Securitized Funds Allocation

[Table of Contents](#i59ca7ab3cc784e42904d434b0008a7a9_10)Notes to Consolidated Financial Statements(Dollars in millions, unless otherwise noted)  
Note 3 — Regulatory Matters3.  Regulatory Matters The following matters below discuss the status of our material regulatory and legislative proceedings. Impacts of the February 2021 Extreme Cold Weather Event and Texas-based Generating Assets OutagesBeginning on February 15, 2021, our Texas-based generating assets within the ERCOT market, specifically Colorado Bend II, Wolf Hollow II, and Handley, experienced outages as a result of extreme cold weather conditions. In addition, those weather conditions drove increased demand for service, dramatically increased wholesale power prices, and also increased gas prices in certain regions. In response to the high demand and significantly reduced total generation on the system, the PUCT directed ERCOT to use an administrative price cap of $9,000 per MWh during firm load shedding events.The estimated impact to our Net income for the year ended December 31, 2021 arising from these market and weather conditions was a reduction of approximately $800 million. The ultimate impact to our consolidated financial statements may be affected by a number of factors, including the impacts of customer and counterparty defaults and recoveries, any additional solutions to address the financial challenges caused by the event, and related litigation and contract disputes.During February and March 2021, various parties with differing interests, including generators and retail providers, filed requests with the PUCT to void the PUCT’s orders setting prices at $9,000 per MWh during firm load shedding events. Other requests were made for the PUCT to enforce its order and reduce prices for 33 hours between February 18 and February 19 after firm load shedding ceased, and to cap ancillary services at $9,000 per MWh. On March 2, 2021, a third-party filed a notice of appeal in the Court of Appeals for the Third District of Texas challenging the validity of the PUCT’s actions. We intervened in that appeal and filed our initial brief on June 2, 2021 and reply brief on November 5, 2021. On April 19, 2021, we filed a declaratory action and request for judicial review of the PUCT’s orders setting prices at $9,000 per MWh in the District Court of Travis County, Texas. We subsequently requested that the District Court of Travis County, Texas stay its proceeding pending action by the Court of Appeals in the third-party proceeding. On May 17, 2021, we amended our petition for declaratory action and request for judicial review pending in the District Court of Travis County, Texas. We cannot reasonably predict the outcome of these proceedings or the potential financial statement impact.Due to the event, a number of ERCOT market participants experienced bankruptcies or defaulted on payments to ERCOT, resulting in approximately a $3.0 billion payment shortfall in collections, which is allocated to the remaining ERCOT market participants. As of December 31, 2021, we have recorded our estimated portion of this obligation, net of legislative solutions, of approximately $17 million on a discounted basis, which is to be paid over a term of 83 years. ERCOT rules historically have limited recovery of default from market participants to $2.5 million per month market-wide. In February 2021, the PUCT gave ERCOT discretion to disregard those rules, but ERCOT has declined to exercise that discretion as to the imposition of uplift charges. On March 8, 2021, a third-party filed a notice of appeal in the Court of Appeals for the Third District of Texas challenging the validity of the PUCT's order to ERCOT in February 2021. We intervened in that appeal and filed an initial brief on July 7, 2021. The case has been stayed until March 3, 2022 to afford time for the PUCT to respond to ERCOT's November 18, 2021 request that the PUCT withdraw its February 2021 order. On May 7, 2021, we filed a declaratory action and request for judicial review of the PUCT's order in the District Court of Travis County, Texas. We subsequently requested that the District Court of Travis County, Texas stay its proceeding pending action by the Court of Appeals in the third-party proceeding. We cannot reasonably predict the outcome of these proceedings or the potential financial statement impact. Additionally, several legislative proposals were introduced in the Texas legislature during February and March 2021 concerning the amount, timing and allocation of recovery of the $3.0 billion shortfall, as well as recovery of other costs associated with the PUCT's directive to set prices at $9,000 per MWh. Two of these proposals were enacted into law in June 2021 and establish financing mechanisms that ERCOT and certain market participants can utilize to fund amounts owed to ERCOT. We participated in proceedings before the PUCT addressing the proposed allocation of the $2.1 billion in securitized funds for reliability and ancillary service charges over $9,000 per MWh. In September 2021, we entered into a settlement agreement and stipulation to resolve the allocation issues. The PUCT approved the settlement agreement and stipulation on October 13, 2021.In addition, other legislative proposals were introduced in the Texas legislature during February and March 2021 addressing cold-weather preparation for power plants and natural gas production and transportation 95
