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No significant fiscal implication to the State is anticipated.
HB 1535 would add two new sections to Chapter 36 (Rates) and Chapter 37 (Certificates of Convenience and Necessity) of the Utilities Code. Both of these sections would apply to electric utilities that operate outside the Electric Reliability Council of Texas (ERCOT).
In Chapter 36, Section 36.112 would regulate how an electric utility may recover costs and adjust rates. Specifically, if the electric utility elects to do so, the Public Utility Commission (PUC) would be responsible for determining the base rates of that electric utility. However, this determination would be based off the information provided by the electric utility.
This legislation would allow the electric utility to propose and submit additional factors for PUC to consider when determining the base rate of that electric utility.
Depending on whether PUC issues a final rate determination that is either higher or lower than the initial rate, it would require the electric utility to either refund the customers for the excess amount charged or it would allow the electric utility to surcharge its customers to make up for the new higher rate. However, an electric utility would not be allowed to refund or surcharge a customer for a rate going back further than 18 months.
Lastly, in Chapter 37, Section 37.058 would allow an electric utility to file a request with PUC to be granted a certificate to build an electric generating facility or purchase an existing electric generating facility.
No changes have been made to this legislation in the Senate committee. However, the engrossed House version never remedied our concerns with the back billing issue. We still oppose this legislation but recommend amending it by removing the back billing provisions. The Senate chamber sponsor is Senator Fraser.
First chamber recommendation:
HB 1535 would make it law for an electric utility, operating outside of ERCOT, to back bill its customers. Under this legislation, if PUC allows an electric utility to issue a higher rate then that electric utility may back bill its customers for electricity they have already consumed. This is a clear violation of our free market principle and property rights principle because customers would have to pay for a good that they already paid for and used. This would be akin to a person purchasing a meal at a restaurant and then a few weeks later being rebilled the difference for that same meal.
Back billing would also have a trickle effect on all businesses because they would not be able to plan for electricity costs. The only way they may cushion themselves from electricity price fluctuations would be to raise its prices on their customers.
Currently under state law, the oil and gas industries are permitted to back bill its customers once a rate proceeding has been made. They can only back bill the period the rate proceedings were conducted. There are no provisions in the law that state whether an electric utility, operating outside of the purview of ERCOT, may do the same. However, since it is not explicitly prohibited, an electric utility will usually form an agreement with another party that allows it to back bill the party.
According to the author’s office the aims of this legislation are to help speed up PUCs rate proceeding process. The lag between when a rate is approved and when it was initially requested has put certain electric utilities in a revenue bind, because they can only recoup the costs of their investment a couple years later. Additionally these rate proceedings do not guarantee that an electric utility will receive a sufficient rate approval that will allow it to recoup all of its expenses. Due to this uncertainty, Moody’s Investors Service has downgraded these electric utilities to a Baa in the bond market because they pose a moderate risk arising from the speculative nature in which PUC determines electricity rates.
Lastly, we had concerns regarding the test year information submitted by an electric utility to assist PUC in deciding a base rate. Specifically, we were concerned that PUC would base a rate decision off the estimates provided by an electric utility, but this is not the case. An electric utility would be required to file actual information to supplement those estimates within 45 days of making the initial filing for a rate proceeding. PUC would then be required to extend the rate proceeding to allow time for it to evaluate a rate based on the actual information. In other words, PUC would be making its final rate determination based off an electric utilities actual information, not its estimated information.
The market that non-ERCOT electric utilities operate under is heavily regulated, thus the free market is restricted from having any influence in this area. That being said, we understand that businesses that operate in this heavily regulated market still need to make money in order to remain viable. This legislation would help alleviate the red tape that slows down rate proceedings. In other words, this would allow electric utilities to receive rate determinations in a timely manner. However, our concerns with back billing prevent us from going neutral on this bill.
No matter the regulatory landscape for electric utilities, forcing a veil over a customer to buy and use a product that they have no way of knowing how much it actually costs until after the fact is not only wrong it is bad business.
Should the bill be amended to prohibit, or at least substantially curtail, the back billing provisions of HB 1535 (and we understand such an amendment will be offered) we would withdraw our objection and remain neutral on the bill.