Texas Staff File Final Propose to Set Demand Ratchet Waiver Threshold

Staff of the Public Utility Commission of Texas would retain the previously proposed demand ratchet waiver threshold of 25% in a draft proposal for adoption to implement House Bill 1064 (39829).

Specifically, Staff's draft proposal for adoption for new Substantive Rule 25.244 provides that, "[i]n a proceeding in which base rates are set for nonresidential secondary voltage service customers, the base rates set for nonresidential secondary voltage service customers shall provide that these customers shall be billed on a kilowatt-hour (kWh), kilowatt (kW), or kilovolt-amperes (kVA) basis, and that if a demand ratchet is utilized, the demand ratchet shall not apply to a nonresidential secondary voltage service customer that has an annual load factor less than or equal to 25 percent."

Staff has proposed adding clarifying language to the published rule stating that the rule does not require the use of demand ratchets for any customers. Additionally, Staff's draft adds language explicitly providing that the rule shall not be applied in a manner that would shift costs to other customer classes.

In a proposed preamble, Staff said that the 25% threshold would exempt about one-half to two-thirds of the class's customers from the use of demand ratchets. "Given these proportions of exempted customers, Staff believes the 25% load-factor threshold provides an appropriate balance between 1) ensuring that a substantial number of low-load-factor customers receive a waiver from the use of demand ratchets, and 2) avoiding significant intra-class cost shifting."

Certain load interests had sought to increase the threshold to 35% to 40%.

Furthermore, Staff's preamble would find that the demand ratchet waiver provision of PURA §36.009 applies only to base rates, "because the waiver will occur in the TDU's next base rate case and the statute does not state that all demand ratchet provisions must be waived."

"This interpretation avoids a conflict between PURA §36.009 and PURA provisions that address transition costs/charges, PURA §39.303(d) and §39.310," Staff said, who also noted that rates that include a demand ratchet but that are not base rates constitute only a small portion of a nonresidential secondary service customer's bills.

Load interests had sought to extend the demand ratchet waiver provisions to all TDU charges.

Staff's draft proposal for adoption would also decline to include in the rule a provision that prohibits the use of tiers in designing rates, as sought by load interests.

Staff noted that HB 1064 contains no provisions regarding how a customer's load factor should be used to design rates. "Because the law neither explicitly provides for nor explicitly prohibits the use of tiers, parties are free to advocate for or against the use of this rate-design methodology in rate proceedings, and the commission has the discretion to consider it and other rate-design alternatives," Staff said.