HomeMy WebLinkAboutOrdinance 18345-10-2008ORDINANCE NO. 18345-10-2008
AN ORDINANCE DENYING THE RATE SCHEDULE PROPOSED BY
ONCOR ELECTRIC DELIVERY COMPANY LLC, AS REFLECTED IN
THE "APPLICATION OF ONCOR ELECTRIC DELIVERY COMPANY
LLC FOR AUTHORITY TO CHANGE RATES" FILED BY ONCOR
ELECTRIC DELIVERY COMPANY LLC ON JUNE 27, 2008;
AUTHORIZING THE CONTINUED PARTICIPATION IN A
CONSORTIUM OF OTHER MUNICIPALITIES SERVED BY ONCOR
ELECTRIC DELIVERY LLC AND THE HIRING OF CONSULTANTS
AND ATTOP:NEYS TO ASSIST IN ANY APPEAL OR LITIGATION
ARISING OUT OF SUCH RATE FILING OR THIS ORDINANCE;
DIRECTING THAT ONCOR ELECTRIC DELIVERY COMPANY LLC
REIMBURSE THE CITY FOR ALL PREVIOUS AND FUTURE
REASONABLE EXPENSES RELATED TO SUCH RATE CASE;
ADOPTING DECLARATIONS AND FINDINGS IN PREAMBLE;
PROVIDING A SEVERABILITY CLAUSE; AND PROVIDING AN
EFFECTIVE DATE.
WHEREAS, on June 27, 2008, Oncor Electric Delivery Company LLC ("Oncor"),
successor in interest to TXU Electric Delivery Company ("TXU"), filed with the City Secretary
that certain "Application of Oncor Electric Delivery Company LLC for Authority to Change
Rates" (the "Rate Filing") under which revised rates charged by Oncor would go into effect in
the City on August 8, 2008; and
WI~REAS, pursuant to Chapter 36 of the Texas Utilities Code, the City Council is
required to (i) analyze Oncor's Rate Filing; (ii) conduct a public hearing in order to determine the
propriety of the proposed rate changes; and (iii) determine whether the rates proposed in the Rate
Filing are reasonable and lawful, and if not, enter an order establishing the maximum rates that
Oncor shall be permitted to charge; and
WI~REAS, as permitted by Chapter 36 of the Texas Utilities Code, in order for the City
to have sufficient time to analyze the Rate Filing thoroughly prior to the public hearing on this
matter, on July 29, 2008 the City Council adopted Ordinance No. 18194-07-2008 suspending
implementation of Oncor's proposed rates from August 8, 2008 until (i) November 6, 2008 or
otherwise for the maximum period allowed by law, or (ii) the effective date of a rate order
adopted by the City Council in response to the Rate Filing, whichever date under subsections (i)
or (ii) is earlier; and
WHEREAS, the City participated in the Oncor Cities Steering Committee, a consortium
of other municipalities that received rate filings from Oncor similar to the City's Rate Filing, to
hire consultants and attorneys to review and analyze such rate filings, including the City's Rate
Filing (collectively, the "Consultants"); and
WHEREAS, the rates proposed in the Rate Filing would result in approximately $275
million in additional revenue for Oncor on a system-wide basis, which additional revenue
includes an approximate 11.9% increase in electricity rates imposed by Oncor in the City (which
factors in approximately a 17.6% increase in electricity rates imposed by Oncor on residential
customers in the City) and approximately $24 million in additional revenue for Oncor from
customers in the City; and
WHEREAS, based on the Rate Filing, Oncor is requesting an 8.85% rate of return based
on a proposed 10.75% return on equity; and
WHEREAS, based on the Rate Filing, Oncor's proposed capital structure consists of
60% debt and 40% equity; and
WHEREAS, based on the Rate Filing, Oncor proposes to discontinue participation in an
accounts receivable program; and
WHEREAS, the Consultants have evaluated all other data associated with the Rate
Filing; and
2
VVI-IEREAS, the City Council has conducted a public hearing to receive evidence
pertaining to the Rate Filing from the City's staff and Consultants and to hear any public
comment related to the Rate Filing;
NOW, TI~REFORE BE IT ORDAINED BY THE CITY COUNCIL OF THE
CITY OF FORT WORTH, TEXAS THAT:
Section 1.
