug companies, lab companies, pharmaceutical benefit managers, pharmacies and
insurance companies are all consolidating and expanding to have a more competitive advantage in the
marketplace.50 When this happens, many times the industries claim that the patient or consumer will be
offered better care, more access or more affordable services, products and care. 51 In reality, more
processes, products, provider types, terminology and non-transparent practices are also developed so that
the entire encounter of accessing and affording healthcare becomes more difficult for the patient, and they
are left with less choice.52

Texas Academy of Family Physicians submitted testimony addressing ways to improve and simplify
access, care and cost to family physicians. They support moving away from the fee for service model for
primary care in order to make way for value-based models, like prospective payments, and they would
like to foster direct contracting for primary care (DPC). 53 Direct contracting is described as having
patients or groups pay the provider a regular, monthly fee that covers various services. DPC is not health
insurance, so it is not regulated by the Texas Department of Insurance.

The Texas Academy of Family Physicians support TDI accessing claims data that would allow researchers
to paint a fuller picture of where health care dollars go and the types of health care visits that patients
make. The testimony explains that 18 states have or are establishing All Payer Claims Databases (APCD)
to facilitate this data collection. The largest claims database in Texas is currently the Center for Health
Care Data housed at the University of Texas School of Public Health in Houston, which collects health
care utilization data for almost 80 percent of the Texas population.54

48
Written testimony, Texans for Healthcare Access (Sep. 19, 2020) (on file with committee); written testimony
from Texas Medical Association (Sep. 19, 2020); written testimony, Texas Conservative
Coalition Research Institute, Comments to the Senate Committee on Business and Commerce (Oct. 2, 2020).
49
See written testimony, Texas Pharmacy Association (Oct. 2, 2020) (on file with committee); written testimony,
Texas Association of Health Plans (Oct.2, 2020) (on file with committee); written testimony, Texas Conservative
Coalition Research Institute, Comments to the Senate Committee on Business and Commerce (Oct. 2, 2020) (on
file with committee).
50
See Tara Barrow, Healthcare Consolidation Goes Beyond the Usual Players, Modern Healthcare (Nov. 3, 2020,
1:30PM), https://www.modernhealthcare.com/mergers-acquisitions/healthcare-consolidation-goes-beyond-usual-
players.
51
Karyn Schwartz, Eric Lopez, Matthew Rae, and Tricia Neuman, What We Know About Provider Consolidation,
Kaiser Family Foundation (Nov. 2, 2020, 2:45PM)), https://www.kff.org/health-costs/issue-brief/what-we-know-
about-provider-consolidation/.
52
See id.
53
Letter, Texas Academy of Family Physicians, Interim Charge on Health Care Costs (Sep. 25, 2020)
54
Id.

26
Texans for Healthcare Access, a coalition representing 30 organizations, contend that competition and
access to care can happen by ending the requirement that an advanced practice registered nurse (APRN)
have delegated authority from a doctor.55 This could potentially allow APRNs to provide more care in
both the hospital and rural settings by allowing them to open their own practice. Currently APRNs spend
$6,000-$50,000 annually on delegation contracts with doctors.56 Nurses reimbursements for services
average 8 percent lower than physician reimbursement rates, and can be a more affordable, accessible
option for patients, especially in rural or underserved areas of Texas.

Private Equity Role in Increasing Costs
Testimony mentioned that healthcare costs are rising due to private equity and venture
capitalist firms investments. Texas Association of Life and Health Insurers (TALHI) included in their
testimony that private investment in U.S. health care has grown significantly over the past decade due to
investors in health start-ups, addiction treatment facilities and physician practices.57

In 2018, the number of private equity deals approached 800, and the total value of those businesses totaled
more than $100 billion. One of the most popular investments has been the purchasing physician and dental
practices, and while this can help the physicians and small practices stay in business, it can also lead these
entities price gouging the patients without adding additional patient benefits.58

Prescription Drug Cost

Pharmacy groups included in testimony that they believe the rising cost of drugs is in part due to the role
of pharmaceutical benefit managers (PBMs).59 PBMs’ role has been unregulated and they have
consolidated so that three companies set prices and are paying for around 80 percent of the drugs dispenses
in the country.60

Pharmacists point to certain practices of PBMs, including collecting direct and indirect remuneration, or
DIR fees, and requiring specialty accreditations or steering to certain pharmacies with the accreditations.
Pharmacists also explain that PBMs often require patients to obtain specialty drugs from mail order
pharmacies owned by the PBMs themselves. Overall, these practices may save the payors, such as the
insurance companies and PBMs money, but they are also limiting the choice of the patient on how and
where to get their prescriptions.

55
Written testimony, Texans for Healthcare Access (Sep. 19, 2020) (on file with committee).
56
Id.
57
Written testimony, Tex. Assoc. Life and Health Insurers (Sep. 19, 2020) (on file with committee), including
Louisa Gustafsson, Shanoor Seevai and David Blumenthal, The Role of Private Equity in Driving Up Health Care
Prices, Harvard Business Review, Oct. 19, 2020, available at: https://hbr.org/2019/10/the-role-of-private-equity-in-
driving-up-health-care-prices.
58
Louisa Gustafsson, Shanoor Seevai and David Blumenthal, The Role of Private Equity in Driving Up Health Care
Prices, Harvard Business Review, Oct. 19, 2020, available at: https://hbr.org/2019/10/the-role-of-private-equity-in-
driving-up-health-care-prices.
59
Written testimony, Texas Pharmacy Association (Oct. 2, 2020) (on file with committee).
60

27
PBMs and the Texas Association of Health Plans testify that their role is necessary in order to control and
limit the rising costs of drugs.61 In recent years the use of the rebate offers by the PBMs have come under
scrutiny. Recently, the U.S. Supreme Court heard oral arguments Rutledge v. Pharmaceutical Care
Management Association, a case that centers around whether a federal law should preempt a state law that
regulates PBM payments to pharmacies.62 The federal court sided with the PBMs, and we are still awaiting
the Supreme Court's decision.

Deregulation and Telehealth
Many stakeholders noted the explosion in the use of telehealth and loosened regulations during the
pandemic of COVID-19, and its tremendous impact on accessing healthcare.63 Early data shows that the
growth of telehealth can improve access to care, especially in rural areas where a patient can connect with
a doctor within seconds, rather than driving long distances for an office visit.

The Texas Association of Life and Health Insurers warn in their testimony that not every service can be
translated from an in-person visit to a virtual visit while maintaining the same level of care. There needs
to be a keen focus on what kinds of services are being provided, if additional providers can offer services,
and if providers across state lines should be permitted use telehealth, all the while ensuring safety.64

The Foundation for Government Accountability provided testimony that supports broadening the use of
telehealth services for providers such as nutritionists to help manage diabetes and expanding telehealth
and telemedicine across state lines.65 The National Association of Mental Illness's testimony
highlighted the cost savings of around $20-$120 per visit and the viable alternative to in person visits
it is for those with mental health illness.66

Recommendations
The Committee remains focused on the vulnerable Texas patient population and will work to ensure they
have access to meaningful, more affordable insurance coverage and healthcare services. As one option,
the Committee will continue working with Texas Department of Insurance after the agency receives the
actuarial data to inform a 1332 waiver application. The 1332 waiver is a promising mechanism to lower
health insurance premiums and allow for more access to coverage in the individual and small group health
insurance marketplaces.

