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HomeMy WebLinkAboutIR 8622 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. $E.22 To the Mayor and Members of the City Council August 5, 2004 �pRT E'q�,b r k SUBJECT: TXU Transmission and Distribution Rate Inquiry r�xA Y8p5 The purpose of this report is to seek authorization to require TXU to show cause to justify the existing Transmission and Distribution (T&D) rates. On July 16, 2004, the Steering Committee of Cities Served by TXU met to discuss TXU's current T&D rates. The Steering Committee unanimously recommended that cities pass a resolution that requires TXU to show cause why its T&D rates should not be reduced. The Steering Committee also authorized the retention of rate case attorneys and consultants and intervention in any related appeal. The T&D rates currently charged by TXU were set by the Public Utility Commission ("PUC") in 2001 in anticipation of the start of retail electric competition. While traditional rate regulation in the public interest is based upon a snapshot of historic costs, the PUC based its 2001 approval of TXU's T&D rates upon projected costs and expenses for 2002. Enormous changes have occurred since TXU's T&D rates were approved, including significant decreases in the cost of capital, large reductions in TXU's costs and expenses, mass TXU employee layoffs, and a complete change in TXU affiliate transactions. As a result, it is likely that TXU's current T&D rates are excessive. Since T&D rates atypically comprise one-half of the total electric bill, curbing excessive T&D rates will reduce the high zost of street lighting and other off peak load. A rate review of TXU's T&D rates also permits the investigation of unfair and/or unjustified costs that are currently reflected in off-peak tariffs, as well as other service standards issues. Additionally, a T&D rate case may provide cities served by TXU another forum to address the horrible inequities that would result if a nodal pricing scheme were implemented. This is not the first time that rates for a Transmission and Distribution Company have been reviewed by a city since the deregulation of retail electric rates. In South Texas several cities initiated a show cause inquiry at the local level last year that precipitated a T&D rate proceeding at the PUC involving their wires company, AEP-Texas Central Company ("TCC", formerly CP&L). Like TXU, TLC's existing T&D rates were set based upon 2002 inflated cost projections that never came to pass. In the TCC T&D rate case, the company requested a $67 million increase over its existing T&D rates. The hearing examiners rejected TCC's rate increase request, and instead recommended that TCC's current T&D rates be reduced by more than $30 million. The examiners' recommendation is currently pending before the PUC. All rate case expenses incurred in this proceeding will be absorbed by the Steering Committee. The City is responsible for the per capita fee assessed for membership in the Steering Committee of Cities Served by TXU, which is paid from a special rate case reserve fund created for this purpose. For 2004, the membership assessment is a ten-cent per capita fee. To the extent permitted by law, the Steering Committee and TXU Cities reserve the right to seek reimbursement from TXU for rate case expenses incurred in this matter. ISSUED BY`rHE CITY MANAGER FORT WORTH, TEXAS ^ INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8622 To the Mayor and Members of the City Council August 5, 2004 SUBJECT: TXU Transmission and Distribution Rate Inquiry CC A- Unless directed otherwise City Staff will bring to the City Council a resolution requiring TXU to show cause regarding the reasonableness of its existing T&D rates; establishing a procedural schedule for the rate review process, hiring and directing legal counsel and consultants to review TXU's rate inforination and represent the City on related appeals. ity Man4age rvry ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS _