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Texas Staff Draft Report: "Inappropriate" Alternative Ratemaking Mechanisms Could "Significantly Impact" REPs' Retail Pricing Strategies, Create Unintended Consequences

Staff Draft Finds Current TDU Ratemaking Working Well

October 24, 2016

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

Staff of the Public Utility Commission of Texas have filed a draft report to legislators to accompany a consultant's report concerning alternative ratemaking in Texas

As was first reported by EnergyChoiceMatters.com in June, the consultant's report expressed a "preference" for a straight-fixed variable (SFV) design for TDU rates, which REPs have warned would trigger a "radical" change in REP's offerings, and would carry a "significant price tag" for the retail market

Though Staff asks for further Commission guidance and direction on legislative recommendations concerning alternative ratemaking, Staff's draft report broadly proposes to conclude that current ratemaking mechanisms are working well, and that no specific legislative authorization is needed for a particular type or types of alternative ratemaking mechanisms.

Staff's draft would also note that, "The use of inappropriate alternative ratemaking mechanisms could result in uncertain and unintended consequences for the Texas competitive retail market and significantly impact the pricing strategies of retail electric providers."

"Based on the findings of the Christensen Report, the stakeholder comments at the public hearing, and parties' filed written comments, the Commission believes that no compelling need currently exists for specific legislative authorization of a particular type or types of alternative ratemaking mechanisms. No significant evidence suggests that the current ratemaking system is in major need of repair, and in fact, existing authorized streamlined methods of recovery are achieving their intended purposes and working reasonably well. While some parties argue that major rate cases are time-consuming and expensive, the Commission concludes that the existing paradigm in which periodic rate proceedings are used in combination with existing streamlined recovery mechanisms is, in general, an efficient and effective way to ensure that electric rates are just and reasonable," Staff's draft provides [emphasis in original]

"In the ERCOT region, this is evidenced by the process in which utility companies may currently seek recovery of costs not only through traditional comprehensive rate proceedings, but also by making filings for efficient and timely recovery of transmission investment and distribution investment, and for specific recovery of certain other costs such as energy efficiency costs. For utility companies operating in the non-ERCOT regions of Texas, similar streamlined recovery methods are available for transmission and distribution investment, and, with of the passage of House Bill 1535 in the last legislative session, non-ERCOT companies may now also use updated test years and implement new rates at an earlier date," Staff's draft provides

"Additionally, the Commission notes that if the legislative were to authorize one or more specific alternative ratemaking mechanisms, the particular aspects of those mechanisms might not be appropriate for every utility under all circumstances. Within ERCOT, company differences exist because of size, geography, and customer and load make-up. The use of inappropriate alternative ratemaking mechanisms could result in uncertain and unintended consequences for the Texas competitive retail market and significantly impact the pricing strategies of retail electric providers. Outside of ERCOT, alternative ratemaking mechanisms could have repercussions for companies operating in other jurisdictional areas such as the Southwest Power Pool (SPP), the Midcontinent Independent System Operator, Inc. (MISO), and the Western Systems Coordinating Council (WSCC)," Staff's draft provides [emphasis in original]

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