The Committee will examine the executive orders issued by Governor Abbott during COVID-19 that
loosen regulations to help both patients and health professionals maintain access to services while ensuring
safety.

61
See Written testimony, Tex. Assoc. of Health Plans (Oct. 2, 2020) (on file with committee);
62
Jennifer Nessel, Supreme Court to Tule on States' Right to Regulate Pharmacy Benefit Managers, Pharmacy
Times, (Nov, 3, 2020 at 2:15PM).
63
Written testimony, Tex. Assoc. Life and Health Insurers (Sep. 19, 2020) (on file with committee); Written
Testimony, the Foundation for Government Accountability, (Oct. 1, 2020) (on file with committee).
64
Id.
65
Written Testimony, The Foundation for Government Accountability, (Oct. 1, 2020) (on file with committee).
66
Written Testimony, The National Association of Mental Illness, (Oct. 1, 2020) (on file with committee).

28
4. Monitoring: Monitor the implementation of legislation addressed
by the Senate Committee on Business and Commerce passed by the
86th Legislature, as well as relevant agencies and programs under
the committee's jurisdiction. Specifically, make recommendations
for any legislation needed to improve, enhance, or complete
implementation of the following:
Senate Bill 14, relating to broadband service or facilities provided
by an electric cooperative;

Background

The Senate Business and Commerce Committee heard testimony and voted out S.B. 14, 2019 Leg., 86
Reg. Sess. (TX 2019), and the bill was subsequently signed by the Governor on June 7, 2019. The bill
authorized an electric cooperative or an affiliate to construct, operate, and maintain fiber optic cables and
other facilities for providing broadband service, allowing electric cooperatives and affiliates to install
fiber optic cables along real property, personal property, rights-of-way easements, and other property
rights that were owned, held, or used by the cooperative. Electric cooperatives are member-owned non-
profits who have over 300,000 miles of distribution lines throughout rural Texas. The bill defined
"broadband service" as internet service with the capability of providing a download speed of 25 megabits
per second or faster and an upload speed of three megabits per second or faster.

SB 14 required rates charged by an electric cooperative for attaching broadband facilities to the
cooperative's poles could not be less than the rates the cooperative charged other broadband service
providers for pole attachment. The bill also prohibited the practice of "cross-subsidization" by requiring
that the rates charged by an electric cooperative for the provision of electric service could not include any
broadband service costs or any other costs not related to the provision of electric service. Electric
cooperatives providing broadband service must now maintain separate books and records of broadband
service operations to ensure this practice does not occur.

Testimony

Texas Electric Cooperatives, along with other providers of rural telecommunications services, the Texas
Telephone Association, and the non-profit groups Connected Nation Texas and the T.L.L. Templeton
foundation provided written testimony regarding the implementation and effectiveness of SB 14. They
also included recommendations to further the provision of rural broadband service.

The benefits of access to high-speed broadband are well understood and highlighted like never before
by the challenges of dealing with the COVID-19 pandemic. With broadband connectivity, communities
can link to the state and global economies, enabling local businesses to expand and create new industry

29
and jobs. Rural schools can train their students for digital age opportunities, and health care for rural
citizens improves with access to new technologies enabled by broadband service. Electric cooperatives
providing broadband are one component of the solution to closing the digital divide in rural Texas.

Implementation of Senate Bill 14

S.B. 14, 2019 Leg., 86 Reg. Sess. (TX 2019), streamlines the process by which cooperatives may use
their electric easements and the facilities along these easements for the provision of broadband service.
The bill has reduced the barriers to cooperative deployment of broadband service and has facilitated the
expansion of the service in rural areas.

According to electric cooperatives deploying broadband today, SB 14 has lowered the cost and
shortened the timeline for deployment. Before the passage of SB 14, adjusting each individual
easement to include fiber for broadband was a very costly and time-consuming undertaking.

Electric-only easements limited the use of the easement to infrastructure related to providing electric
service. Prior to SB 14, such easements allowed for adding fiber in the easement to operate the
cooperative electric system, but they did not allow for using that same fiber in the easement to provide
high-speed broadband service. The process created by SB 14 for addressing the electric-only easement
issue now means less time and money spent on each individual easement and more spent on providing
service.

Texas Telephone Association (TTA) members have invested in and serve much of rural Texas, and
initially had concerns about SB 14. TTA members and their affiliates welcomed broadband
competition in their rural areas, so long as their customers were protected and the competition occurred
on a level playing field. For that reason, TTA worked to suggest amendments to SB 14 that might
alleviate the consumer protection and competitive concerns its members had while still ensuring that
SB 14 allowed electric cooperatives to use their easements as desired. SB 14 was amended to include
those safeguards. The law now protects electric and broadband customers by preventing “cross-
subsidization,” and it protects broadband competitors from anticompetitive or discriminatory pole
attachment fees by requiring “just and reasonable” attachment fees.

Status of electric cooperative deployment of broadband

Today, there are 64 not-for-profit electric distribution cooperatives operating in Texas. Ten
cooperatives are currently deploying broadband service, and at least 16 other electric cooperatives are
studying possible deployment in the future.[1] Almost 40,000 consumers currently receive high-speed
broadband service from their electric cooperative. The number of consumers served by electric
cooperatives is expected to increase significantly going forward, as several systems are just now
beginning their deployment. Electric cooperatives are providing high speed broadband service to over
a dozen school districts and 39 individual schools. Most electric cooperatives that provide broadband
services are providing public Wi-Fi hotspots to students and their families, while others are offering
high-speed broadband service to disadvantaged students.

[1]
TEC Response to Senate Business and Commerce Request for Information of September 18, 2020, TEC Letter
(dated October 1, 2020) (on file with committee).

30
A number of co-ops are also in discussions with neighboring telephone cooperatives about partnering
to provide broadband over the electric cooperatives’ easements. TTA represents 33 small and rural
wireline telephone providers in Texas, known as incumbent local exchange carriers or “ILECs.”
[2]
Most of the Association’s members serve fewer than 5,000 customers, each in sparsely populated
areas, and many of its members are not-for-profit, member-owned telephone cooperatives.[3] TTA
members together serve about 46% of Texas’s landmass (almost 125,000 square miles).[4] Rural
Texans that live in almost half of Texas’s land area rely on TTA’s ILEC members for
telecommunications services.[5] There is great promise of collaboration to utilize each of these groups'
expertise within the SB 14 policy framework to identify and serve regions with a lack of access to
high speed, quality internet service.

TTA members and their affiliates have already invested millions in the state network which enables
voice, broadband, and other services to many rural Texans today. In the future, TTA expects that
additional broadband initiatives may be considered in order to continue expanding broadband to more
rural Texans. Since the passage of SB 14, some TTA members or their affiliates have been working on
potential partnerships that would expand broadband services to more rural Texans, so long as future
initiatives include the dual safeguards that SB 14 includes. These safeguards are: (1) prohibiting cross-
subsidization and increasing transparency for consumers; and (2) requiring just and reasonable pole
attachment fees. TTA expects that additional players may be able to join its members and their
affiliates in bringing broadband to more unserved or underserved rural Texans.