FINDINGS.
The City Council, pursuant to its exclusive original jurisdiction over the rates, operations
and services of Oncor witlvn the City and in the exercise of its sound legislative discretion,
hereby makes the following findings of fact based on all information before it:
1.1. The statements set forth in the recitals above are true and correct.
1.2. Given Oncor's reduced level of operational and fmancial risk and current
economic conditions, Oncor's requested 8.85% rate of return (based upon a
proposed 10.75% return on equity) is unreasonable.
1.3. Oncor's proposed capital structure (60% debt/40% equity) is inconsistent with
Oncor's actual capital structure because it fails to recognize and account for short-
term debt and, thus, the Rate Filing and data supporting the Rate Filing
unreasonably overstate the cost of capital for Oncor.
1.4. Oncor's decision to discontinue participation in an accounts receivable program
will result in unreasonable additional cash working capital requirements for
Oncor.
3
1.5. The recovery of costs associated with non-compliant meters, as proposed by
Oncor, is unreasonable.
1.6. The level of depreciation expense sought by Oncor under the Rate Filing is
excessive and results in substantially higher customer rates.
1.7. Costs paid by Oncor to CapGemini, a company affiliated with Oncor, have not
been adequately substantiated and, therefore, should not be included as a basis to
adjust rates under the Rate Filing.
1.8. Based on the above facts, the City Council finds that the rates proposed by Oncor
in its Rate Filing are unreasonable.
1.9. That the public hearing was conducted and this Ordinance was adopted during a
public meeting posted and held in accordance with Chapter 551 of the Texas
Government Code.
Section 2.
PROPOSED RATE SC~IEDULE DENIED;
RATES ANI) CHARGES ORDERED.
Based on the fmdings of fact set forth in Section 1, and on all relevant information
presented and available, the rate schedule proposed by Oncor in its Rate Filing is hereby denied.
Oncor is hereby authorized to charge the same maximum permitted rates as those in effect on
June 27, 2008, the date of the Rate Filing.
4
Section 3.
CONTINUED PARTICIPATION IN THE STEERING COMMITTEE.
The City Manager or his authorized designee is hereby authorized to cooperate with other
municipalities to participate in the Oncor Cities Steering Committee to hire and direct legal
counsel and consultants to make recommendations to participating municipalities, including the
City, regarding the Rate Filing and to direct any administrative proceedings or litigation
associated with or arising from the Rate Filing or this Ordinance, subject to the City's right to
terminate such participation at any time by written notice to the Oncor Cities Steering
Committee and to act independently in the exercise of its regulatory authority.
Section 4.
REIMBURSEMENT OF RATE CASE EXPENSES.
Tn accordance with Section 33.023 of the Texas Utilities Code, as well as that certain
Settlement Agreement by and between Oncor's predecessor, TXU, and the Oncor Cities Steering
Committee's predecessor, the Steering Committee of Cities Served by TXU Electric Delivery
Company, dated February 22, 2005, as amended by that certain Extension and Modification of
Settlement Agreement dated January 27, 2006, Oncor is hereby directed to reimburse the City for
all reasonable costs and expenses of any rate consultants, accountants, auditors, attorneys and
engineers retained by the City, the Oncor Cities Steering Committee, or any other consortium of
which the City is a member and incurred in the course of the rate case initiated by the Rate
Filing.
5
Section S.
SEVERABILITY.
If any portion, section or part of a section of this Ordinance is subsequently declared
invalid, inoperative or void for any reason by a court of competent jurisdiction, the remaining
portions, sections or parts of sections of this Ordinance shall be and remain in full force and
effect and shall not in any way be impaired or affected by such decision, opinion or judgment.
Section 6.
EFFECTIVE DATE AND DELIVERY OF ORDINANCE TO ONCOR.
This Ordinance shall take effect and be in full force and effect from and after the date of
its adoption. The City Secretary is hereby directed to deliver a certified copy of this Ordinance
to: (i) Debra Anderson, Oncor Electric Delivery Company, 1601 Bryan St., Suite 23-OSSC,
Dallas, Texas 75201 and (ii) Geoffrey Gay, General Counsel to the Oncor Cities Steering
Committee, at Lloyd Gosselink Rochelle & Townsend, P.C., P.O. Box 1725, Austin, Texas
78767-1725.
