Title
Consider/Discuss/Act on an Ordinance Approving a Settlement Agreement Between Oncor and the Steering Committee of Cities Adopting Adjusted Rate Tariffs
Summary
MEETING DATE: June 7, 2011
DEPARTMENT: City Manager’s Office
CONTACT: Aretha Harvey, Assistant to the City Manager
Mark Houser, City Attorney
RECOMMENDED CITY COUNCIL ACTION:
• Approve settlement agreement ordinance.
ITEM SUMMARY:
• The City, along with approximately 160 other cities served by Oncor Electric Delivery Company LLC (“Oncor” or “Company”), is a member of the Steering Committee of Cities Served by Oncor (“Steering Committee”). On or about January 7, 2011, Oncor filed with the City an application to increase electric rates.
• The Oncor filing sought a $353 million rate increase. The City worked with the Steering Committee to analyze the schedules and evidence offered by Oncor to support its request to increase rates. The Ordinance and attached rate and tariffs are the result of negotiations between the Steering Committee and the Company to resolve issues raised by the Steering Committee and other intervenors during the review and evaluation of the filing. The Ordinance resolves the Company’s filing by authorizing an increase in the Company’s base rate of $136.7 million. The monthly bill impact for the average residential customer will be a $2.35 increase (as opposed to the $5.00 per bill increase as proposed in the Company’s filing).
• The Executive Committee of the Steering Committee and the Steering Committee’s legal counsel recommend that all city members of the Steering Committee adopt the Ordinance implementing the rate change.
• Rates cannot change and the Settlement Agreement with Oncor cannot be implemented without passage of rate ordinances by cities. The purpose of the Ordinance is to approve rate tariffs (“Attachment A” and “Attachment B”) that reflect the negotiated rate changes pursuant to the process and to ratify a Settlement Agreement recommended by the Steering Committee.
• As a result of the negotiations, the Steering Committee was able to reduce the Company’s requested $353 million increase to $136.7 million (a decrease of over 60% of the Company’s request). Approval of the Ordinance will result in the implementation of new rates that increase Oncor’s revenues in two phases: by $93.7 million effective July 1, 2011 (i.e. “Attachment A”) and by $43 million effective January 1, 2012 (“Attachment B”).
• During the time that the City has retained original jurisdiction in this case, consultants working on behalf of the Steering Committee have investigated the support for the Company’s requested rate increase. While the evidence does not support the $353 million increase requested by the Company, the Steering Committee consultants agree that the Company can justify an increase in revenues of $136.7 million. The agreement on $136.7 million is a compromise between the positions of the parties.
• The alternative to a settlement of the filing would be a contested case proceeding before the Public Utility Commission of Texas on the Company’s current application, would take several months and cost ratepayers millions of dollars in rate case expenses, and would not likely produce a result more favorable than that to be produced by the settlement. The Executive Committee and counsel for the Steering Committee recommend that Steering Committee member cities take action to approve the Ordinance authorizing new rate tariffs.
BACKGROUND INFORMATION:
• The tariff was approved by the Executive Committee of the Steering Committee as part of the settlement agreement to resolve the Oncor rate filing at the Public Utility Commission of Texas. As stated above, the agreement reduces Oncor’s request for a $353 million increase to $136.7 million. The agreement does not change the current authorized capitalization of 60% debt and 40% equity and return on equity of 10.25% from Oncor’s last rate proceeding.
• Also, the settlement results in a system-wide rate increase of 6.1%. Residential customers will see an increase of 6.2%, much lower than Oncor’s requested 14.6% increase. Street lighting rates will increase 13.8%, which is also lower than Oncor’s requested increase of 25.9%. Oncor has agreed that it will not file another general base rate case prior to July 1, 2013. However, as cities are regulatory authorities, cities may still initiate a rate case prior to that date.
• Additionally, consistent with the District Court’s reversal of the Commission’s decision relating to municipal franchise fees in Docket No. 35717, Oncor will increase franchise fees to the contractually agreed to amounts within 60 days of the final order, or July 1, 2011, whichever is later. Additionally, Oncor will pay cities retroactive franchise fees from the date the rates approved in Oncor’s prior rate case, Docket No. 35717, went into effect.
• Oncor will also pay cities’ rate case expenses and recover those amounts over three years with no carrying charges.
FINANCIAL SUMMARY:
• N/A
BOARD OR COMMISSION RECOMMENDATION:
• N/A