Future Support for Rural Broadband

Connected Nation Texas, a statewide initiative funded by the Texas Rural Funders to support all Texans
in accessing broadband, has developed broadband coverage maps for every Texas county and advocates
for better economic and life opportunities by expanding access, adoption, and use of high-speed internet.

Connected Nation Texas has found, 333,070 households in Texas still lack access to internet at basic
speeds of 25 Mbps/3 Mbps representing an estimated 926,859 Texans without access at home, and that
of these unserved Texans, 823,920 live in rural areas.67 To bridge this divide, Connected Nation Texas
recommends further dedication to closing the Digital Divide through state broadband planning, data
collection and analytics, and reduced barriers for providers to build out and offer service.

The T.L.L. Temple Foundation, a non-profit committed to economic development in rural East Texas,
similarly, sees SB 14 as part of a supportive set of policies.68 The Foundation notes that an independent
analysis conducted for the Deep East Texas Council of Governments (DETCOG), shows that zip codes

[2]
TTA Response to Senate Business and Commerce Request for Information of September 18, 2020, TTA Letter
(dated October 2, 2020) (on file with committee).
[3]
Ibid.
[4]
Ibid.
[5]
Ibid.
67
Connected Nation Texas, Response to Business and Commerce Request for Information of September 18, 2020, Connected
Nation Letter (dated October 2, 2020) (on file with committee).
68
T.L.L. Temple Foundation, Response to Business and Commerce Request for Information of September 18, 2020, T.L.L.
Temple Foundation Letter (dated October 13, 2020) (on file with committee).

31
in DETCOG's 12 counties have no better than 10 Mbps/1 Mbps speed internet access, which is not
considered broadband. 69 Additionally, residents of the DETCOG region, on average, pay 400% more
per megabit than do residents of the Dallas Fort Worth Metroplex. 70

The Temple Foundation supports initiatives to achieve a minimum speed for broadband of 25 Mbps/3
Mbps as defined by the Federal Communication Commission with an always-on connection, which
should be the minimum goal for all rural Texans. The Foundation urges policymakers to investigate
whether other policy barriers or financial hurdles exist for the almost 50 co-ops not currently offering or
studying the feasibility of offering broadband to their customers. The Temple Foundation notes that
Texas is one of only six states that does not have a statewide broadband plan, the absence of which
makes Texas less competitive for certain federal funding. Additionally, they encourage the state to
create a dedicated and staffed broadband office to ensure the state plan is supported and implemented.71

Recommendation
As of September 1, 2020, ten of the 64 not-for-profit electric distribution cooperatives operating in
Texas were deploying broadband service, and at least 16 other electric cooperatives are studying
possible deployment in the future. The Senate Business and Commerce Committee should continue to
monitor these efforts and look for opportunities to facilitate further deployment by electric cooperatives,
remove barriers to entry, and foster partnerships with other telecommunications providers where there
remains a genuine lack of access to broadband service to consumers and school districts.

69
Deep East Texas Council of Governments and Economic Development District, The Case for Broadband in Deep East
Texas, www.detcog.gov/broadband (last visited October 13, 2020).
70
Ibid.
71
T.L.L. Temple Foundation, Response to Business and Commerce Request for Information of September 18, 2020, T.L.L.
Temple Foundation Letter (dated October 13, 2020) (on file with committee).

32
5. Monitoring: Monitor the implementation of legislation addressed by
the Senate Committee on Business and Commerce passed by the 86th
Legislature, as well as relevant agencies and programs under the
committee's jurisdiction. Specifically, make recommendations for
any legislation needed to improve, enhance, or complete
implementation of the following:

Senate Bill 1264, relating to consumer protections against certain
medical and health care billing by certain out-of-network providers.

Background

Balance Billing and Surprise Billing Explained

Balance billing is the practice of physicians or facilities charging patients for the portion of medical
expenses not covered by the patient's insurance, beyond usual charges such as co-pays.72 While some
balance billing is to be expected, in many cases, these bills are a complete surprise. Surprise balance billing
most commonly occurs with emergency departments, freestanding emergency rooms (FSERs), or when a
facility-based physician or other practitioner does not have a contract with the same health benefit plans
that have contracted with the facility in which they practice. A patient who is admitted into one of these
facilities for a procedure or an emergency often becomes ultimately responsible for an unexpected, or
surprise, bill.

During the 86th Legislative Session, Senate Bill (S.B.) 1264 was passed by the Legislature. 73 The bill
prohibits surprise balance billing of consumers by out-of-network providers for emergency services,
facility-based services at a network hospital, and lab and diagnostic imaging services that are related to
a network service. In other words, in situations where the consumer has no choice over who provides
their care, they cannot receive a surprise balance bill for services rendered on or after January 1,
2020. S.B. 1264 eliminated surprise balance billing for at least 5 million Texans with private health
benefit plans that are regulated by the Texas Department of Insurance (TDI) and those that have coverage
through state employment from Employee Retirement System (ERS) and Teacher Retirement System
(TRS).

How does S.B. 1264 work?

S.B. 1264 requires health benefit plans, including preferred provider organizations (PPOs), exclusive
provider organizations (EPOs), and health maintenance organizations (HMOs), to reimburse claims at

72
How Texas protects consumers from surprise medical bills, Tex. Dep't of Ins, Nov. 4, 2020, 10:20AM),
https://www.tdi.texas.gov/takefive/texas-protects-consumers-from-surprise-medical-bills.html.
73
Act of June 14, 2019, 86th Leg., R.S., ch. 1342 § 5.01, 2019 Tex. Sess. Law Serv. 3977 (hereinafter referencing
the applicable Texas Insurance Code provision). (The Act applies to health plans regulated by TDI as well as the
Texas Employees Group Benefits plan (ERS) Tex. Ins. Code § 1551.015; Teacher Retirement System (TRS-Care)
§ 1575.009; and TRS-ActiveCare § 1579.009).

33
usual and customary rate. The bill also prohibits surprise billing of consumers for out-of-network lab work
and imaging. The patient, or "consumer", maintains responsibility for their applicable co-pay,
coinsurance, and deductible amounts.74 S.B. 1264 clarifies that a patient is not liable for any additional
amount after the health benefit plan insurer determines their cost-sharing. The Attorney General and other
agencies that regulate the parties involved were given enforcement authority. Additionally, the law
requires health benefit plans to provide notice to the provider for the amount the provider is able to bill
the patient. Lastly, S.B. 1264 instructs TDI to provide quarterly data calls to study the implementation of
the legislation.75

Two Dispute Resolution Processes—Mediation and Arbitration

S.B. 1264 allows for two dispute resolution processes — mediation and arbitration. The current mediation
process administered by TDI may be used to resolve all billing disputes between health benefit plan
insurers and facilities (e.g. hospitals and freestanding ERs). According to TDI, surprise bill mediation has
saved Texas patients nearly 68 million dollars in out-of-pocket healthcare costs since 2015, when the
agency began tracking this data. Arbitration is used to allow providers (e.g. surgical assistants,
radiologists, anesthesiologists) and health benefit insurers to resolve claim payment disputes.76 The
arbitrator selects the most reasonable payment amount by choosing one of the following: the initial
provider billed charge, the initial insurer payment, a revised billed charge or payment amount or, an offer
made by either party in the mandatory informal teleconference call between the parties. The bill also
allows the arbitrators to use benchmark data to determine the most reasonable reimbursement rate. The
dispute resolution time limit for arbitration is 45 days after the informal teleconference call, which begins
the process. TDI implemented rules to allow the bundling of disputed claims of up to 5 thousand dollars
per provider.

