HomeMy WebLinkAboutIR 9873 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9873
To the Mayor and Members of the City Council April 12, 2016
Page 1 of 2
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*a SUBJECT: PROPOSED SHOW CAUSE PROCEEDING ON RATES OF ONCOR
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ELECTRIC DELIVERY COMPANY
On April 19, the City Council will be asked to consider instituting a show cause process regarding
the rates charged by Oncor Electric Delivery Company, LLC (Oncor) in the City of Fort Worth.
Background
In April 2014, Energy Future Holdings Corp. (EFH) and 70 of its affiliated companies filed for
bankruptcy. Oncor is a major asset of EFH, and its ownership going forward has been a central
issue in the bankruptcy proceeding.
Oncor is a regulated transmission and distribution utility that owns, operates, and maintains the
wires and related infrastructure that transport electricity from generators to end-use customers.
As regulated utility, the company's rates within city limits are subject to the review and approval of
the Fort Worth City Council, which has original jurisdiction under the Texas Utilities Code.
Currently Oncor's rates pass the company's federal income tax liabilities through to consumers.
Corporate Restructuring and Impact on Rates
Late last year the bankruptcy court approved a deal to transfer ownership of Oncor to an investor
group that plans to restructure it. The existing limited liability company would be replaced with a
two-part structure consisting of an operating company and a separate real estate investment trust
(REIT). The REIT would own all physical assets and lease them to the operating company.
Under this structure, the companies can operate without incurring federal income tax liabilities.
Although the company's current tax liabilities of approximately $250 million per year would cease
to accrue following restructuring, that amount will continue to be collected as part of the rates that
Oncor charges its customers unless and until a ratemaking process changes the rates.
As a regulated utility, Oncor's change in ownership was subject to review by the Public Utility
Commission of Texas (PUC). Although the deal was ultimately approved by the PUC, two of the
three Commissioners questioned the company's rates — in particular how savings associated with
elimination of the income tax liability should be apportioned between Oncor and its customers.
However, because the PUC proceeding was not a rate case, no change was made.
The investor group has indicated it intends to bring a rate case in the middle of 2017, which
means any rate change would not become effective until the beginning of 2018. Rather than
requiring ratepayers to continue to bear the burden of a quarter-billion dollars in non-existent tax
liabilities, staff recommends that the City Council initiate a show cause proceeding, which would
require Oncor to file documentation justifying its current rates or make adjustments.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9873
To the Mayor and Members of the City Council April 12, 2016
Page 2 of 2
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�i7 Y
*a SUBJECT: PROPOSED SHOW CAUSE PROCEEDING ON RATES OF ONCOR
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ELECTRIC DELIVERY COMPANY
Legal and technical support for the show cause process would be provided via the Oncor Cities
Steering Committee, which Fort Worth is a member of. Associated costs would initially be
covered by the Committee and ultimately reimbursable by the company as rate case expenses.
If you have questions, please contact Denis McElroy, Assistant City Attorney, at (817) 392-2758.
David Cooke
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS