S.B. No. 1856 introduces a new section, Section 36.216, to the Utilities Code, which establishes a capacity cost recovery rider specifically for electric utilities operating outside of the Electric Reliability Council of Texas (ERCOT) in areas governed by the Southeastern Electric Reliability Council. The bill aims to ensure that changes in capacity-related costs and revenues, influenced by wholesale rate decisions and federal agency determinations, are promptly reflected in the utility's rates. The Public Utility Commission of Texas is tasked with establishing an annually updated capacity cost recovery rider for eligible utilities, allowing them to recover certain costs and return revenues to ratepayers.

The bill outlines the criteria for eligible costs and revenues, which include those associated with participation in multi-state capacity auctions. It mandates that amounts recovered through the rider be reconciled in the next base rate proceeding to ensure that only reasonable and prudently incurred costs are recovered. Additionally, the bill specifies the process for utilities to apply for the rider, including documentation requirements and timelines for commission review. The provisions of this section will expire on September 1, 2035, and utilities can file applications for costs incurred before September 1, 2026, even if no rules have been adopted yet regarding capacity cost recovery riders.

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