Rulemaking and Current Data

TDI worked diligently with stakeholders during the rulemaking process in order for consumer protections
and S.B. 1264 processes to be in place by January 1, 2020, the effective date of the legislation. TDI reports
that from January through September 2020, the agency received a sizable increase of more than 24,000
requests for arbitration or mediation. In 2019, under the dispute resolutions system then in place, TDI
received 8,400 mediation requests.77

In July of 2020, TDI published a preliminary report on implementation of S.B. 1264 including the launch
of an online portal for providers, health plans, and facilities to request arbitration or mediation. As the
report notes: “Six months into the implementation of S.B. 1264, provider complaints about billing disputes
have decreased more than 70% from the same period a year ago, and consumer complaints about balance

74
See Texas Passes A Law to Protect Patients From Surprise Medical Bills, NPR (June 18, 2019),
https://www.npr.org/sections/health-shots/2019/06/18/733369370/texas-is-latest-state-to-attack-surprise-medical-
bills (Until the U.S. Congress passes a federal law prohibiting surprise bills, patients covered by federally-
regulated plans (which make up at least 40 percent of the Texas health insurance market) may still receive a
balance bill from providers.)
75
Act of June 14, 2019, 86th Leg., R.S., ch. 1342 § 5.01, 2019 Tex. Sess. Law Serv. 3977.
76
IDR Update for October, Tex. Dep't of Ins (on file with committee).
77
Written testimony, Tex. Dep't of Ins (Oct. 1, 2020) (on file with committee).

34
billing have fallen by more than 95%.”78 S.B. 1264 requires TDI to issue a more comprehensive report
on the impacts of the legislation each biennium. The first such report is due December 1, 2020, and the
agency has issued a data call to collect more detailed information for that report.

Rule on S.B. 1264 Exception

One important aspect of the bill was an exception provided that allows a consumer to choose an out-of-
network doctor or provider at an in-network facility by signing a waiver of acknowledgement. Although
the rulemaking was initially started by the Texas Medical Board, it was later returned to TDI. TDI issued
an emergency rule to meet the January 1, 2020 implementation date and made it permanent through the
normal rule-making process. 79

The rule specifies that the waiver must be written in consumer-friendly language and must be signed at
least 10 business days before the patient receives out-of-network care if the provider wants to balance bill
the consumer.80 The provider still has the option of requesting arbitration or mediation if the 10 business
day deadline is not met. This timeline ensures that the patient will not be rushed and there will be no
surprises.

TDI also had to identify a database that could provide the data required by S.B. 1264 and meet the
legislation's requirements on conflicts of interest. TDI has made submissions to the benchmarking
database optional, but allows health benefit plans that contribute data to get free access to other submitted
data.81

Employee Retirement System and Teacher Retirement System

The suspension of elective surgeries due to COVID-19 and the overall impact of COVID-19 on the
healthcare industry has not provided usual initial data of the statute to explain the impact to ERS, TRS
and TRS ActiveCare. Each system explained in the written testimony provided that they anticipated the
arbitration process to cost more than it has so far and that they are continuing to monitor the results. 82

Testimony
Consumer advocacy groups recommend prohibiting surprise medical bills from emergency medical
transportation/ambulance services.83 They also recommend data collection be improved so that TDI can better
monitor the impact of arbitration and billed charges as a part of arbitration to determine the impact on health
care spending, market consolidation, and the need for modifications to the law.

78
SB 1264: Six Month Preliminary Report, Tex. Dep't of Ins. (July 23, 2020), available at:
https://www.tdi.texas.gov/reports/documents/SB1264-preliminary-report.pdf.
79
TDI adopts rule on SB 1264 waiver, Tex. Dept. of Ins. (Dec. 18, 2019).
80
SB 1264 Waiver Form, Tex. Dep't of Ins. (Dec. 18, 2020), available at
https://www.tdi.texas.gov/forms/lhlifehealth/ah025.pdf.
81
Written testimony, Tex. Dep't of Ins. (Oct. 1, 2020) (on file with committee).
82
Written testimony, Employee Retirement System (Sep. 23, 2020) (on file with committee); written testimony,
Teacher Retirement System of Texas (Oct. 2020) (on file with committee).
83
Written testimony, AARP and Every Texan, October 2, 2020 (on file with committee).

35
These stakeholders are also interested in knowing how revised bill charges and revised insurance
reimbursement rates are impacting arbitration decisions. The advocacy groups AARP and Every Texan also
believe that we should consider monitoring the impact of the new law on small and independent physician
practices verses the large private equity backed physician practices. 84

Multiple stakeholders also noted that the other regulatory agencies responsible for licensing impacted
providers, such as the Texas Medical Board, the Health and Human Services Commission, the Texas
Nursing Board should also adopt rules that align with S.B. 1264’s language and legislative intent. Another
recommendation is to end the use of billed charges as a benchmark standard in the arbitration
process because many times the billed charges are inflated and very large. UT Health Science submitted
feedback suggesting that the Center for Healthcare Data (CHCD) be considered to host the benchmarking
database.85

Federal Surprise Billing Ban and Other States' Response

Most insured Texans have an employer sponsored self-funded health insurance plan that is federally
regulated by the Employee Retirement Income Security Act of 1974 (ERISA).86 As of September 2020,
16 states have passed comprehensive surprise billing bans, and 15 states have a limited ban.87

During the 86th Legislative Session, Senate Bill (S.B.) 1530, a bill related to balance billing, aimed to
allow ERISA regulated health benefit plans offered by employers to opt into the S.B. 1264
protections. This bill passed out of the Texas Senate, but failed to pass out of the Texas House of
Representatives.

In December 2020, after two years of the debate at the federal level, Congress passed legislation to protect
consumers with self-funded insurance plans against surprise medical bills. The measure was included in
the omnibus coronavirus economic relief package. Stakeholders at the state level are currently studying
what the new legislation means for the recently enacted S.B. 1264.

Recommendation
The passage of the federal surprise billing legislation in December of 2020 is a huge relief for Texas
patients. Protections are now in place against receiving unexpected medical bills for both patients with
state regulated and federally regulated health insurance plans.

84
Written testimony, AARP and Every Texan, October 2, 2020 (on file with committee).
85
Written testimony, The University of Texas Health Science at Houston (October 2, 2020) (on file with
committee) ("As a state academic institution, without direct affiliation to providers and health plans, the CHCD
could be an appropriate choice for an impartial and independent entity to provide an accurate, efficient claims
database to reduce and resolve balance billing practices. The CHCD has successfully demonstrated its expertise in
claims data analyses and transparency reporting through its work with TDI and the External Quality Review
Organization.").
86
The Employee Retirement Income Security Act of 1974 (ERISA), U.S. DEP. OF LAB.,
https://www.dol.gov/general/topic/health-plans/erisa.
87
State Balance-Billing Protections, The Commonwealth Fund (Sep. 16, 2020),
https://www.commonwealthfund.org/sites/default/files/2020-09/Hoadley_state_balance-
billing_protections_09162020.pdf.

36
The committee is working with stakeholders and TDI to determine the details of the passage of the federal
surprise billing legislation, including examining when it will be fully implemented and how the federal
legislation impacts Texas' surprise billing law.

While COVID-19 has skewed healthcare utilization, making it difficult to see the results of the bill's
implementation and its overall impact on health care costs, it is clear that S.B. 1264 has significantly
reduced consumer complaints about surprise medical bills for state regulated health insurance plans. The
mediation portion of the statute has saved Texas patients nearly 68 million dollars in out-of-pocket
healthcare costs since 2015, when TDI began tracking this data. Additionally, TDI data shows that just
three physician staffing firms represent 85 percent of all arbitration requests and emergency physicians
account for 85 percent of all arbitration requests. Most ER claims come from large ER physician staffing
firms – not independent physicians and small practices.88 The committee will continue to monitor that
data around surprise medical bills.

88
Written testimony, Tex. Dep't of Ins. (Oct. 1, 2020) (on file with committee).

37
6. Monitoring: Monitor the implementation of legislation addressed by
the Senate Committee on Business and Commerce passed by the
86th Legislature, as well as relevant agencies and programs under
the committee's jurisdiction. Specifically, make recommendations
for any legislation needed to improve, enhance, or complete
implementation of the following:

House Bill 2536, relating to transparency related to drug costs.

Background
Of American adults currently taking prescription drugs, almost one-fourth of adults and seniors say it
is "difficult” to afford their prescriptions. One in ten adults—overall and in the senior population—say it
is “very difficult.”89 According to a 2019 study, "particular groups are much more likely to report
difficulty affording medication, including those who are spending $100 or more a month on their
prescriptions (58 percent), those who report being in fair or poor health (49 percent), those who take
four or more prescription drugs (35 percent), and those with incomes less than $40,000 annually (35
percent)."90

In addition, 29 percent of adults report not taking their medicines as prescribed during the past year
because of the cost, and eight percent say their condition got worse as a result of not taking their
prescription as recommended. 91

Transparency: Rising cost of prescription drugs

To better understand the cause of the rising price of prescription drugs, the Legislature passed House
Bill (H.B.) 2536, a drug price transparency bill that requires the Health and Human Services
Commission (HHSC) and the Texas Department of Insurance (TDI) to collect data from pharmaceutical
drug manufacturers, pharmacy benefit managers, and health benefit plan issuers.92 The objective is to
publicize information about prescription drug pricing and the complex system of rebates and discounts
within the supply chain.

H.B. 2536 directs a pharmaceutical drug manufacturer to submit an annual report to the HHSC
Commissioner with wholesale acquisition cost (WAC) information for drugs that cost $100 or greater
for a 30-day supply and are sold in or into this state. The legislation also requires HHSC to develop a

89
Poll: Nearly 1 in 4 Americans Taking Prescription Drugs Say It’s Difficult to Afford Their Medicines, including
Larger Shares Among Those with Health Issues, with Low Incomes and Nearing Medicare Age, Kaiser Family
Foundation (Mar. 1, 2019), https://www.kff.org/health-costs/press-release/poll-nearly-1-in-4-americans-taking-
prescription-drugs-say-its-difficult-to-afford-medicines-including-larger-shares-with-low-incomes/
90
Id.
91
Id.
92
Drug Price Transparency Act, 86th Leg., R.S. ch. 1291 § 44.001 Tex. Gen. Laws.

38
dedicated link on the HHSC website that is easy for the public to access.93 A key portion of the bill
requires a pharmaceutical drug manufacturer to report an increase in drug price if the cost of the drug is
raised by 15 percent or more.

Pharmaceutical benefit managers must annually report information regarding the rebates, fees, price
protection payments and other payments to the Insurance Commissioner in an aggregated form,
including the amount of the rebate retained as revenue. H.B. 2536 also requires that each pharmacy
benefit manager file a one-time report detailing the information above for the three preceding calendar
years.94

Health benefit plan issuers must submit an annual report to the Insurance Commissioner that includes
the names of the 25 most frequently prescribed drugs, percent increase in annual net spending for drugs,
percentage of specialty drugs with utilization management requirements across all health benefit plan
issuers, and premiums reductions that were attributable to the drugs.

Implementation Status

HHSC, in coordination with DSHS, and TDI are responsible for implementing the provisions of this bill.
To comply with the bill’s provisions, HHSC and DSHS created a drug cost transparency website,
www.texasrx.org, that is available to the public and is both downloadable and searchable.

Pharmaceutical drug manufacturers reported 2020 wholesale acquisition cost (WAC) information for
U.S. Food and Drug Administration approved drugs sold in or into Texas. For the 2020 report, WAC
price information was submitted from 341 pharmaceutical drug manufacturers for a total of 18,653
national drug code (NDC) descriptions. Pharmaceutical drug manufacturers were required to submit
their 2020 annual WAC information before April 15, 2020. For the 2021 report, they are required to
submit WAC prices by January 15, 2021.

HHSC reported that information on drug price increases was first collected on June 15th for drugs that
increased at or above the 15 percent threshold. Price increases with effective dates from January 1, 2020,
through June 14, 2020, were due by August 15, 2020; that information is now posted on the drug cost
transparency website.95 Drug price increases with effective dates after June 15, 2020 are due within 30
days of the price increase effective date; this information is updated and posted on the drug cost
transparency website within 60 days of submission as specified in code.

TDI is required by H.B. 2536 to obtain information annually from pharmacy benefit managers and
health benefit plan issuers related to prescription drug cost transparency, aggregate that information and
post it on the agency's website. The health benefit plan issuer reports include a comparison of changes in
spending and premiums related to prescription drugs from 2018 to 2019. The pharmacy benefit manager

93
Written testimony, Health and Human Services Commission Formal Request for Information (Sep. 18, 2020)
(on file with committee).

94
Id.
95
Id.

39
report includes data from 2016 through 2019.96 TDI posted the first collection of aggregated data in May
of 2020.

Testimony
The Health and Human Services Commission recommended that the Legislature clarify that the term
“drug” includes only prescription drugs, change the reporting requirements to a one-time report if a price
increase occurs, add enforcement authority, move the program to the Department of State Health
Services, and provide a funding mechanism.97

The Texas Medical Association together with many other provider advocacy groups submitted
testimony recommending continued examination of disclosure and reporting requirements, for example,
they recommend reducing the reporting threshold for drug price increases.98 Further, the association
believes that prior authorizations of prescription drugs should be examined as a way to provide relief to
patients and physicians. 99

The Texas Association of Health Plans (TAHP) and the Pharmaceutical Care Management Association
(PCMA), who represent the pharmacy benefit managers, point out that pharmaceutical drug
manufacturers delayed submitting the required information to the agency and that there appears to be
gaps in the information that was submitted. These groups recommend that the Legislature ensure that
HHSC fully implements and enforces H.B. 2536 so that all required information for applicable price
increases is reported and posted on a public-facing, consumer-friendly website in a timely manner.100
They assert that enforcing all of H.B. 2536’s reporting requirements will improve transparency around
drug pricing and potentially slow price increases by shining a public light on them.

