Court Rules TDUs Cannot Charge REPs for Lost Revenues from Energy Efficiency

The PUCT is not authorized to allow TDUs to charge REPs for lost TDU revenues as a result of the TDU's statutorily required energy efficiency programs, and the Commission appropriately declined to grant the TDUs such a Lost Revenue Adjustment Mechanism (LRAM), the Third Court of Appeals of Texas found yesterday.

CenterPoint Energy Houston Electric had appealed the PUCT's rules implementing the energy efficiency statute and Energy Efficiency Cost Recovery Factor (EECRF) charged to REPs, which do not permit recovery of lost revenues, as CenterPoint said that PURA 39.905 compels the Commission to allow utilities to collect through rates any lost revenues as a result of the energy efficiency programs.

"We conclude that the text of the statute is clear and unambiguous and evidences the legislature's intent that the Commission ensure that a utility recovers only its energy-efficiency program expenditures through an EECRF. The EECRF is not intended to be used as a mechanism to compensate a utility for any lost revenues that may result from implementation of these programs," the Court said.

Furthermore, not only is a Lost Revenue Adjustment Mechanism not required under PURA, the Court found that the PUCT lacks authority to implement a Lost Revenue Adjustment Mechanism.

"PURA section 39.905 authorizes the Commission to allow utilities to recover their energy-efficiency program expenditures; it does not authorize the Commission to adopt a rule or procedure that allows utilities to use an EECRF to charge customers for any claimed 'lost revenues' resulting from the energy-efficiency programs they are required to implement. The Commission properly exercised its authority under PURA section 39.905 and correctly concluded that including an LRAM in rule 25.181 would contravene the statute and exceed its statutory authority," the Court said.

CenterPoint Energy Houston Electric's argument rested largely on interpretation of the word "costs" in the statute, with CenterPoint arguing that the term encompassed lost revenues.

"Considered in context, however, we do not believe the statute permits such a broad reading of the term 'costs,'" the Court said.

"Rather, PURA section 39.905(b)(1) directs the Commission to establish an EECRF 'for ensuring timely and reasonable cost recovery for utility expenditures made to satisfy the goal of this section.'" the Court said (emphasis by the Court).

"The statute thus provides that the 'costs' the legislature intended for a utility to recover through the EECRF are its 'expenditures' associated with its attempts to comply with the energy-efficiency mandate," the Court said, finding that lost revenues are not "expenditures."

The Court further noted that in at least two other provisions of PURA, the legislature expressly distinguished "costs" from "revenues," indicating that use of the term "costs" by itself does not encompass lost revenues.

CenterPoint Energy Houston Electric also cited PURA 39.905(b-1), which provides that the EECRF may be adjusted each year to, "enable utilities to match revenues against energy efficiency costs and any incentives to which they are granted."

However, the Court noted that this section of PURA goes on to state that, "The [cost-recovery] factor shall be adjusted to reflect any over-collection or under-collection of energy efficiency cost recovery revenues in previous years."

"From the context, it is clear that the matching contemplated by the statute is between the actual revenues the utility collects through its EECRF -- i.e., energy efficiency cost recovery revenues -- and the expenditures made by the utility for the energy efficiency program -- i.e., energy efficiency costs. The matching is not intended to address any lost revenues attributable to a general decrease in energy consumption resulting from energy-efficiency programs. Rather, the purpose of this provision is to ensure that a utility neither over-recovers nor under-recovers its actual energy-efficiency program expenditures," the Court said [emphasis in original].

The case is No. 03-10-00633-CV