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Texas PUC Draft Would Find Rates Must Be Set For Sharyland Lessee, Asset Owner Separately; Require Lease To Be Regulated As Tariff

July 14, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A draft preliminary order filed by Texas PUC Commission Advising would find that, consistent with the PUC's recent findings in the Oncor merger proceeding, PURA does not allow the Commission to treat the Sharyland company owning T&D assets and a separate Sharyland entity operating such assets as one utility for ratemaking and regulatory purposes.

The draft preliminary order comes in a Sharyland Utilities, LP rate case, which is to establish uniform delivery tariffs for Sharyland's McAllen and former Cap Rock service areas.

The assets serving Sharyland customers are owned by Sharyland Distribution & Transmission Services, L.L.C., which leases the assets to Sharyland Utilities, L.P., which operates the assets.

While such arrangement was approved in a previous stipulation, the PUC more squarely addressed, in the Oncor merger proceeding, the issue of a situation where a utility is composed of two separate entities, an operating entity, and an asset-owning entity, where both entities are utilities and where the relationship between the two is governed by a lease.

The draft preliminary order would address threshold legal questions concerning the treatment of Sharyland Distribution & Transmission Services and Sharyland Utilities

The draft preliminary order would conclude that both Sharyland Utilities, L.P. and Sharyland Distribution & Transmission Services, L.L.C. are electric utilities and transmission and distribution utilities, as defined by PURA.

As such, the draft preliminary order would conclude that PURA does not allow the Commission to treat two separate companies as one utility for ratemaking and regulatory purposes.

"Sharyland Utilities, L.P. and Sharyland Distribution & Transmission Services, L.L.C. are separate electric utilities, and each has its own separate invested capital and incurs its own separate expenses. The amount of reasonable return for each company may also differ to reflect the differences between the two companies and their ownership. In order to satisfy the ratemaking requirements in PURA, the Commission must evaluate each utility on an individual basis to ensure that each utility has a sufficient revenue requirement that affords it an opportunity to earn a reasonable return on that utility's invested capital used and useful in providing service, over its reasonable and necessary operating expenses. The Commission cannot determine a rate for one utility based on the combined assets and expenses of two separate utilities," the draft preliminary order would find

"In addition, treating the combined assets and expenses of Sharyland Utilities, L.P. and Sharyland Distribution & Transmission Services, L.L.C. as if there was one utility for ratemaking purposes would violate the affiliate transaction requirements under PURA § 36.058. Sharyland Utilities, L.P. and Sharyland Distribution & Transmission Services, L.L.C. appear to be affiliates under PURA," the draft preliminary order would find

"Further, the Commission concludes that this rate case cannot proceed on the basis of the application filed: rates must be set forth each of Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P.," the draft preliminary order would find

The draft preliminary order would also conclude that PURA requires that the lease between Sharyland Distribution & Transmission Services and Sharyland Utilities be regulated as a tariff

The draft preliminary order would conclude, "that leases for the transmission and distribution assets are rates. As a result, Sharyland Distribution & Transmission Services must file a tariff with the Commission showing the charge (i.e., lease payment) and any rule or practice that affects that charge, for the utility service it provides to Sharyland Utilities, L.P. The leases are tariffs, and the Commission must approve the leases as a tariff and determine that the rates to be charged to Sharyland Utilities, L.P. by Sharyland Distribution & Transmission Services, L.L.C. under the lease are just and reasonable."

The draft preliminary order would conclude that both Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. are required to have certificates of convenience and necessity. However, the draft preliminary order would conclude that PURA chapter 36 does not specifically require that a utility have a CCN before receiving Commission-approved rates. Therefore, the draft preliminary order would conclude that the Commission can approve the rates of Sharyland Distribution & Transmission Services, L.L.C. before it receives a CCN.

"As soon as practicable, Sharyland Distribution & Transmission Services, L.L.C. should file an application for a CCN that will authorize it to own and lease its assets used to provide electric utility service," the draft preliminary order would provide

Docket 45414

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