PUC punts on rule opposed by consumers

One-way Ratemaking would lead to One-Way Rate Hikes

The Texas Public Utility Commission has pressed the pause button on new rules that would have made it much easier for electric utilities to hike rates.

A favorite of utility lobbyists, the proposed rules would have opened the door to quick hikes associated with the poles and wires that connect the transmission system to individual homes and businesses. Consumer groups have been united in their opposition.

Some Commission watchers had predicted the rules would get the go-ahead this month. But then in an unexpected change of course, the Commissioners on Dec. 16th instead indicated they would wait for direction from the Texas Legislature, which convenes in January.



Commissioner Anderson

In explaining the decision, Public Utility Commissioner Kenneth Anderson said he had talked with several legislators who indicated they “wanted to take a crack” at considering the rule. “We should set this aside until June, to give the Legislature time to look at it,” he said.

Numerous interested parties — including the office of the Texas Attorney General — have argued at the PUC that the agency lacks the statutory authority to enact the rules. And while Commission Anderson stated he had not heard much opposition, multiple consumer groups nonetheless have warned that the rules would lead to rate hikes — even during periods when electric utilities don’t need extra money because overall profits are on the rise, or when the utilities’ overall expenditures are going down.

The rules are technically known as the “Distribution Cost Recovery Factor” (or “DCRF”) rules, although the electric utility industry euphemistically refers to them as “streamlined” ratemaking. Consumers call it “one-way” ratemaking because under the rules, rate adjustments likely will flow only in one direction: up.

Consumers also note that the alleged benefits of the regulatory gimmick have never been demonstrated. For instance the office of the Attorney General Greg Abbott, who has sided with Texas consumers in the case, notes in a regulatory filing that advocates of the rule have failed to produce any analysis showing it creates litigation savings.

-- R.A. Dyer

Will the the state's $640 million electricity market overhaul bankrupt businesses?

Will some electric providers go belly-up after ERCOT switches over to a complicated new system in December? It’s a possibility says Austin-based energy expert Chris Brewster.

Speaking this week during the Gulf Coast Power Association’s fall conference, Brewster, a principal at the Lloyd Gosselink law firm, noted that some retail electric providers may have a difficult time managing around the risks of the new market design known as “nodal.” The new system, which will dramatically change how the state’s wholesale electricity spot market operates, goes live on December 1.

Chris Brewster

If some REPs don’t default outright, they may attempt to push unexpected costs down onto their customers, said Brewster. He predicted the reaction to the new nodal system may be similar to what occurred in 2008, when several mismanaged REPs attempted to pass unexpected transmission costs onto customers even though they had fixed-rate contracts. Brewster noted that several components of the new nodal system, including the so called “day-ahead market,” do not have analogous counterparts under the state’s current zonal system.

Brewster represents consumer interests at ERCOT, also known as the Electric Reliability Council of Texas. The organization plays a key role in the Texas electricity market, as it has responsibility both for managing congestion on transmission lines and for overseeing some wholesale power transactions.

With the new nodal system, ERCOT will change how it performs both functions. Under the existing system, ERCOT oversees the electricity market it in four broad zones of the state. With the new nodal system, ERCOT will manage it at thousands of separate geographical points, or nodes.

Although supported by large generation companies, independent reports have shown that nodal systems in other states have not lowered electricity prices or eliminated the manipulation of electricity markets. Moreover, the nodal transition in Texas is years behind schedule and so far over budget that it will cost more than twice as much as a similar system in California. It's now budgetted to cost around $640 million, after initial cost estimates of less than $100 million.

You can read more details of Brewster’s comments in an article by Elizabeth Souder, of the Dallas Morning News.

-- R.A. Dyer

Over-budget Nodal System In the News

In December Texas is expected to shift over from its already complicated system for managing the wholesale electricity market to one that’s even more complicated. If the new system works the way it’s supposed to work, computers will spit out distinct prices for wholesale energy sold at thousands of separate locations all across the state. These prices eventually will trickle down into home electric bills.

When this new “nodal” system for managing the electric grid goes live, it will be one of the most expensive and complex of its kind ever created in America.

Copelin

What’s unclear, however, is whether consumers will ever benefit.

