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Texas Proposed Decision In AEP Merger Case Addresses Issue of Proposed Rebates To Be Issued Through Retail Electric Providers; AEP Texas' Continued Ownership in Generation

October 20, 2016

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

A Texas ALJ would approve the merger of AEP Texas Central and AEP Texas North into a single company (AEP Texas), with certain conditions

Under the merger, AEP Texas would maintain two distinct divisions -- AEP Texas-Central Division and AEP Texas-North Division, which will maintain their current rates and tariffs. AEP Texas has not proposed, at this time, adopting uniform delivery rates across the merged service areas. Under the merger, 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

Notably, in the ALJ's proposal for decision, the ALJ would not adopt a new system-wide System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) performance standard, which would have required a payment to customers via rebate if the performance standards were not met.

PUC Staff had proposed the SAIDI-SAIFI performance standard rebate, and had proposed that the rebate be accomplished by having retail electric providers pass-through the rebate to customers.

The ALJ agreed with AEP Texas, however, noting that in other cases in which such a performance standard rebate was adopted, the cases involved a "change in control" in which a new operator assumed operation of the distribution assets. Such other rebates, which were also addressed via settlements (which is not the case here), reflected the risk uncertainty associated with a new operator of the distribution assets. Such cases are not analogous to merging two current operators into a single company, AEP Texas had said.

The ALJ further concluded that, "[e]stablishing new performance standards creates a new burden in a situation where there is no evidence that the ill it is designed to cure exists. It does seem to be the case of imposing a new requirement simply for the sake of imposing a new requirement. The ALJ recommends that the Commission not approve Staff’s recommended imposition of new performance standards."

The ALJ would require $630,000, representing certain savings under the merger, to be credited to customers annually until the company's next base rate case. However, no where is it suggested that such savings be credited via any type of separate rebate to customers, so, presumably, the crediting is to occur by a reduction in the revenue requirement and associated tariffed rates

While AEP Texas did not propose merging the rates of TCC and TNC into a uniform tariff in the merger proceeding, the City of McAllen said, "it is clear that rate consolidation will be a consequence of the merger," and had sought a condition on the merger that neither TCC nor TNC customers will subsidize the other as a result of any future consolidated rate proceeding

The ALJ rejected this proposal, stating, "It is premature and unnecessary at this time to address the extent to which a future proposal to consolidate TCC and TNC may or may not create subsidies."

The ALJ also found that the merged AEP Texas will continue to qualify for certain exemption AEP Texas North had received to retain an ownership interest in the Oklaunion generating facility and certain mothballed power plants. PUC Staff had asked that the case address the question of whether the exemption would continue to apply to the merged entity.

"AEP Texas will still have only a single, limited ownership interest in generating assets, without the ability for active participation in the energy market, just as is now the case for TNC. The ALJ concludes that the exemption provided by PURA § 39.051 continues to apply to AEP Texas and recommends that the Commission allow AEP Texas to continue ownership of the Oklaunion generating facility," the ALJ said

The ALJ would also not require AEP Texas to seek from FERC an order disclaiming jurisdiction over the merged AEP Texas's wholesale transmission rates for service wholly within ERCOT

PUC Staff said such a condition should be considered given changed circumstances since the current practice was adopted, under which AEP TCC and AEP TNC continue to seek FERC approval of wholesale transmission rates established by the PUC, as the practice was adopted when AEP TCC and AEP TNC still participated in joint dispatch with non-ERCOT AEP affiliates, using DC Ties connecting ERCOT with non-ERCOT areas (as adopted in the AEP & CSW Merger).

The ALJ said that the status quo concerning FERC should be maintained.

"The status quo has worked well and there is nothing in the proposed merger to suggest that the status quo will change in the future. As all parties are aware, filing a request for regulatory action can have unintended consequences, much as were argued by Applicants in response to Staff’s suggested procedure. The ALJ believes it would be far better for Applicants to reaffirm their commitments in the AEP & CSW Merger, as suggested by Staff as an alternative solution and agreed to by Applicants in their reply brief," the ALJ said

Docket 46050

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