PUCT Staff Proposal for Adoption Would Only Provide 35-Day Notice to REPs for DCRF Updates

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December 10, 2010

PUCT Staff have filed a proposal for adoption which would institute a distribution cost recovery factor (DCRF) to be charged to REPs, and would shorten the notice to REPs of the new rate under the DCRF from 45 days to 35 days (38298).

As only noted in Matters (6/7), the DCRF would allow distribution service providers to adjust their rates charged to REPs for distribution service outside of full rate cases.

Under Staff's recommended proposal for adoption, the effective dates for new DCRFs would remain either March 1 or September 1, the same dates for new Transmission Cost Recovery Factors, to provide REPs with some certainty and limit the number of different times during the year the rates paid by REPs to distribution service providers would change.

However, due to the timing of rate application reviews by cities with original jurisdiction, Staff has recommended that the Commission issue an order on DCRF applications so that the DCRF takes effect upon at least 35 days notice to REP, unless good cause exists for a shorter period, rather than at least 45 days as originally proposed.

The shorter 35-day notice period is required, Staff said, because the Commission may not have sufficient time to make a final decision if it were to give REPs 45 days' notice.

Distribution service providers would be permitted to file a revision to the DCRF once per calendar year.

Staff would require distribution service providers in areas with customer choice to file any DCRF applications 185 days prior to March 1 or September 1.  Pursuant to PURA §§36.102(a) and 36.108(a)(1), a municipality with original jurisdiction has 125 days to act on a rate change application, assuming that the electric utility requests the soonest effective date possible.  In addition, pursuant to PURA §33.053(b), the electric utility has 30 days to appeal the municipality's final decision on the application to the PUCT.  

Thus, if the electric utility files its DCRF application with the PUCT and all municipalities exercising original jurisdiction on the same day, the electric utility might not file appeals until 155 days after it filed the application over which the Commission has original jurisdiction, Staff explained.  PURA also sets a maximum (absent cause) deadline of 185 days for adjudicating rate cases by the PUCT.

"Maintaining uniform, system-wide rates for the electric utility is important, and the 185-day timeline is necessary to achieve this objective," Staff said.

"To achieve both the maintenance of uniform system-wide rates and the provision of 35 days' notice to REPs of the Commission-approved DCRF, the Commission may need to make two final decisions, one on the application over which it has original jurisdiction and any early-filed appeals of cities' final decisions, and one on appeals that are filed at or near the 155th day.  In addition, it may be necessary for the Commission to issue an interim order with respect to the appeals in order to maintain uniform system-wide rates," Staff explained.

A separate DCRF would be calculated for each rate class consistent with the cost allocation approved in the utility's last base-rate proceeding.

Staff's proposal would provide that an electric utility shall not apply for a DCRF or DCRF update while a base-rate proceeding for the electric utility is pending.  In addition, the Commission shall dismiss an electric utility's application for a DCRF or DCRF update if the electric utility or Commission initiates a base-rate proceeding during the pendency of the DCRF or DCRF update proceeding.

Additionally, Staff's draft now provides that the DCRF recovery mechanism will be adjusted to reflect increases in an electric utility's base rate revenues resulting from increased load growth occurring since the utility's last base-rate proceeding.

With respect to the types of distribution investment included in a DCRF, Staff said that the rule should not include non-traditional distribution investments such as IT assets, capital-related system hardening costs that are not directly part of the distribution system, or communications-related costs.  The Commission would open a separate project to develop a DCRF filing package and more specifically define the distribution accounts eligible for DCRF recovery.

Staff's preamble concludes that the Commission has authority to implement the DCRF under several provisions of PURA but most specifically, PURA §36.051, which provides that, in establishing an electric utility's rates, the Commission shall establish the utility's overall revenues at an amount that will permit the utility a reasonable opportunity to earn a reasonable return on the utility's invested capital used and useful in providing service to the public in excess of the utility's reasonable and necessary operating expenses.

"By providing for periodic adjustment of an electric utility's rates to reflect changes in its distribution investment, the rule will advance the public interest by promoting high-quality distribution systems that are essential to the provision of high quality electric utility service," Staff said.

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