AND IT IS SO ORDAINED.
ADOPTED AND EFFECTIVE: October 28, 2008
6
APPROVED AS TO FORM AND LEGALITY:
By: ~~~~t~f ~~
Peter Vaky
Assistant City Attorney
M&C:G-16334
Ci~jr ®f ®r~ ®rfh, Texas
Mayor and Council Communication
COUNCIL ACTION: Approved on 10/28/2008 -Ord. No. 18345-10-2008
DATE: Tuesday, October 28, 2008
LOG NAME: 130NCOR
REFERENCE NO.: G-16334
SUBJECT:
Adopt Ordinance Denying the Proposed Rates Filed by Oncor Electric Delivery Company, LLC
RECOMMENDATION:
It is recommended that the City Council adopt the attached ordinance denying the implementation of the
proposed rates filed on June 27, 2008, with the City by Oncor Electric Delivery Company, formerly known
as TXU Electric Delivery Company.
DISCUSSION:
Oncor Electric Delivery Company (Oncor) filed an application on or about June 27, 2008, with cities
retaining original rate regulatory jurisdiction seeking to increase system-wide transmission and distribution
rates by $275 million. Until last year, Oncor was known as TXU Electric Delivery Company. Oncor asked
the City to approve a 17.6 percent increase in residential rates, a 9.1 percent increase in commercial rates
and a 5.8 percent increase in street lighting rates. According to Oncor, annual rates would increase by
approximately $60 for an average residential customer. Oncor's request has been assigned Public Utility
Commission Docket No. 35717.
The City, pursuant to §33.001 of the Texas Utilities Code, has exclusive original jurisdiction over the electric
rates charged by Oncor. In accordance with that authority, on July 29, 2008, the City lawfully suspended the
August 8, 2008, effective date for 90 days to review Oncor's requested rate increase (M&C G-16212,
Ordinance 18194-07-2008).
The City's review of Oncor's rate increase request is coordinated by the Oncor Cities Steering Committee
(Steering Committee). The City is a member of the 145-City Steering Committee. To conduct the review
and any necessary litigation of Oncor's requested rate increase, the Executive Committee of the Steering
Committee retained lawyers and consultants with expertise in regulatory rate making issues. All reasonable
consulting and legal fees incurred by the Steering Committee are reimbursable by Oncor.
The major components underlying Oncor's requested $275 million increase include an increase for
depreciation expense ($131 million), a substantial increase to Oncor's storm reserve ($81 million) and
additional costs for pension and post-retirement benefits ($36 million). Based upon the analysis of Oncor's
filing and review of discovery responses, the Steering Committee's consultants have determined that
Oncor's increase cannot be substantiated by evidence. In particular, the consultants have identified
problems with the evidence offered by Oncor supporting its requested rate of return, cash working capital,
depreciation expense, consolidated taxes, federal income taxes, storm damage reserve and pension and
post-retirement benefits. The preliminary analysis indicates that the consultants will likely be proposing
cumulative reductions to Oncor's requested rate increase in excess of $200 million. In addition, the Steering
Committee's experts will file testimony regarding the rate design and cost allocation proposals made by
Oncor.
The action taken by the City to deny Oncor's rate increase is expected to be appealed by Oncor to the
Logname: 130NCOR Page 1 of 2
Public Utility Commission (PUC) of Texas. The appeals of all individual city actions will be consolidated into
the current proceeding at the PUC, Docket No. 35717. The Steering Committee is already actively involved
in Docket No. 35717 and will file testimony challenging Oncor's support for the rate increase. The hearing
regarding Oncor's requested rate increase will begin January 13, 2009, and is expected to last three
weeks. In an effort to avoid litigation if at all possible, parties to the proceeding have scheduled meetings
with Oncor to investigate the possibility of a settlement.
FISCAL- INFORMATION/CERTIFICATION:
The Financial Management Services Director certifies that this action will have no material effect on City
funds.
TO Fund/Account/Centers FROM Fund/Account/Centers
Submitted for City Manager's Office bk Karen Montgomery (6222)
Originating Department Head: Lena Ellis (8517)
Additional Information Contact: Danny Reed (6145)
Logname: 13ONCOR Page 2 of 2