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Texas Retail Provider Says Transmission Cost Allocation, Recovery Should Be Shifted To LSEs (REPs), Rather Than TDUs
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In comments to the Texas PUC concerning transmission cost allocation and recovery (including an evaluation of the current 4CP methodology), Base Power Company proposed that, to properly allocate transmission costs, "the calculation of load contributions and eventual allocations of transmission costs should be moved from the distribution service provider ('DSP') entities to the load serving entities ('LSEs')."
Base stated, "we seek to shift the calculation of customer-level peak contribution to the LSE, allowing the LSE to reflect customer flexibility while preserving Commission oversight of allocator development. This is similar to other cost recovery mechanisms in jurisdictions such as the PJM Interconnection[.]"
Base said, "shifting cost allocation and therefore recovery mechanics to the LSE would allow for more open market competition, whereby LSEs can offer all end-use customers the same options currently only reserved for certain customer classes, such as large loads. This benefits customers who have the opportunity to flexibly adjust their consumption, which more accurately reflects needed transmission usage during high-stress periods."
Base said, "LSEs would still have the ability to charge the same volumetric flat rates currently offered through a DSP charge. This approach also allows for DSPs [distribution service providers] to continue to recover costs, with the LSE now directly providing payments. Moreover, because transmission cost recovery is determined by class allocation factors rather than individual customer behavior, all revenue requirements remain fully satisfied regardless of how customers within the class respond to peak-interval signals."
Base’s proposal does not seek to alter class allocation factors, which remain determined by the PUC through DSP rate cases.
Base said, "Base recognizes that our recommendation introduces new administrative and operational burdens that may be perceived as onerous, particularly for those LSEs that are unable to offer load-flexible products to their customer base. We acknowledge these challenges and the potential complexity involved in transitioning from the current model."
"However, we submit that the benefits of this approach, including improved cost transparency, exposure to price signals, and greater competitive parity, outweigh such obstacles, especially against the persistent structural inequities in the existing allocation. Inevitably, REPs without load-flexible products will need to adapt their business models if they are required to assume direct transmission cost recovery -- but this change will also push these providers to innovate by offering demand response or flexible pricing products, thereby strengthening market competitiveness and benefiting customers through increased transparency and system efficiency," Base said
In separately filed comments, the Texas Energy Association for Marketers (TEAM) stressed that, "the retail allocation to
residential and small commercial customers should be maintained in a manner that does not disrupt the current rate design structure for residential customers."
TEAM said, "The methodologies for ultimate
retail rate design should not be the focus of this proceeding since the goals of this project can be
accomplished by changing the upstream allocation of transmission costs to DSPs and customer
classes."
In separately filed comments, NRG Energy, Inc. agreed that the PUC need not modify retail rates to satisfy SB6’s directive concerning transmission cost allocation (the PUC's proceeding results from SB6 directives)
NRG said that the PUC can accomplish SB'6 goal of ensuring that all loads appropriately contribute to transmission cost recovery, "by increasing the number of CPs used in the methodology and expanding the length of the duration used to measure peak demand for the allocation of transmission costs to distribution service providers (DSPs) and the consumer classes. The Commission does not need to modify the design of retail rates to accomplish these goals."
NRG said that the best way to ensure an equitable allocation of transmission costs, "would be to increase the number of coincident peaks and the duration of the intervals used in the methodology."
"For example, a 365CP methodology with an hour duration interval or a 12CP methodology with a consecutive 4-hour duration interval would accomplish the goal without the need for an overly complicated methodology. Hybrid approaches that include monthly Non-Coincident Peaks (NCPs) along with increasing the interval duration could also accomplish this objective," NRG said
In separately filed comments, in response to a specific PUC question concerning the use of a non-coincident peak (NCP) rate design, and whether distribution service provider (DSP) NCP values or retail customer-level NCP values should be used, Vistra Corporate Services Company LLC said, "DSP NCP values should be used."
Vistra said, "While retail customer-level NCP values may be slightly more accurate in theory, there will likely be minimal incremental cost-shifting across customer classes from DSP NCP, and DSP NCP would be significantly easier to administer than a retail-level NCP."
In separately filed comments, the Office of Public Utility Counsel said that, "OPUC continues to oppose using NCP at any level, especially customer-level NCP, because of its disproportionate impact on residential customers[.]"
OPUC said, "Customer-level NCP assigns cost responsibility based on an individual’s peak demand, regardless of when it occurs or whether it coincides with system peaks. Residential peak demand is inherently 'peaky' occurring during times of the day when people are home, such as in the evening after work and when appliances like dishwashers, laundry machines, and heating/cooling systems are in use, rather than during system-wide peaks. As a result, using residential peaks to allocate costs does not accurately reflect actual system usage, and unfairly shifts substantial costs onto residential customers who lack the sophistication to manage peak demand. ERCOT data indicates that adopting customer-level NCP would increase residential transmission costs by approximately 15% on average, representing a heavy financial burden on households and small commercial consumers."
In separately filed comments, the ERCOT Independent Market Monitor proposed a hybrid methodology for transmission cost allocation based on fixed floating CP and load-ratio share.
Specifically, the IMM proposes the following formulation to calculate transmission cost allocation:
𝑇𝐶𝑂𝑆 𝐴𝑙𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛 = 𝑥 ∗ 𝐿𝑅𝑆𝐶𝑃 + (1−𝑥) ∗ 𝐿𝑅𝑆𝑛𝑜𝑛-𝐶𝑃
... Where x refers to the percentage of total annual congestion cost that is concentrated in a defined number of floating hourly coincident peaks across the whole year, 𝐿𝑅𝑆𝐶𝑃 refers to the load ratio share across the set of x coincident peaks, and 𝐿𝑅𝑆𝑛𝑜𝑛-𝐶𝑃 refers to the load ratio share for the remainder of hours in the year. The CP intervals in the formulation above would be an hour long.
The IMM's proposal is a hybrid between a CP design and a volumetric approach that charges based on load-ratio share.
While outside the scope of the PUC's review of transmission cost allocation in Project 58484, the ERCOT Independent Market Monitor did in its comments make observations concerning postage stamp pricing
"[W]e also note that postage stamp pricing does not allocate costs according to cost causation principles," the IMM said
"Most congestion in ERCOT is local. Intrazonal constraints drive the majority of congestion costs, while interzonal congestion is comparatively limited. Localized constraints arise where load growth or generation patterns stress specific parts of the network, and these conditions do not necessarily align with systemwide load levels," the IMM said
Project 58484
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November 26, 2025
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Copyright 2025 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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