Page 22


leve g e pig the By Jack Hopper Austin The Texas Public Utility Commission was a great idea when it was established in 1975. The state agency was supposed to share with city councils the burden of regulating the rates charged by giant utilities and rationalized by batteries of utility lawyers and rate experts that cities could not match. Predictably, consumer groups and cities wanted the PUC; utility companies, by and large, opposed its creation. But perspectives have changed since the PUC went into action in September 1976. Maybe we should have seen the handwriting on the wall when companies like Gulf States Utilities, Texas Power & Light, and Houston Lighting & Power moved their Austin offices to the same office building as the PUC. But if that message wasn’t clear enough, the import of the maneuvering by electric utilities in the current legislative session certainly isfor most of the state’s electric companies are now pushing a bill that would boot cities out of the rate-making process and put the matter exclusively in the hands of the PUC, while consumer and municipal groups are fighting it. To account for this reversal of roles, it’s best to start with the difference between the PUC as it was originally proposed and as it was actually set up by the Public Utility Regulatory Act of 1975. The model bill on which the act was based contained more than a dozen consumer safeguards that were stripped away in compromises. For example, the first draft required the attorney general to represent consumers in rate cases and it called for elected commissioners from single-member districts. It would have made the commission an active initiator of regulation. What we got instead is a passive PUC that only reacts to utility rate requests. The 1975 law did, however, give new regulatory authority to cities, creating a dual system in which they set rates inside their municipal boundaries, while the PUC sets rates in unincorporated areas and takes appeals from utilities on city decisions. Many cities have exercised their authority aggressively, and time and again the utilities have appealed to the PUC, where their rate increase requests have been treated more generously. Naturally the utilities have come to prefer the PUC approach. And that’s what the fight this session is all about. Rep. Nub Donaldson’s House Bill 585 and Sen. Gene Jones’ Senate Bill 312 propose to move all electric utility regulation to the PUC in Austin, leaving local governments without responsibility, power, rights, or funds to conduct regulation. These industry bills would remove the cities exactly the way Southwestern Bell did in 1975, by giving both rate and service authority to the PUC. It’s a somewhat embarrassing stance for the electric companies, because for 78 years they gave strong and vocal support to municipal regulation. And it was in deference to their wishes that regulatory power was left with the cities in 1975. ” What they didn’t count on was that more and more cities, pressed to exercise regulatory responsibility by their ratepayers, would actually assume some of the duties requires. But the cities’ importance has been less their action as direct regulators, and more their intervention in the PUC appeal process, where they have acted as the sole advocate for ratepayers in commission hearings. The cities’ role as intervenors is crucial because of the way the dual rate-setting system works. Since the PUC fixes rural rates based on an electric utility’s total operations, rural and urban, those rates will also be set unofficially for the cities, because once the PUC has made its determination, the utility will ask each city to approve the commission’s rates. If a city refuses, the company will appeal to the PUC, which will apply its rural rates to the city. In effect, the cities have to intervene in the PUC’s rural case, because the commission holds only one complete hearingfor the rural ratesand does not hold another if the utility appeals the cities’ decision. If the cities do not participate in the rural hearing, they and their ratepayers have no influence on municipal rates. The cities became the ratepayers’ advocate more or less by default. The 1975 law spells out eight specific duties of the PUC’s general counsel, and number seven calls for “protection and representation of the public interest before the commission.” But the PUC has interpreted the “public interest” to include the interests of the utilities. So the commission makes no attempt to represent ratepayers. With no real advocate built into the system, local officials have had to fend for their ratepayers as best they can, asking permission from PUC to intervene in rate hearings as third, interested parties. In case after case, cities have been effective in uncovering issues and circumstances that the PUC staff has been unwilling or unable to find. Two examples stand out: the first El Paso Electric case and the Southwestern Public Service case. In the El Paso case, the city evaluated the utility’s request and, following statutory requirements, excluded from the rate base charges for construction work in progress on the Palo Verde nuclear plant. The city also found that the utility had failed to justify a rate increase. On appeal, the PUC allowed the nuclear CWIP charges and granted a rate hike without requiring the utility to bear the burden of proving its case on either point. In fact, the commission gave the El Paso company a higher initial rate than it asked for, ordering the minimum residential rate to be increased from $3.50 for the first 50 kilowatt hours to a flat $7 to be assessed even if not a single kolowatt hour were used \(Obs., After the PUC granted El Paso Electric a total increase of $9 million, it allowed the utility 20 days to write new tariffs accord THE TEXAS OBSERVER 5 ..,0,41111,Ve rotr .leiVen