Pharmacy Benefit Managers (PBMs) testify that they drive competition using drug formularies and
rebates.101 In spite of dramatic increases in drug list prices, with total gross sales increasing from 22
billion dollars in 2012 to 54 billion dollars in 2019, net costs have been flat with total net sales of 13
billion dollars in 2012 and 13 billion dollars in 2019. They explain in testimony that this is due to PBM-
negotiated rebates, statutory rebates, and other manufacturer discounts. PBMs report that they are
creating innovative programs that limit consumer out- of-pocket (OOP) insulin costs, promoting
affordable access, and operating clinical programs that improve care and patient outcomes.102

96
Written testimony, TDI Response to Senate Business and Commerce Committee Request for Information (Sep.
18, 2020) (on file with committee).
97
Written testimony, Health and Human Services Commission Formal Request for Information (Sep. 18, 2020)
(on file with committee).
98
Written testimony, Texas Medical Association and Associations Response to Interim Charge on House Bill
2536 (Oct. 1, 2020)(on file with committee)..
99
Id.
100
Written testimony, Texas Association of Health Plans Comments on House Bill 2536 Interim Charge (Oct. 1,
2020) (on file with committee); Written testimony, Pharmaceutical Benefit Manager Association (PCMA)
Comments on House Bill 2536 Interim Charge (Oct. 1, 2020)(on file with committee).
101
Written testimony, Pharmaceutical Benefit Manager Association (PCMA) Comments on House Bill 2536
Interim Charge (Oct. 1, 2020)(on file with committee).
102
Id.

40
AARP highlighted that insulin prices by one pharmaceutical drug manufacturer has increased by 1200%
from 1996 to 2019. 103

Testimony from PhRMA does not agree that the drug prices are the only issue. PhRMA cites a Milliman
study that demonstrated that, “even if health insurers shared all the negotiated rebates with patients, plan
premiums would increase at most by 1 percent, while patients could save up to 800 dollars each year on
their medicine costs.”104 PhRMA suggests that another legislative solution could require health
insurance companies and PBMs to share at least part of their negotiated savings with patients at the
point of sale at the pharmacy counter. 105

Recommendation
Prescription drug prices continue to be a top issue for Texas patients. When H.B. 2536 passed during the
86th Legislative Session, it was reported as one of the strongest drug price transparency bills in the
nation.106 The Committee continues to recognize the multitude of factors driving the price increases on
medications, and the committee will continue to monitor this issue and the implementation of H.B.
2536.

103
Written testimony, AARP Comments on House Bill 2536 Interim Charge (Oct. 2, 2020) (on file with
committee).
104
Written testimony, PhRMA Comments on House Bill 2536 Interim Charge (Oct. 1, 2020) (on file with
committee).
105
Id.
106
Jeremy Blackman and Allie Morris, Texas House passed one of the nation’s toughest drug-pricing bills. But
will it stand?, Hous. Chronicle (May 19, 2019), https://www.houstonchronicle.com/politics/texas/article/Texas-
House-passed-the-nation-s-toughest-13848884.php.

41
7. Monitoring: Monitor the implementation of legislation addressed by
the Senate Committee on Business and Commerce passed by the
86th Legislature, as well as relevant agencies and programs under
the committee's jurisdiction. Specifically, make recommendations
for any legislation needed to improve, enhance, or complete
implementation of the following:
Senate Bill 1004 (85th Legislature), relating to the deployment of
network nodes in public right-of-way.
Background
In 1999, the 76th Legislature enacted Tex. Loc. Gov. Code §283 (Chapter 283) to eliminate local
licensing and regulatory practices that enabled legal monopolies and protected incumbent local
exchange carriers (ILECs). Chapter 283 applies to the municipal regulation and fees imposed on and
collected from a certificated telecommunications provider (CTP). In particular, Chapter 283 provides a
methodology for assessing municipal fees on the access lines of a CTP. Chapter 283 provides that a CTP
that provides telecommunications services within a municipality is required to pay only the municipal
fees determined pursuant to Chapter 283 as compensation to the municipality for use of the public
rights-of-way (ROW). A CTP complying with Chapter 283 may erect poles or construct conduit, cable,
switches, and related appurtenances and facilities and excavate within a public ROW to provide
telecommunications service. Chapter 283 states that the Commission shall have the jurisdiction over
municipalities and CTPs necessary to enforce the statute. Consistent with this grant of jurisdiction, the
Public Utility Commission has previously determined that the protections of Chapter 283 extend to the
facilities constructed by a neutral host provider in providing a distributed antenna service.

The Texas Legislature passed Senate Bill (S.B.) 1004 in 2017 containing a new Tex. Loc. Gov. Code
§284 (Chapter 284) of the Local Government Code addressing municipal fees for network nodes,
transport facilities, and node support poles constructed by a network provider. This bill became effective
September 1, 2017. Chapter 284 provides that a municipality may not require a network provider to pay
any compensation other than the compensation authorized for the right to use a public ROW for network
nodes, node support poles, or transport facilities for network nodes. A network provider is authorized, as
a permitted use, to construct network nodes and node support poles, and, with certain restrictions, may
install its own transport facilities or obtain transport from another provider.

42
Status of Litigation

McAllen, Dallas and 38 other cities filed a suit in 2017 challenging the constitutionality of S.B.
1004.107 The Travis County District Court declined to enter a preliminary injunction, and the case is still
pending more than three years after the bill passed.108 Since the bill's passage, the industry has deployed
thousands of small cells across the state and the Federal Communications Commission’s (FCC) Small
Cell Order has been largely affirmed by the 9th Circuit Court of Appeals.109 If Chapter 284 were found to
be unlawful, the FCC Order would continue to require cities to allow the deployment of small cells in the
public ROW in accordance with standards that are not appreciably different than S.B. 1004. 110 In some
cases, the FCC small cell standards would be less advantageous, including significantly less time to
process permits for new poles and no annual increases in ROW fees.

After three years and thousands of small cell installations, the State is experiencing service gains primarily
where cities recognize and welcome the benefits of small cell technology. Conversely, parts of the State
are at risk of being left behind due to noncompliance with Chapter 284.

A subsequent piece of legislation reforming the right of way access fee that passed in 2019, S.B. 1152,
was added to the S.B. 1004 lawsuit by Texas Municipal League in August of 2019.111 This was the cities’
4th Amended Petition. There are now at least 57 cities who have joined the lawsuit. The cities’ request for
a temporary injunction (TI) of the right of way reform issue of the lawsuit was heard in Travis County
district court on February 19, 2020 and denied on March 12, 2020. During the February 19 temporary
injunction hearing in Travis County district court, Judge Lora Livingston presided. This was the second
TI filed, and second denied in this lawsuit. The original lawsuit was filed in 2017, and there has been no
action on the cities' part to ask for permanent relief. Judge Livingston has encouraged the parties to set
the case for final trial with undue delay.

SB 1004 and the Public Utility Commission’s (PUC) jurisdiction over network nodes in the public
right-of-way

On November 17, 2017, the PUC issued a declaratory order that concluded that it does not have
authority under Chapter 284 as adopted by S.B. 1004.112 The PUC has express duties under Chapter 283
and, therefore, has authority to construe other statutes, including Chapter 284, when necessary to
ascertain or administer its statutory duties under Chapter 283. By enactment of Chapter 284, the
Legislature established a comprehensive and pervasive regulatory scheme intended to exclusively

107
City of McAllen, et al. v. State of Texas, Cause No. D-1-GN-17-004766, 353rd District Court of Travis County, Texas
108
AT&T Response to Senate Business and Commerce Request for Information, September 18, 2020, AT&T letter (dated
October 6, 2020) (on file with committee).
109
City of Portland v. United States, Case No. 18-72689, (August 12, 2020); reh’g denied (October 22, 2020).
110
AT&T Response to Senate Business and Commerce Request for Information, September 18, 2020, AT&T letter (dated
October 6, 2020) (on file with committee).
111
City of McAllen, et al. v. State of Texas, Cause No. D-1-GN-17-004766, 353rd District Court of Travis County, Texas
112
Ibid.

43
address network providers' access to municipal rights-of-way for network nodes, node support poles, or
transport facilities, as those terms are defined in Chapter 284. Consequently, effective September 1,
2017, the Commission does not have authority under Chapter 283 to set the compensation for, or address
complaints regarding, a certificated telecommunications provider's (CTP's) access to municipal rights-
of-way if that CTP is also a network provider and the access is for network nodes, node-support poles,
or transport facilities.113

Testimony

The Senate Business and Commerce Committee received written testimony from various
telecommunications providers and stakeholders including Crown Castle, AT&T, TX 5G Alliance, and
Verizon.

Implementation

S.B. 1004 established a uniform framework for access to municipal public rights-of-way by wireless
providers, so that small cell networks may be deployed efficiently with reasonable municipal oversight in
conformance with applicable law. Prior to 2017, Local Government Code provisions covering right-of-
way access for telecommunications providers did not account for new technologies such as small cells
necessary for capacity and coverage where new macro towers are not practical.

The foresight of the Legislature to pass, and the Governor to sign, S.B. 1004 has made the State of
Texas a leader in advanced telecommunications infrastructure and technology and a model for the rest of
the country. As of today, 30 states have adopted legislation regulating network nodes, many of which
contain provisions similar to those in S.B. 1004.114 The model nature of Texas's comprehensive
framework for network node deployment is demonstrated in the fact that many provisions similar to
those found in S.B. 1004 were incorporated into the FCC’s Order “Accelerating Wireless Broadband
Deployment by Removing Barriers to Infrastructure Investment”, adopted on September 26, 2018
(“September 2018 FCC Order” or “FCC Order”).115 Fortunately, S.B. 1004 was enacted in 2017 which
allowed providers to deploy network nodes in many cities throughout the State prior to the present
pandemic, and without it the ability to meet the explosive demand required during this unprecedented
time would have been greatly diminished.

Since the passage of S.B. 1004, Crown Castle notes that the company has deployed approximately 1900
network nodes in the public right-of-way in 24 Texas cities.116 The majority of those network nodes
were deployed in Houston and Dallas. While there are always improvements that can be made, the

113
Ibid.
114
AT&T Response to Senate Business and Commerce Request for Information, September 18, 2020, AT&T letter (dated
October 6, 2020) (on file with committee).
115
Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment, Declaratory Ruling and
Third Report and Order, 33 FCC Rcd 9088 (2018).
116
Crown Castle Response to Senate Business and Commerce Request for Information, September 18, 2020, Crown Castle
letter (dated October 1, 2020) (on file with committee).

44
leadership at the Mayoral and staff level in both cities has led to a mutual understanding of the need for
this critical infrastructure. Crown Castle states that they have been able to effectively partner to achieve
a level of certainty in the process that has allowed the investment of hundreds of millions of dollars
worth of infrastructure between the two cities117. Similarly, AT&T states that the company has filed
and/or received approval in over 300 jurisdictions in Texas, and Verizon notes that the company has
continued to expand throughout the state. Thousands of small cells are now on-air, providing
significantly improved capacity across Texas.118

Texas 5G Alliance (TX5GA) members have also made significant inroads in Texas as it relates to 5G
deployment, especially as cities are hyper-focused on implementing smart city initiatives for greater
efficiencies across their region. TX5GA notes that Ericsson has switched on a 5G network in Texas and
Crown Castle worked with the City of Dallas to develop “smart poles” for deployment across the city.
Additionally, TX5GA states that the wireless carriers members AT&T, Verizon, Sprint and T-Mobile
have launched 5G service in more than 15 cities and 12 additional counties.119

Additionally, Accenture noted in a recent report that “deploying the next generation of high-speed
wireless networks could create up to three million jobs and $500 billion in economic growth.” The
report also indicates that streamlining local permitting and regulations are critical pieces to that growth.

Most Texas cities have been responsive to the legislation and realize the benefit that small cells provide to
economic recovery and growth, even offering streamlined processes to quickly troubleshoot any
unexpected delays. Some cities, however, have resisted compliance with S.B. 1004 with unreasonable
timelines and other barriers that prevent their citizens from receiving the much-needed benefits of small
cells.

The major compliance issues affecting timely deployment of small cells in Texas are unreasonable
application of “shot clock” provisions, burdensome permitting processes and excessive aesthetic demands.
Some of the onerous permit processes that have been implemented include limits on the number of
simultaneous applications, noticing requirements, and pre-application reviews that add to application
delays. Some cities have also implemented aesthetic requirements including minimum separation distances
between nodes and poles, ground equipment spacing and setbacks, as well as zoning restrictions based on
proximity to residential, park, school, and "historic" designated areas.

117
Accenture Strategy, Smart Cities: How 5G Can Help Municipalities: Accenture Wireless Industry Contribution Model
(2018). Statewide, the wireless industry contributes $50.9B a year to the State economy and supports 461,800 wireless-related
jobs. The deployment of 5G in Houston is expected to include $3.54B estimated growth in GDP, 21,707 new jobs, and $1.91B
in network investment by 2024 while the deployment of 5G in Dallas is expected to include $2.04B estimated growth in GDP,
12,555 new jobs, and $1.10B in network investment by 2024.
https://api.ctia.org/docs/default-source/default-document-library/how-5g-can-help-municipalities-become-vibrant-smart-
cities-accenture.pdf
118
AT&T Response to Senate Business and Commerce Request for Information, September 18, 2020, AT&T letter (dated
October 6, 2020) (on file with committee).
119
Samuel Contreras, 5G Coverage Map: Every US City with AT&T, Verizon & T-Mobile, androidcentral, (November 1,
2020), https://www.androidcentral.com/heres-every-us-city-5g-coverage-right-now

45
Ongoing Deployment Challenges and Recommendations for Improvement
While S.B. 1004 was a groundbreaking step forward, there are opportunities for improvement which
will benefit the residents and economy of the State.

Those cities that resist network node deployment cause a resulting lack of investment and critical
infrastructure necessary to handle the exponential increase in demand on these networks. Without
implementing the following changes at the state level and/or the city level, many cities will be left
behind and will not experience all of the benefits of a reliable, advanced 5G communications network.

Design Manuals - Aesthetics and Spacing Requirements
Following the passage of S.B. 1004, many cities adopted Design Manuals that include onerous
spacing restrictions on the placement of network nodes, node support poles, and ground-based
enclosures. Some cities have adopted boilerplate Design Manual provisions that prohibit
placing: 1) network nodes and new node support poles within 300 feet of existing utility poles
and 2) ground-based enclosures from 250 feet of intersections. Following the passage of S.B.
1004, at least 45 mid-sized to large cities adopted varying forms of these spacing restrictions 120
Such spacing restrictions make it nearly impossible to deploy network nodes and violate the
existing provisions in S.B. 1004. These types of spacing restrictions violate provisions of S.B.
1004 because they are discriminatory and not “competitively neutral with regard to other users
of the public right-of-way”. These provisions also violate statute because they do not fall
“strictly within the requirements and limitations” of the state law. An early draft of S.B. 1004
included spacing restrictions but those restrictions ultimately were removed.

