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Texas REPs: Implementing SFV, Other Alternative TDU Rate Designs Would Carry "Significant Price Tag" For Retail Market

SFV Would Trigger "Radical Change" in REPs' Market Offerings

REPs Say Consultant's Report Fails To Recognize Role Played by REPs

August 11, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Moving to straight-fixed variable (SFV) rates or other alternative TDU ratemaking designs would carry a, "significant price tag," for the retail market, Steve Davis, representing the REP Coalition, said at a public hearing on a consultant report concerning alternative ratemaking prepared for the Public Utility Commission of Texas

As first reported by EnergyChoiceMatters.com in June, a SFV design was unique in that it was the only mechanism among several discussed in the consultant's report for which the consultant expressed a "preference."

Under SFV rate design, fixed T&D costs are recovered through flat rates, while variable T&D costs are recovered through volumetric rates. In contrast, under the current Texas rate design, for residential and small commercial customers, when excluding riders, about 80% of total bills are recovered through volumetric energy charges. When including riders, the percent of the bill comprised of volumetric energy charges is even higher.

In other words, moving to SFV rates would drastically increase the recovery of T&D costs through flat monthly charges paid by REPs, versus the current volumetric rates.

Commenting on the report, Davis said, "The REP coalition believes that the report offers remedies in search of a problem."

"While the periodic rate adjustment and cost tracker mechanisms currently employed by the Commission in setting ERCOT TDU rates arguably might be tweaked to improve their operability and to refine their objectives consistent with experience gained in those rate proceedings, there is nothing that we see to suggest that the current ratemaking paradigm for ERCOT TDUs is broken in any significant respect," Davis said

"The REP Coalition is seriously concerned that certain recommendations in the report, specifically those that would entail a wholesale revision of the manner in which ERCOT TDU rates are designed today, would have adverse repercussions in the competitive market in the short and long term," Davis said

Davis noted that the report fails to recognize the role that REPs play in the implementation of new and adjusted ERCOT TDU rates in the market

"The market design in ERCOT's competitive retail market entails the direct assessment of TDU rate charges to REPs and not to the electric customers. REPs offer retail products in the market at prices that recover those fixed TDU-related costs. The manner and extent to which the REP recovers those costs, however, is at the discretion of the REP subject to the requirements in the Commission's customer protection rules," Davis noted

"Any radical revision of the manner in which ERCOT TDU rates are designed, particularly something along the lines of the recommended straight-fixed variable rate design in the report, would substantially change the manner in which retail electric products are priced in the competitive market. Any move towards this alternative ratemaking methodology would require REPs to expend significant time and resources to implement such a radical change in their market offerings. Likewise, any such radical change would necessitate modifications to the Commission's rules that regulate the market -- for example, the disclosure requirements in Rule 25.475. And no doubt, any such radical change to the TDU rate design would generate customer concerns and trigger numerous complaints that REPs would have to deal with. For all of these reasons, we believe there would be a significant price tag to the retail market for any transition to this alternative ratemaking methodology," Davis said

"Consequently, it's difficult for us to understand how any such alternative ratemaking methodology of this nature would improve the efficiency and effectiveness of the Commission's oversight of electric utilities," which was the legislature's directive in ordering a study of alternative ratemaking, Davis said

Davis said that any report to the legislature should include a discussion concerning REPs' role in the marketplace, as well as current rules designed to minimize retail price disruptions and REP compliance costs. Specifically, various riders (such as the TCRF) charged to REPs may only be changed twice per year on specific dates (March 1 or September 1), with a minimum of 45 days notice to REPs of any change. Davis said that such policies should continue, and be codified, to the extent any alternative ratemaking mechanisms are adopted.

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