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

Wind farms to pick up some reliability costs

A contentious new measure that will require wind generators to install devices that help control voltage levels on the grid has been approved by the ERCOT Board of Directors.

The devices produce what is known as "reactive" power, which is different from the “real” power used to light homes and businesses. But while not actually consumed by end-users, reactive power must always be present on the grid in order to maintain voltage levels and reliability. Another characteristic of reactive power is that it does not transport well, which means it must be produced near where it is needed.

Unlike traditional generators and even wires companies, very few wind farms are equipped with full reactive power capabilities. As a result, other parties end up making up the difference. When regulated wires utilities (like Oncor, for example) provide these devices, the cost gets shifted to all their customers in the form of higher transmission rates. Since reactive power cannot be transported effectively, the wires companies are the only market participants with the ability to place reactive devices in close proximity to wind farms.

Protocol Revision Request (“PRR”) 830 — which was adopted during the November ERCOT board meeting — requires that wind generators provide full reactive capability on par with requirements for traditional generators. Cities Served by Oncor supported the measure, arguing that it fairly allocated a portion of the cost of maintaining the integrity of the grid to wind generators. Wind developers opposed the PRR, and a coalition of such generators is widely expected to appeal to the PUC.

ERCOT faces "special purpose review" in 2010

ERCOT, for the first time in its nearly 40-year history, faces review by the Sunset Advisory Commission. Consumer groups, industry representatives and other stakeholders are expected to provide input for the review, which will then become the basis of legislation that could lead to dramatic changes for the organization.
Created in 1977, the Sunset Advisory Commission is a legislative body charged with reducing waste in state government by assessing the continued effectiveness and necessity of agencies. It is made up of five members appointed by the speaker of the Texas House of Representatives and five members appointed by the lieutenant governor, who presides over the Senate. The chair of the Sunset Advisory Commission is state Sen. Glen Hegar, Jr., of Katy.

ERCOT has already submitted a self-evaluation report to the Sunset Commission staff, which is expected to issue its preliminary findings in mid-April. The public will then get a chance to comment on those findings during a public hearing in May, and the Commission will amend the report and take a final vote in July. This final report (which will include changes ordered by the Sunset Advisory Commission) will form the basis of legislation that is expected to be filed for the 82nd Texas Legislature that convenes in January, 2011.

That the Sunset Advisory Commission is even reviewing ERCOT is unusual. Traditionally the Sunset Commission evaluates only state agencies, such as the Public Utility Commission — and not quasi-governmental non-profit corporations, such as ERCOT. But state Rep. Burt Solomons, chair of the House State Affairs Committee, pushed to include the ERCOT review in legislation adopted during a brief special session in 2009. Solomons had expressed displeasure with some of ERCOT’s spending practices — specifically citing the over-budget nodal transition — and also said that conducting a Sunset-style review in 2010 made sense, given that the PUC and the Office of Public Utility Counsel also were undergoing the Sunset process.

Typically, state agencies come up for Sunset review once every 12 years and agencies under such review are automatically abolished unless the Texas Legislature adopts legislation to continue them. But because ERCOT is not a state agency, lawmakers will not need to pass a new bill to maintain its existence. Another distinction between the ERCOT “special purpose review” and more typical Sunset reviews is that the cost of the ERCOT evaluation will be paid for by ERCOT itself — and therefore passed onto electric ratepayers. With other Sunset evaluations the cost is paid by tax dollars.

Besides Chairman Hegar, the other lieutenant governor appointees to the Commission include Sen. Juan “Chuy” Hinojosa of McAllen, Sen. Joan Huffman of Lake Jackson, Sen. Robert Nichols of Jacksonville, Sen. John Whitmire of Houston and public member Charles McMahen. Sens. Huffman, Nichols and Whitmire and public member McMahen were newly appointed by Lt. Gov. David Dewhurst in October. On Nov. 9 House Speaker Joe Straus appointed Rep. Dennis Bonnen of Angleton to serve as vice chairman for the Commission. He also appointed as new members Rep. Rafael Anchia of Dallas, Rep. Bryon Cook of Corsicana, and public member Lamont Jefferson. House members serving existing terms are Reps. Linda Harper-Brown of Irving and Carl Isett of Lubbock.

-- R.A. Dyer

PUC adopts customer protection rules relating to HB 1822

The Public Utility Commission adopted rules Friday for the implementation of House Bill 1822, a consumer protection bill from the 2009 legislative session. Sponsored by state Rep. Burt Solomons, HB 1822 calls for establishing definitions of terms commonly used on utility bills. It also requires that retail electric providers (REPs) print on bills the end date of multi-month contracts.