Two of the state's largest daily newspapers explore that question and others in articles over the Labor Day weekend about the proposed nodal system. The articles outline the troubling implementation delays, the cost overruns and the lax oversight.

Patel

Industry supporters say the new system will bring new efficiencies to the wholesale electricity market. But Geoffrey Gay, a Lloyd Gosselink attorney who represents cities in utility issues, told the Austin American-Statesman it also could open the door to a new sort of market manipulation. "The guys who can deal with the complexity are not you and me . … It's companies with computer models,” Gay told Statesman reporter Laylan Copelin.

Another troubling issue is the price tag. When first proposed, the nodal system was supposed cost less than $100 million. But as Purva Patel of the Houston Chronicle notes, it’s now expected to exceed $500 million. Texas consumers will end up footing that bill.

Eventful Week for the Power Grid: nuke shutdown, price spikes, new usage record

The South Texas Project: "human error" apparently caused the partial shutdown of the nuclear reactor on Friday.

It’s been an eventful few days for the Texas power grid. Since last week, prices have spiked in the wholesale electricity market, one of the units of a major nuclear plant tripped off due to “human error,” and Texans broke another record for energy usage. Given the comparatively high electric prices already paid by Texans and concerns over continuing problems with the deregulated market, the developments merit examination.

Here they are, in no particular order:

*On Monday, wholesale electricity that more typically sells for less than $30 per megawatt-hour spiked to more than $2,000. That’s an increase of more than 7,000 percent. Prices also spiked several times to the $1,000 level. A price spike for $2,200 is especially startling, given that the regulatory cap is set at $2,250. That is, the wholesale prices legally could not have gone much higher. In most other jurisdictions the caps are set no higher than $1,000 per megawatt hour.

*According to the organization that manages the power grid, the Electric Reliabiilty Council of Texas, a new record for statewide power use was set on Monday. It was the fourth new usage record in as many weeks. ERCOT reported that the new record was broken at about 4 p.m., when demand spiked to 65,715 megawatts. The usage spike came just as the spot market price was spiking to $2,200 — probably not a coincidence.

*Unit 1 of the South Texas Project apparently tripped off on Friday. The event, first reported in a trade journal SNL Power Daily, was apparently caused by human error. “The NRC said in its Aug. 23 event report that the unit experienced an automatic reactor trip that was caused by an inadvertent turbine signal initiated during testing,” reported SNL's Jay Hodgkins, citing the U.S. Nuclear Regulatory Commission. The publication reported that power was restored by Monday. It’s unclear whether the outage contributed to the price spikes, although that seems likely.

*In response to the loss of a major unit on Friday, ERCOT activated the first stage of its emergency response procedure to prevent blackouts. That means that some industrial consumers that previously agreed to have interruptible service lost their power. It was the third time this year that ERCOT has gone to that stage of its emergency response procedures. The major unit that went down was probably the nuke (as referenced in the SNL Energy article) although ERCOT won’t say for sure. That's because such a disclosure would violate ERCOT's rules for competitive information.

The developments are unsettling, especially given that wholesale prices tend to trickle down to residential consumers. A dysfunctional wholesale market can lead to higher home lighting bills. Already Texans pay more than consumers in Oklahoma, Louisiana and Arkansas. Prices also remain higher than the national average. Prior to deregulation, Texans paid below the national average.

-- R.A. Dyer

Of debt and ring-fencing: EFH in Default

Souder

This just in: The Dallas Morning News reports that the debt rating for Oncor’s parent company, Energy Future Holdings, has been downgraded by all three debt rating agencies. Reporter Elizabeth Souder notes in a blog post that EFH has offered to exchange old notes maturing in 2017 for new notes maturing in 2020 — but that the company is paying debt holders less than 80 cents on the dollar.

“In response to these exchange offers, two agencies, Moody's and Standard and Poor's, downgraded the Company to default because EFH didn't pay the entire loans back,” explained Souder. “Both agencies said the default ratings are temporary. Another agency, Fitch Ratings, cut its rating to CCC from B-.”

You can find a link to her blog post here.

In response to the downgrades, Oncor issued a press release “reiterating its separateness” from EFH’s shaky debt situation. EFH is the majority owner of Oncor, which is the regulated transmission and distribution company that serves the Dallas-Fort Worth area. It appears the press release was intended to dispel fears that EFH’s deteriorating financial situation could threaten Oncor and its ratepayers.

