“Simply put, there are too many rate cases,” said Thomas Brocato, who serves as general counsel for various municipal groups.
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Attorney Thomas Brocato
Ratepayer affordability took center stage during a state legislative hearing this week, with a municipal coalition general counsel highlighting the growing number of interim rate proceedings that consistently drive up prices.
“Simply put, there are too many rate cases,” said Thomas Brocato, who serves as general counsel for both the Steering Committee of Cities Served by Oncor (OCSC) and the Texas Coalition for Affordable Power (TCAP).
Mr. Brocato’s comments on behalf of both groups came during a Sept. 30 meeting of the Business and Commerce Committee of the Texas Senate. He joined other invited expert witnesses — including those from consumer groups, ERCOT, the Public Utility Commission, and industry groups — called upon to address questions relating to the ratemaking process and transmission and distribution prices.
Mr. Brocato testified that Oncor rates have increased by 75 percent since 2016 and that Oncor’s residential rates have increased by 15 percent over the last two years. He likewise noted that 45-65 percent of the electric bills of typical TCAP members are comprised of TDU charges — up from about 25-30 percent at the beginning of deregulation. TCAP is a coalition of political subdivisions that purchase power for their own use in the state’s deregulated market.
Mr. Brocato said the sheer volume of rate proceedings was responsible, at least in part, for the rising prices. He noted that Oncor, CenterPoint, TNMP and AEP have filed at least 120 discrete rate requests since 2020. He suggested it would be preferable to have fewer rate cases but with deeper reviews. He also said utilities should be required to account for load growth whenever they employ interim rider mechanisms to increase rates.
Another witness, Katie Coleman of the Texas Association of Business, agreed that interim “riders are inherently flawed, because you don’t get a full view of revenues,” She also noted that utility capital investments authorized for recovery through interim proceedings — even if the investments are potentially imprudent — are very rarely removed from rate base during later comprehensive rate cases.
Return On Equity
Business and Commerce committee members separately raised concerns over “return on equity” levels authorized by the PUC. ROE — which roughly equates to the authorized profit that a utility can receive on its distribution and transmission capital investments — currently averages around 9.6 percent inside Texas, according to PUC deputy director Barksdale English. He said that level is in line with ROE for other similar situated entities.
Several lawmakers noted, however, that ROE levels typically are much lower among private industries, even though such industries face much greater risk. “At the end of the day, the (utility company’s) risk is diminished — and if you have lower risk, you expect a lower return; and yet they’re getting higher return,” said Sen. José Menéndez. Other lawmakers echoed those concerns, including committee chair Sen. Charles Schwertner. TCAP and OCSC also share these concerns.
For his part, the PUC’s English said the agency can lower ROE levels during comprehensive rate cases but acknowledged that it very rarely does so. Jason Ryan, a VP for CenterPoint Energy, said his Houston-based utility rarely earns its full authorized ROE.
Aggregate Distributed Energy Resource Discussion
Another topic drawing attention was aggregate distributed energy resource programs, also known as “ADER”. Such programs allow for the aggregation of household energy saving devices among various households, and these ADER groups can then be employed by ERCOT as grid resources. As such, ADER potentially can offset the need for some generation construction and potentially save money for ratepayers.
John Padalino, general counsel for the Bandera Electric Cooperative, said his cooperative operates a successful ADER program but that it’s limited in scope because of ERCOT rules. Currently ERCOT operates an ADER pilot program that caps participation levels — and this has kept Bandera Electric Cooperative from expanding its own program, he said. It’s time to take the “training wheels off,” said Padalino.
Another witness, Zina Bash of Base Power that manufactures residential batteries, said another cost-saving strategy would be to standardize the interconnection process for energy storage devices. She said that different TDUs enforce different interconnection rules and these inconsistencies constitute a barrier for wider battery use.