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Texas TDUs To Merge -- What's The Impact on Retail Electric Providers?

June 16, 2016

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Copyright 2010-16
Reporting by Paul Ring •

AEP Texas Central and AEP Texas North have petitioned the Public Utility Commission of Texas for approval of a transaction under which the companies would be merged into their parent, which will be renamed AEP Texas.

AEP Texas proposes to maintain two distinct divisions under the merger -- AEP Texas-Central Division and AEP Texas-North Division, which will maintain their current rates and tariffs.

AEP Texas is not proposing, at this time, to implement uniform delivery rates across the merged service areas. The current base rates, surcharges, and discretionary fees charged within TCC's and TNC's certificated territories will remain in effect, with each division maintaining a separate tariff

"Customers will be charged the same rates they were charged before the proposed merger. Existing rates and tariff structures will be maintained by AEP Texas upon merger using a 'one utility, two divisions' approach ... unless and until rates and tariff structures are changed by the Commission in the context of a base rate case or other rate proceeding, AEP Texas will maintain separate rates in the TCC and TNC service," AEP Texas said

"The proposal is, following the merger, to continue to charge the TCC and TNC customers the same rates as they would have been charged had the entities remained separate. Should the future AEP Texas determine to propose consolidation of the separate TCC and TNC rates, it would make application to the Commission for approval of that consolidation in an appropriate proceeding. However, at this time, the proposal is, for rate purposes, to maintain two separate divisions within the merged AEP Texas entity," AEP Texas said.

AEP Texas noted that AEP Texas Central currently has certain nonbypassable transition and nuclear decommission costs that are not applicable to customers at AEP Texas North, suggesting the presence of such charges impedes introduction of system-wide uniform rates, as the existing AEP Texas Central CCN dictates such nonbypassable charges shall be applied to all customers in its service area. However, we would note that, at Oncor, where generally uniform rates were established after the SESCO service area was merged with the larger Oncor territory from a rate-setting standpoint, there are (or were) still some unique riders related to transition or nuclear decommissioning charges applicable only to certain customers, depending on whether they were or were not former SESCO customers, though it is unclear whether AEP Texas Central presents a unique issue that would preclude a similar mechanic.

AEP Texas said that separate ledgers will be maintained for each division; therefore, the costs for each division will be captured in the same manner as is done today, and that will allow for rates to be maintained separately for each division.

"This information will be needed to maintain separate rates for the legacy TCC and TNC customers until such time as AEP Texas may seek to combine the rates after Commission review and approval," AEP Texas said

"This structure will stay in place until it is no longer necessary to maintain separate rates, at which time the separate divisions will be discontinued and the books may be consolidated," AEP Texas said

AEP Texas also said that, once the nonbypassable charges expire, "it may be possible to consolidate or replace the existing CCNs."

With no change in rates, AEP Texas said that it has not identified any impact to the REPs as a result of the merger.

Additionally, since separate divisions will be maintained, AEP Texas said payment processing for REPs should not be impacted.

AEP Texas has not identified any impact to the processing of market orders as a result of the merger. "AEP Texas will maintain current market order processing with no anticipated impacts to internal or external market systems, resulting in a seamless transition to the REPs and the Texas Market. AEP Texas proposes that the current Dun & Bradstreet Data Universal Numbers System (DUNS) and Department of Energy (DOE) identifiers remain the same for AEP Texas-Central Division and AEP Texas-North Division, referencing the merged AEP Texas entity in order to avoid any changes to today's market operations," AEP Texas said

However, if any changes are necessary due to the merger to processes relative to retail transactions through the ERCOT portals or through other ISO-related business interchanges, the changes will be addressed through collaboration with ERCOT and interested market participants.

"The AEP Texas Competitive Retailer organization operates as one entity today supporting the REPs and the Texas Market, so there will be no change in communication or market processes. Although AEP Texas has not identified any REP issues with the merger, the AEP Texas Competitive Retailer organization will work with the REPs between now and merger closing to resolve any issues that may arise," AEP Texas said

AEP Texas said that, given that TCC and TNC are already jointly managed, there are minimal costs to achieve the merger, and minimal "synergy savings" are anticipated. TCC and TNC will not seek recovery of the costs to achieve the merger in T&D rates

Regarding the merger, TNC will first merge into its parent, AEP Utilities, Inc. The name of that merged corporation will be AEP Texas Inc. Second, TCC will merge into AEP Texas Inc., with the surviving corporation retaining the name AEP Texas Inc.

AEP Utilities is a first tier subsidiary of AEP that has three existing subsidiaries -- TCC, TNC and CSW Energy. CSW Energy currently holds certain unregulated generation assets and it will be moved to an unregulated AEP entity prior to merger closing; the end result being that the new AEP Texas will contain only TCC, TNC and their existing subsidiaries, AEP Texas said

The merger is proposed to close on December 31, 2016.

Docket 46050

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