Under the terms of Energy Future Holdings’ 2007 buyout of TXU, there were legally binding “ring-fencing” agreements put in place that are intended to separate and protect Oncor’s ratepayers from the risk created by EFH’s massive debt. As a consequence, EFH’s debt cannot be transferred to Oncor, nor can Oncor have any obligation to support that debt, according to the press release. It also notes that Oncor and its assets are legally separate from EFH, and that EFH’s debt holders cannot initiate any bankruptcy, reorganization, insolvency, liquidation or any like proceeding against Oncor.

The situation merits close attention. Citing the massive amount of debt involved, consumer groups previously have questioned whether EFH’s buyout of the state’s largest electric company was in the public interest. Questions also have been raised about whether “holes” in the ring fence have led to higher-than-necessary rates for Oncor’s ratepayers.

You can check out a copy of the Oncor press release here.

PUC sets new energy efficiency rules

State programs intended to increase energy efficiency — but which also stand to increase consumer bills — will operate under new rules as a result of recent action by the Texas Public Utility Commission.

The PUC last year began the process of revamping its rules for its ongoing Energy Efficiency Implementation Program. Under this program, utilities are required to spend money to encourage energy efficiency at the consumer level. For instance, the program provides funding to encourage the marketing of energy-saving appliances. The rules also establish utility goals for reducing overall energy demand and utilities that meet or exceed their goals become eligible for performance bonuses. But the Energy Efficiency Implementation Program can end up increasing electricity bills because both the cost of administering the program and the cost of the bonuses are recoverable by the utility in rates passed on to the consumer.

Rule changes initially proposed by Commission staff and supported by utilities and environmental groups raised the energy efficiency goals dramatically, with a corresponding increase in the program cost cap and available bonuses. The Steering Committee of Cities Served by Oncor, a coalition of municipalities represented by the Lloyd Gosselink law firm, urged the Commission to consider the cost effectiveness of those proposed changes — and the PUC commissioners echoed those concerns.

The rules ultimately adopted by the PUC commissioners on July 30 attempt to strike a balance between the interest of promoting energy efficiency and the interests of ratepayers. For instance, the Commission agreed that the proposed goals will be raised in the future, although they will be raised at a much lower rate than originally proposed. The performance bonus also will remain at current levels, although the administrative cost cap has been raised to account for the raised goals.

Additionally, the Commission imposed a cost cap for both residential and non-residential customers. For the 2011 and 2012 program years the cost cap will be $1.30 per month for residential customers, or .0001 cents per kilowatt/hour — whichever is higher. The cap increases again in 2013. The Commission also instituted cost protections relating to the method by which the cost cap and the bonuses are calculated. For example, under the new rules the cost of the bonuses are to be included in the cost cap for utilities.

The rules will go into effect December 1.

-- Eileen McPhee

Energy Efficiency at the PUC

Energy efficiency was the topic of the day at the Public Utility Commission during a workshop held in Austin on June 30. The agency is considering changes to the state’s energy efficiency program, which requires transmission and distribution utilities to provide customers with incentives to be more energy efficient.

Here’s a bit of background on the issue: the state’s transmission and distribution utilities do not administer energy efficiency programs for free, but rather are permitted to recover the costs from ratepayers. Additionally, utilities that exceed their demand reduction goals are eligible to receive a bonus. The bonuses awarded to utilities can range anywhere from $5 million to $10 million.

Oncor, a transmission and distribution utility, offered a presentation on the estimated cost of meeting the proposed demand reduction goals. Frontier Associates and Good Company, both consulting firms, gave presentations on the benefits of meeting demand reduction goals and the cost effectiveness of Texas’ energy efficiency program. Representatives from the State Energy Conservation Office and the Texas Department of Housing and Community Affairs reported on federal money being spent within the state on energy efficiency measures, such as weatherization. Finally, the Retail Electric Provider Coalition offered a presentation on the potential cost impact of the proposed amendments to consumers.

Written comments have been previously filed in this project and can be found here. The Commission is expected to make a decision on the rules in July or early August.

 -- Eileen McPhee

New Report: Deregulated Generation Companies Profit During Recession

Electric deregulation was supposed to benefit consumers — that was the promise during the 1990s when several states adopted the market system. But according to a new report, some of the biggest winners last year were the major generation companies.

Released by the American Public Power Association, the May 2010 study finds that generation companies operating under deregulation in the Northeast earned healthy profits in 2009 — despite facing the nation’s worst economic crisis since the Great Depression.

The APPA report also concluded that generation companies under deregulation made much more money than generation companies still subject to regulation. Given the relatively high earnings, it's not surprising that deregulated generation companies oppose any return to regulation. One company warned that if “market deregulation is reversed or discontinued, our business prospects and financial condition could be materially adversely affected.”

Texas implemented electric retail competition in 2002 after authorizing electric deregulation in 1999. Since 2002, rates have remained consistently above the national average Prior to adoption of the deregulation law, rates in Texas were consistently below the national average. Rates in Texas also have increased by a far greater extent than they have in neighboring regulated states such as Louisiana and Oklahoma.

The APPA is a trade group associated with public electric companies such as municipally owned utilities. You can read the organization’s full report here.

CREZ Update: Lines could impact 12 counties

A transmission line project proposed just this week for the Amarillo area is already stirring controversy, according to a news story in the Amarillo Globe-News. Writer Kevin Welch  reports in the newspaper's June 17th edition on the application by Sharyland Utilities to build lines from southern Carson County to southeast Deaf Smith County.  The utility has proposed the route shown above, although that route could change as more landowners express their views at the Texas Public Utility Commission.

"In all the cases we've been involved in, in none of them have the commissioners chosen the preferred route," Lloyd Gosselink attorney Georgia Crump told the newspaper. "They're trying to weigh all the criteria. It's not a science, it's an art." Among Crump's clients is a property owner with lines passing north of Palo Duro Canyon State Park.

Sharyland's application was among three filed by utilities this week for major transmission projects. The lines included in the applications will transmit power from wind generators in West Texas and the Panhandle, and are associated with the state's Competitive Renewable Energy Zone program, or  "CREZ" for short.

The transmission lines proposed by Sharyland could impact property owners in Armstrong, Carson, Deaf Smith, Oldham, Potter and Randall counties. Separately, Oncor filed an application for lines that could impact landowners in Tarrant, Wise and Parker Counties. A third company filed an application for a transmission project near Abilene, with lines that could impact Kent, Dickens and Scurry counties.

With the filings this week, a procedural clock begins at the PUC under which the agency has 180 days to conduct hearings, consider testimony and render decisions.

Power Line Dispute in the Hill Country

A massive transmission line proposed for Central Texas is causing big headaches for the mayor of Kerrville, who fears it could harm his community's economic development.

Speaking to KENS Channel 5 in San Antonio, Mayor David Wampler said his community could lose a half billion dollars because of the line.

“The City of Kerrville has spent about $14 million in infrastructure improvements to bring utilities and roads to areas that would be affected by this line,” he said.

State Rep. Harvey Hilderbran also expressed concern. In letters written to the Public Utility Commission and the Lower Colorado River Authority, Hilderbran called for a change in the proposed route. “We want that line to move away from the Kerrville corridor,” he said.

The PUC already has given the green-light to several transmission projects associated with so-called "Competitive Renewable Energy Zones." The CREZ lines will criss-cross West Texas, the Panhandle and Central Texas -- and potentially harm scenic views and lower property values along the way.

It's possible for affected landowners to block individual routes, but only if they intervene in a complicated legal process at the Public Utility Commission. More information about CREZ and the proposed transmission lines can be found at the PUC website.

Proposed PUC Rules Draw Fire

Unfair and anticompetitive. That’s how some members of the public and consumer advocates have characterized proposed rules that would keep Texans from getting electric service if they owe an outstanding balance to a previous electric provider.

These complaints and others were aired during a May 17th public hearing in Austin regarding proposed changes to the Public Utility Commission’s rules for electricity service disconnections. The changes would modify eligibility requirements for deferred payment plans and other low-income customer protections. They also modify the disconnection notice requirements as they pertain to customers with life-threatening medical conditions. Finally, the proposed rules contain the controversial switch-hold provisions intended to keep customers from changing retail providers without first paying any balance they owe to their previous provider.

