Texas Retail Providers, Cities Seek Ruling from PUCT to Avert City-Specific EECRF Charges

Texas retail electric providers and several cities with original jurisdiction are seeking to reverse a Public Utility Commission of Texas preliminary order, in order to continue the use of a system-wide Energy Efficiency Cost Recovery Factor (EECRF) applicable across an entire TDU territory, as opposed to multiple, city-specific EECRFs within the same TDU area.

In several EECRF proceedings, the Commission issued a supplemental preliminary order finding that, "municipalities' rate-case expenses should not be recovered from all of the ratepayers that are served by the utility, but are recoverable only from ratepayers on whose behalf the municipalities intervened in the EECRF proceeding."

This means, to the extent cities' rate-case expenses are approved, disparate EECRFs would be charged to REPs based on the location of the customer -- e.g. the REP would be charged an EECRF including rate case expenses for customers in cities which intervened in the EECRF proceeding, and a different EECRF, excluding rate case expenses, for customers residing in municipalities which did not intervene in the EECRF proceeding.

Several cities and retail electric providers petitioned to certify this issue to the Commission for a ruling, and an ALJ granted this request. Specifically, in several EECRF proceedings, the certified issue now presented to the Commission is: "Whether the allocation of municipal rate case expenses to ratepayers in the cities that have intervened [in] Energy Efficiency Cost Recovery Factor cases is consistent with the relevant law and represents appropriate policy."

There appears to be little debate on whether the Commission has legal authority to allocate EECRF rate case expenses to only those cities participating in the EECRF proceeding (as opposed to a system-wide basis), with parties agreeing that the Commission has such discretion under PURA.

However, parties disagree on whether it is "appropriate policy" to allocate EECRF rate case expenses only to cities participating in the EECRF proceeding.

Reliant Energy Retail Services LLC and TXU Energy Retail Company LLC, supported in an amicus brief by the Alliance for Retail Markets, said that, "the bottom line from a REP's perspective is that changing the allocation methodology to create different rates within a TDSP's service territory for customers living in cities participating in the EECRF cases and customers living in the environs or cities that are not participating in the EECRF proceedings will add costs to all customers."

"Even if the additional amount is collected through a surcharge exclusively applied to customers in cities participating in EECRF proceedings, REPs' overall costs will increase, resulting in the need to recover those costs through retail rates," the joint REPs said.

"In addition, billing city-by-city surcharges introduces additional complexity and costs related to billing and customer service. Because customers would be billed additional surcharges only in certain cities, REPs also would incur additional costs related to call center agent training and education of affected customers concerning this recovery mechanism. Because the surcharges for each city will most likely not be exactly the same, additional complexity and cost would be incurred to accommodate those surcharge differences, for a narrow set of customers relative to the overall customer base of the REP," REPs said.

"Although the intent of developing a surcharge may be to assign rate case expenses to cost causers, the practical effect may ultimately be to increase costs to all customers, regardless of whether they live in a city that intervened in a rate making proceeding, by creating complexity and new administrative costs that all customers will pay. Given that policy arguments may exist for either side of the argument, the Commission's discretion should be exercised to approve system-wide allocation of cities' participation expenses to avoid unnecessary costs and thereby benefit all customers," REPs added.

Several cities with original jurisdiction also said that use of a system-wide allocation prevents a "free rider" problem which arises when only customers in certain cities are charged the rate case expense, when the benefits of a city's intervention in an EECRF proceeding produces lower rates for all customers in a TDU service area, not only a specific city.

However, CenterPoint Energy Houston Electric said that allocating EECRF rate case expenses to intervening cities is consistent with cost causation principles. CenterPoint Energy Houston Electric also said that the application of city-specific EECRF rates is not overly-burdensome or administratively complex.

PUCT Staff have not taken a policy position on the certified issue, but from a legal perspective said that the recovery of the municipalities' rate case expenses, arising from EECRF proceedings, solely from ratepayers within those municipalities is consistent with the relevant law.

Staff did state that, "If the Commission decides to maintain its decision as set forth in its Supplemental Preliminary Order that the municipalities' rate case expenses incurred in an EECRF proceeding should be recovered only from those municipalities' ratepayers, then the Commission should provide its reasons for the decision ... since such an allocation is different from the allocation of municipalities' rate case expenses in prior rate-making proceedings, i.e. base rate and fuel proceedings. It has been the case for some time that the Commission's policy with respect to the recovery of municipalities' rate case expenses in base rate and fuel proceedings is that those expenses are recoverable from all ratepayers within a utility's service area and not just from ratepayers that reside in certain municipalities within that service area. Although the Commission is addressing an issue of first impression - the allocation of municipalities' rate case expenses for an EECRF proceeding - Staff recommends that the Commission explain its reasoning for this particular allocation of such expenses, including why such expenses should be allocated differently than such expenses have been allocated in prior base rate and fuel proceedings."

Dockets: 40348 et. al.