 Industry Recommendation: Any amendment to S.B. 1004 include a provision which
prohibits municipalities from adopting spacing restrictions for network nodes, new
node support poles, and ground-based enclosures from existing utility poles,
intersections, or other existing infrastructure unless the City can demonstrate a specific
and reasonable safety concern on a site by site basis.121

A number of cities continue to not adhere to S.B. 1004 standards by refusing to approve permits in the
time frames specified in the law.122 The September 2018 FCC Order included many of the provisions of
S.B. 1004.123 One set of provisions that differed, however, were the timelines (known as “shot clocks”)
for municipal application review and approval of network nodes. Currently, Texas statute specifies that a
municipality has 30 days to determine whether an application is complete and once an application is

120
Crown Castle Response to Senate Business and Commerce Request for Information, September 18, 2020, Crown Castle
letter (dated October 1, 2020) (on file with committee).
121
Ibid.
122
AT&T Response to Senate Business and Commerce Request for Information, September 18, 2020, AT&T letter (dated
October 6, 2020) (on file with committee).
123
Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment, Declaratory Ruling and
Third Report and Order, 33 FCC Rcd 9088 (2018).

46
complete, the municipality has a) 150 days to approve or deny a network node on a new support pole or
b) 60 days to approve or deny a network node on an existing structure. S.B. 1004 also requires that if a
municipality denies the application, the network provider has the opportunity to remedy any deficiency
and the municipality then has a further 90-day review period to approve or deny that corrected
application. In total, if these timelines are stretched to the maximum amount of days, a municipality could
have 9 months to approve or deny a single application for a network node on a new node support pole.
The FCC adopted the following shorter timelines: a) 90 days to approve or deny a network node on a new
support pole or b) 60 days to approve or deny a network node on an existing structure. If a municipality
notifies an applicant of an incomplete application within 10 days of submission, the applicable shot clock
period restarts.124

Austin continues to stand out as the most challenging small cell environment. Though the City of Austin
committed in 2018, at the last interim hearing on small cells, to streamline its processes and comply with
the Act, the City continues to erect barriers to innovation and investment. Small cell permits are subject to
a bifurcated permit process requiring carriers to first obtain a Small Cell Permit which can take up to 90
days (S.B. 1004 limited the number of days to 60). Carriers are then required to obtain four more permits
including for Traffic Control, ROW, and Excavation and Electrical Service from City-owned Austin
Energy. Once these three additional permits are obtained, it takes more than 120 days to secure a transport
permit required to connect the node to the public switched network. In contrast, most other cities are issuing
transport permit in just 20-30 days. Additionally, Austin requires carriers to obtain written confirmation
that there are no facilities conflicts from all open permit holders within 1500-feet of the build site.
Construction cannot begin until all permit holders have responded which can often take several months.
The City provides no escalation path when permit holders fail to respond.125

o Industry Recommendation: Any amendment to S.B. 1004 should incorporate the
timelines adopted in the FCC Order126, which would allow for the faster deployment of
this critical telecommunications infrastructure.

Zoning and Land Use

S.B. 1004 allowed for municipalities, on a discretionary basis, to prohibit the deployment of new node
support poles on streets that are 1) not more than 50’ wide and 2) adjacent to a single-family residential
lot or other multifamily residence or undeveloped land that is designated for residential use by zoning or
deed restrictions. Unfortunately, many, if not most, cities in the State have refused to permit new node

124
See September 2018 FCC Order, para. 143.
125
AT&T Response to Senate Business and Commerce Request for Information, September 18, 2020, AT&T letter (dated
October 6, 2020) (on file with committee).
126
The shot clocks adopted in the September 2018 FCC Order have been upheld by the U.S. Court of Appeals for the Ninth
Circuit. See City of Portland v. United States, No. 18-72689 (9th Cir. Aug. 12, 2020), pet. for reh’g en banc filed (9th Cir.
Sept. 28, 2020).

47
support poles (and some have refused any network nodes127) in these residential areas, thereby
prohibiting these residents from use of this critical telecommunications infrastructure.

o Industry Recommendation: Consider removing the section of statute that allows
municipalities to prohibit new network poles in residential areas.128
Other barriers erected by cites are simpler issues of non-compliance with the provisions in S.B. 1004.

Collocation Restrictions.

Some cities compound deployment challenges by also interfering with collocation rights by categorizing
major thoroughfares as “Designated Underground Utility Areas” even though the streets already have
above-ground utility poles. The Design Manual may also prohibit ground furniture needed for a small cell
site when utility pole owners refuse to allow meters and other equipment on their structures. Other cities
have created a requirement for expensive replacement poles when an existing pole can support a small cell.
For example, some cities require a wireless provider to replace wooden poles with metal or composite
fiberglass poles and turn over ownership and control to the City. This dramatically increases the cost of
doing business and is inconsistent with language in S.B. 1004 prohibiting in-kind payments.129

Dual Permitting.

Deploying in TxDOT ROW presents additional challenges. Cities have no authority over TxDOT ROW,
but nevertheless require permits for state roads. Wireless providers and TxDOT worked cooperatively
over many months to negotiate a master license agreement and design standards allowing placement of
small cells on state roads in order to bring much needed capacity to travelers and nearby homes and
businesses. The agreement respects city aesthetic and safety concerns by requiring providers to comply
with lawful city codes and design standards, but specifies that city permits are not required. However,
several municipalities, including Austin, Webster and Alvin, continue to not allow deployment in
TxDOT ROW without a city permit.130

In addition to the industry recommendations above, there are several other recommendations that
would result in clarity for both the network providers and municipalities, including:
 A clarification that current statute does not limit a network provider to a total of 30
network nodes being reviewed by a municipality at any one time.

127
Any municipality that strictly prohibits network nodes from these residential areas is in clear violation of SB 1004 as
Section 284.104 only applies to new node support poles. Unfortunately, some cities are clearly violating the law.
128
Section 284.104 also allows for discretionary approval of node support poles in the public right-of-way in municipal parks.
For the reasons cited above, including public safety, Crown Castles recommends that any restriction on deployment in
municipal parks be removed, as well.
129
AT&T Response to Senate Business and Commerce Request for Information, September 18, 2020, AT&T letter (dated
October 6, 2020) (on file with committee).
130
AT&T Response to Senate Business and Commerce Request for Information, September 18, 2020, AT&T letter (dated
October 6, 2020) (on file with committee).

48
 A clarification that network nodes and new node support poles cannot be prohibited in
Historic and Design Districts.
 A clarification that when an existing pole, such as a streetlight or decorative streetlight
is being replaced, the antenna height is limited to 3 feet above the replacement pole,
not the existing pole.

Recommendation
The increased need for access to telecommunications networks resulting from COVID-19 for students,
businesses, and working Texans, has made it more critical than ever for the parties involved in the
litigation surrounding S.B. 1004 to resolve the dispute and comply with the timelines and structures
outlined in statute created by the legislation without further delay.

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