Various groups offered comments on the proposed rules. Some participants requested removal of language that would prevent customers with battery backups for medical devices from qualifying for special protection. Participants also said that seriously ill and disabled customers should never face disconnections. Participants overwhelmingly weighed in against the switch-hold portion of the proposed rules.

Various parties also filed written comments, which can be found here and here. Additional comments are due Friday, May 21.

-- Eileen McPhee

Electric Disconnection Rules Pending at PUC

On April 16, the Public Utility Commission proposed amendments to its electric service disconnection rules. The amendments would modify the eligibility requirements for deferred payment plans and other low-income customer protections. The amendments also modify the disconnection notice requirements as they pertain to customers with life-threatening medical conditions. Finally, the amendments contain a proposed switch-hold rule intended to prevent customers from changing retail providers without first paying any balance they owe to their previous provider.

The proposed amendments, drafted by Commission staff, are part of an ongoing effort by the agency to clarify various billing issues that are important both to retail electric providers and consumers. The Commission is accepting public comments on the proposed amendments, although comments must be submitted by May 6. Interested parties can also submit replies to those comments by May 21. The agency’s three Commissioners are expected to adopt a final version of the rules sometime early this summer.

To read the proposed amendments, click here.

--Eileen McPhee

Regulatory experts needed for Afghanistan, Iraq

Never thought your knowledge of tariff methodologies and docketing systems would lead to exciting adventure? Think again.

In an email blast to American utility officials and consultants, the National Association of Regulatory Commissioners signals that the war-torn countries of Afghanistan and Iraq need help establishing electric regulatory agencies. Explains Erin Skootsky, director of NARUC's international programs: "Afghanistan is planning to create a regulatory agency, pending passage of legislation (and) Iraq plans to create a Department of Regulation at the Ministry of Electricity following passage of an electricity regulatory law.”

Skootsky notes that her organization “has been approached” about potentially assisting with in-country technical training programs and workshops. She said the training would be short-term — one week for NARUC member volunteers and 1-3 weeks for consultants — and focused on the foundations of regulation, management of a regulatory agency, tariff methodologies, licensing issues, docketing systems and consumer protection. There’s no indication from Ms. Skootsky’s email about which government or organization, specifically, solicited NARUC’s assistance.

Other details? According to preliminary security information cited by Ms. Skootsky, participants would be lodged at United States government facilities or guest houses and not in independent hotels. "Project security would inspect all locations prior to meetings and provide local ground transportation," writes Ms. Skootsky, adding that "country clearance and other security arrangements will be quite extensive."

For those interested, replies should be sent to Ms. Skootsky by April 12, 2010. Her email address is eskootsky@naruc.org.

-- R.A. Dyer

Meter Tampering: A Thorny Issue

The Public Utility Commission is currently considering new rules relating to a very important and thorny issue: meter tampering. That is, on occasion a private individual may improperly disconnect, rewire or otherwise alter an electric meter in such a way as to reduce its usage measurements.

It's an important issue for electric companies because meter tampering can result in a loss of revenue. As such, some companies want the PUC to grant them wider discretion to backbill customers with tampered meters.

And with the advent of advanced meters, such backbilling has become a much easier proposition for utilities. But it's also true that a back-billed customer may have had nothing to do with the tampering — in fact, that customer may have moved onto the property after the tampering occurred, or the meter may have malfuctioned for unrelated reasons. That's why this issue is so thorny for home consumers.

A related issue involves so-called “switch-holds,” which would prohibit customers from changing retail electric providers until that customer has paid for charges relating to alleged meter tampering. Also, the Texas Apartment Association is seeking notification of meter tampering on rental properties. This presents privacy concerns for residents, especially residents who may have moved in after the tampering occured.

Comments from interested parties have been filed at the Commission, which will likely soon make a decision. You can read some of the comments here.

-- Eileen McPhee

EPA Greenhouse Gases Endangerment Finding

On December 7, 2009, EPA finalized its long-expected finding that greenhouse gases (“GHG”) endanger human health and cause and contribute to air pollution. Although the findings, issued in response to the U.S. Supreme Court’s decision in Massachusetts v. EPA (2007), do not in themselves create any regulation of GHGs, they are necessary for the EPA to begin regulating GHGs, and in fact, obligate the EPA to regulate them under the Clean Air Act.

The findings set the stage for regulations of GHG emissions from vehicles and stationary sources, for lawsuits challenging the findings, for lawsuits seeking to require EPA to regulate GHG emissions, and for lawsuits collaterally attacking permits that do not address GHG emissions whether issued by EPA or state agencies.

In response, U.S. Senator Lisa Murkowski of Alaska (that's her picture, above) has announced plans to introduce a resolution in Congress to disapprove the endangerment finding. If the resolution is approved by both the House and the Senate, and ultimately signed by the President, the EPA’s endangerment finding would be nullified and EPA would be unable to regulate GHGs. However, in the absence of legislation addressing GHGs it is considered unlikely that the President would sign the resolution.

A Tale of Two Cities: Houston and San Antonio

Here’s a bit more bad news about prices under the state’s flawed deregulated system. According to recent figures from the Public Utility Commission web site, residents in the state's largest city under deregulation (Houston) continue paying far more for electricity than residents living in the largest city outside deregulation (San Antonio).

Specifically, the PUC figures show that as of December 2009 (the latest data available) a home consumer in San Antonio would spend $77.38 for 1,000 KW/H of power. A consumer using the exact same amount of juice in Houston -- even a consumer with the very lowest rate available -- would spend $86, or more than 11.1 percent more. And, of course, most rates in Houston are far higher.

Likewise, a recent survey from a commercial website, Whitefence.com, lists Houston as having the second highest electricity prices among the cities it surveyed in the entire nation.

Many proponents of the flawed deregulated system continue making apples-to-oranges comparisons between lowest-cost offers under deregulation and average rates outside deregulation. But as these figures show, even those comparisons often don't hold water.

-- R.A. Dyer

Consumer workshop scheduled for Houston

May 15th – mark it on your calendar. That’s the date of a public workshop scheduled in Houston devoted specifically to consumer rights under the state’s electric deregulation law. Sponsored by state Rep. Sylvester Turner, the first annual “Consumer Rights Electricity Workshop” will provide a forum to discuss products, pricing, social services and cost-cutting measures. Turner’s office also promises discussions “on consumer rights, (on) how to effectively advocate for policy changes, and … of important electricity issues the state will face in the 2011 legislative session.”

When it comes to electricity issues, the 2011 session should be a contentious one. That’s because both the Public Utility Commission and the Electric Reliability Council of Texas, which operates the power grid, are now both under special legislative review. At the same time, residential electricity consumers continue to pay rates above the national average after enjoying a long history of below-average rates before deregulation.

Rep. Turner’s consumer workshop is tentatively scheduled for 9 a.m. to 3 p.m. at the CWA Union Hall in Houston. The address is 1730 Jefferson Street. For more information contact Cory Henrickson in Rep. Turner's office. His email address is cory.henrickson@house.state.tx.us.

-- R.A. Dyer

Third Court of Appeals: Split Decision for Consumers on Stranded Costs

In a split decision for consumers, the state’s Third Court of Appeals this month has ruled that certain utility interest payments should not be used to increase the calculation of stranded costs in Texas, but also that certain federal tax benefits for utilities should not reduce them. The ruling, which was issued Jan. 15 by the court, is in response to a case brought by consumer groups relating to the allocation of stranded costs above $5 billion.

Recall that stranded costs are meant to represent the difference between the book value of a company’s assets and the price that would be paid by someone buying the assets on the open market. Think of a company that pays $1 billion to build a nuclear power plant under regulation, but then can only sell it for $500 million in a deregulated market. In this oversimplified example, the $500 million difference would be the “stranded cost” of the nuclear power plant.

The Texas deregulation law allowed utilities to seek reimbursements for stranded costs as part of the transition to deregulation. During a series of separate ruling over the years, the Public Utility Commission has found that CenterPoint, Texas Central Company and Texas-New Mexico Power were owed around $6 billion in combined stranded costs.