This second requirement emerged as a contentious flash point during negotiations at the PUC. Some retail electric providers expressed discomfort with the specific end-date requirement, arguing instead for the option to print on bills a more general description of the contract end date. PUC staff and consumer groups argued that HB 1822 included a specific mandate requiring that REPs print the exact termination date, and that using a less specific description only would add to customer confusion.

The three PUC commissioners on Friday agreed to give REPs the option of either printing a specific termination date, or of using a more general description of the end date. However, those REPs opting for the broader description also face a new requirement that they waive early termination penalties for up to 60 days before a contract expires, as opposed to the 14 days currently in rules.

The PUC also appeared to agree with some consumer recommendations relating to the use of common billing terms. REPs had requested flexibility to choose between different terms such as "surcharge," "fee" or "factor" to describe the same billing element. REPs also wanted the option of using either "base charge" or "customer charge" to describe the same element.

Consumer groups argued that the PUC should settle on a single term for each billing element -- and that all REPs should then be required to stick to the uniform term. The rules adopted Friday generally follow that recommendation.

The PUC set an April 1 implementation date for the new rules.

-- R.A. Dyer

Coalition: deregulated prices remain higher

Average electric rates paid in deregulated states are 55 percent higher than average rates in regulated ones — and that gap is widening, according to a coalition of public interest groups calling this month for congressional action.

In a joint statement released in Washington, the American Public Power Association, Public Citizen and other groups said that Congress and the Federal Energy Regulatory Commission should investigate how high electricity prices impact low-income consumers. It said that while customers in all states feel the pinch from high electricity prices, it’s been those in deregulated states who get the worst deals.

“While consumers continue to struggle to pay their electricity bills, the deregulated markets serving about two-thirds of the country continue to create opportunities for excessive profits for a handful of companies that own generating plants,” the coalition noted in its Nov. 3 release.

Besides the APPA and Public Citizen, the group includes the National Consumer Law Center, The Utility Reform Network, the Public Utility Law Project of New York and the Virginia Citizens Consumer Counsel. The groups cited survey data showing the percentage of low-income households forced to sacrifice food in order to pay for electricity had increased by 70 percent since 2003, and the percentage of low income consumers foregoing medical or dental care in order to pay for utility bills had more than doubled.

In Texas, average residential rates remained below the national average for a decade or more before deregulation, and then have remained above the national average after competition. Recent reports also show that even the lowest cost offers in deregulated areas of Texas can’t match regulated rates elsewhere.

-- R.A. Dyer

Penalizing customers for exercising their power to choose?

One of the few pro-electric consumer bills to emerge from the 2009 Legislative session was House Bill 1822, by state Rep. Burt Solomons. The legislation called for the establishment of common terms on utility bills and also included an important requirement that retail electric providers always print on bills the end date of multi-month contracts. This second requirement (it was part of an amendment by state Sen. Wendy Davis of Fort Worth) was to meant to reduce consumer headaches when it comes to the length of term contracts and the assessment of early termination penalties.

The Public Utility Commission is now considering how best to implement HB 1822 and has taken up recommendations from several parties. Some retail electric providers have expressed discomfort with the specific end-date provision of HB 1822, arguing instead for permission to print a more general description of the termination date. Consumer groups have argued that this would contradict the clear, black-letter language of HB 1822. PUC staff members also have argued against this REP recommendation.

A second important point of discussion involves penalties for early termination of contracts. PUC staff has argued (and consumer groups agree) that once customers receive notification that their fixed-rate contracts are about to expire, that those customers should not also be dinged with early termination penalties if they switch providers. This would address an inconsistentcy in timing requirements in PUC rules. That is, under current rules, REPs must send out notices of contract expiration 30-60 days in advance, but can still charge early termination penalties up until 14 days before the end of a contract.

That means that under current rules, REPs can punish fixed-rate customers who, upon receiving notice that their contract is about to expire, immediately sign up with a competitor. Conversely REPs can waive early termination penalties for those customers who, upon receiving notification that their contract is about expire, agree instead to lock in another long-term deal with the original REP.

Either way, this increases customer “stickiness” in the Texas electricity market. Consumer groups believe this disconnect between the timing of contract expiration notices and the timing of penalties reduces the ability of customers to exercise their power to choose, thereby lessening the downward pressure on prices that can come from competitive forces.

The PUC is expected to take up rules for HB 1822 during a meeting on Friday.

-- R.A. Dyer