Texas City Seeks Customer Bill Credits From AEP Texas Merger, Says "Clear" Intent Is To Later Consolidate TCC, TNC Delivery Rates

The City of McAllen sought bill credits for customers as a result of the proposed merger of AEP Texas Central and AEP Texas North, and also said that the intent of the AEP companies is "clear" that the companies will later seek to implement uniform, system-wide distribution rates

As previously reported (click here), Staff of the Public Utility Commission of Texas have proposed a potential refund credit to AEP Texas customers as a condition of the merger, if certain performance metrics are not met. Notably, such credit would be issued to REPs only if REPs pass on such credits to their end-use customers.

The City of McAllen proposed additional bill credits for customers in testimony on the merger application. The City of McAllen did not expound on the mechanism by which such credits would be issued.

The City of McAllen said that AEP Texas shall provide "bill credits" to customers to recognize the lower cost of borrowing resulting from access to broader financial markets as a result of the merger.

"Likewise, any incremental cost savings should be identified, quantified, and credited to customers. For example, while the Company states that the merger would have only a minimal impact on employees, to the extent that any reduction in workforce occurs if a merger is approved, those cost savings should be reflected in credits to customers," the City of McAllen said

As previously reported, AEP Texas is not proposing to consolidate distribution rates or tariffs in the merger proceedings, as a Central and North division would maintain the current rates and tariffs of each's respective current operating company.

However, the City of McAllen said that, "it appears likely that the Company intends to consolidate rates, even if it has not established a timeline to do so."

"Although Applicants state that the merger will not affect rates, it is clear that rate consolidation will be a consequence of the merger," the City of McAllen said.

Accordingly, the City of McAllen said AEP Texas should be required to ensure that neither TCC nor TNC customers will subsidize the other as a result of any future consolidated rate proceeding. "To the extent subsidies are created, Applicants will exclude the amount of the subsidy from the resulting rates," the City of McAllen said

Apart from noting certain nonbypassable charges applicable to only one of the companies (e.g. nuclear decommissioning costs at TCC), the City of McAllen cited several issues implicated by any rate consolidation.

"TNC serves portions of north and west Texas and is a much less dense service area compared to TCC, which serves portions of south and central Texas. As I already described, TNC has a service area customer density of 3.5 per square mile, while TCC is 18 per square mile. TNC has 14 customers per mile of distribution line, while TCC has 27 customers per mile of distribution line. And, average residential usage within TCC is about 12% higher than in TNC, and TCC has a higher average base rate charge than TNC," the City of McAllen said

While AEP Texas has said that the merger proceeding will not result in changed or consolidated rates, the City of McAllen sought to condition merger approval on the requirement that AEP Texas maintain separate trackers for the Central and North divisions until any rate consolidation is approved by the PUC.

Specifically, the City of McAllen proposed to require that AEP Texas maintain separate transmission cost of service ("TCOS"), distribution cost recovery factor ("DCRF"), transmission cost recovery factor ("TCRF") and energy efficiency cost recovery factor ("EECRF") rates until such time as consolidated baseline values are established in a future consolidated rate proceeding.

Docket 46050