The Texas deregulation law included special allocation provisions for stranded costs if they were found to exceed $5 billion statewide. The case before the Third Court of Appeals relates to what proportion of those costs above $5 billion should be allocated to industrial customers for payment, and what proportion should be allocated to residential and commercial customers. The court largely upheld the PUC’s previous rulings with regards to these issues.

Other specifics about the decision this month: the Third Court held that the Public Utility Commission was correct to order a retroactive reconciliation of stranded costs already collected, and that it was appropriate to apply a 5% interest rate for the securitization of stranded costs. The case was brought by the Office of Public Utility Counsel (which represents commercial and residential consumers) and a trade group known as Texas Industrial Energy Consumers. It remains unclear whether either party will appeal to the Texas Supreme Court.

-- R.A. Dyer

District judge sides with electricity consumers

The Texas Public Utility Commission failed to explicitly consider costs to electric consumers when it awarded billions of dollars in transmission construction projects last year, a state district judge has determined.

The finding, part of a case that could impact how much Texans end up paying as a result of the Competitive Renewable Energy Zone process, was included in a recent letter from state District judge Stephen Yelenosky to lawyers for the City of Garland and the Texas Attorney General’s office.

Garland has claimed in a lawsuit that the PUC failed to consider the potential benefits to electric consumers when it rejected the city’s utility proposal to build some of the CREZ lines. Judge Yelenosky, in a Dec. 21 letter, signaled that he tends to agree. The judge (that's a picture of him at the left) is expected to issue an order in the case on Jan. 15.

Because it is municipally owned, the Garland utility does not pay various taxes common to commercial ventures and can borrow money at a lower cost. Garland has argued that such advantages would lead to lower costs for consumers had it been selected to participate in the transmission projects.

But in its decision to award the projects to Oncor, Sharyland and other transmission developers, the PUC appears not to have explicitly considered what’s most cost-effective for electric customers, Yelenosky stated in his letter.

Attorneys representing the PUC suggested that “customers” be read as the “people of Texas,” wrote the judge. But state law clearly requires the PUC to consider what’s most beneficial and cost-effective to “electric customers” and that “neither the PUC, nor this court, can ignore statutory language or choose to give it a definition it does not have,” he wrote.

Yelenosky also noted that the PUC overstepped its statutory authority in other ways. “The PUC relied upon factors that are not relevant to providing transmission capacity in a manner most beneficial and cost-effective to electric customers and based its decision on underlying findings that lack substantial evidence,” he stated.

The city of Garland, through its municipally-owned utility, already operates more than 130 miles of transmission lines, which serve not only their own customers but also residents in Dallas. Garland is one of 13 transmission operators certified to operate in ERCOT.

The PUC came under similar criticism that it was failing to look out for consumers in its CREZ deliberations when commissioners signaled to transmission developers last year that they should not seek economic stimulus assistance from the Obama Administration. Such assistance could have shaved tens of millions of dollars from the cost of CREZ construction, according to some estimates.

Current estimates put the CREZ price tag at about $4 per month for residential customers. The lines are expected to be up and running by 2013.

Generators seek proposal to hike prices

A proposal designed not to limit the price of electricity – but to actually increase it during certain periods — could face Public Utility Commission scrutiny in 2010, according to some market watchers.

Extremely costly to consumers, the proposal would create a process whereby generators would receive payments for their wholesale power that would be substantially higher than prices dictated by the market. The process would kick in during periods when wholesale power on the ERCOT grid is running in relatively short supply.

Cities and other consumer representatives have argued against the policy, and it was rejected during proceedings earlier this year at ERCOT. But it retains support both from electric generators and by the Independent Market Monitor of the ERCOT market, leading many to believe that the PUC will take up the issue again this year.

The IMM and industry groups say the price supports are needed to encourage the further development of generation in Texas. Cities and consumer groups have noted the fundamental inconsistency of price supports within the context of the state’s deregulated market, a market supposedly based upon the premise that competitive forces should dictate prices.

Cities also note the extreme cost of the proposal — up to approximately $750 million per year, by some estimates. The expense would obliterate any supposed savings industry advocates have claimed will come from the nodal market redesign, or from improved ERCOT operations. The proposal also would put further upward pressure on retail prices — that is, the electricity prices customers actually pay — which have remained consistently above the national average ever since the state’s transition to deregulation.

-- R.A. Dyer