Item 4GM E M O R A N D U M
October 15, 2008
To:
Honorable Mayor and Members of the City Council
From:
Sharen Jackson, Director of Finance
Subject: Resolution 08-055, Deny the requested increases in
electric transmission and distribution rates by Oncor
Electric Company
Action
Requested:
Approval of Resolution 08-055
Background
Information:
Oncor Electric Delivery Company “Oncor” filed an application
on June 27, 2008 with the City seeking to increase system-
wide transmission and distribution rates by $275 million.
Oncor asks the City to approve a 17.6% increase in
residential rates, a 9.1% increase in commercial rates, and a
5.8% increase in street lighting rates. According to Oncor,
annual rates would increase by approximately $60 for an
average residential customer.
The City's review of Oncor's rate increase request is
coordinated by the Oncor Cities Steering Committee
("Steering Committee"). The City is a member of the 145-
city Steering Committee. The Steering Committee has been
the primary public interest advocate before the Public Utility
Commission, the Courts, and the Legislature on electric
utility regulation matters for the last 20 years. On July 15,
2008 City Council approved Resolution 08-028 to suspend
the rates for a period of 90 days while the Steering
Committee of Cities evaluated the validity of the request.
To conduct the review and any necessary litigation of
Oncor's requested rate increase, the Executive Committee of
the Steering Committee retained lawyers and consultants
with expertise in regulatory rate making issues. Legal efforts
are being directed by Geoffrey Gay, Kristen Doyle and
Thomas Brocato with the law firm of Lloyd Gosselink
Rochelle & Townsend. All reasonable consulting and legal
fees incurred by the Steering Committee are reimbursable
by the Company.
The major components underlying Oncor's requested $275
million increase include an increase for depreciation
expense ($131 million), a substantial increase to the
Honorable Mayor and City Council
Page 2 of 3
Company's storm reserve ($81 million) and additional costs
for pension and post retirement benefits ($36 million).
Based upon the analysis of the Company's filing and review
of discovery responses, the Steering Committee's
consultants have determined that the Company's increase
cannot be substantiated by evidence. In particular, Steering
Committee experts have identified problems with the
evidence offered by the Company supporting its requested
rate of return, cash working capital, depreciation expense,
consolidated taxes, federal income taxes, storm damage
reserve and pension and post retirement benefits. The
preliminary analysis indicates that Cities will likely be
proposing cumulative reductions to the Company's
requested rate increase in excess of $200 million. In
addition, Cities' experts will file testimony regarding the rate
design and cost allocation proposals made by Oncor.
The action taken by the City to deny Oncor's rate increase
will be appealed by the Company to the Public Utility
Commission ("PUC") of Texas.The appeals of all individual
city actions will be consolidated into the current proceeding
at the PUC, Docket No. 35717. The Steering Committee is
already actively involved in Docket No. 35717 and will file
testimony challenging the Company's support for the rate
increase. The hearing regarding Oncor's requested rate
increase will begin January 13, 2009 and is expected to last
three weeks. In an effort to avoid litigation if at all possible,
parties to the proceeding have scheduled meetings with the
Company to investigate the possibility of settlement.
The resolution denies Oncor’s requested rate increase and
requires that the company’s rates be maintained for all
customers within the City.
Financial
Considerations:
N/A
Citizen Input/
Board Review:
N/A
Legal Review:
Geoffrey Gay, Kristen Doyle and Thomas Brocato with the
law firm of Lloyd Gosselink Rochelle & Townsend.
Alternatives:
City Council may decide to approve or deny this resolution.
Honorable Mayor and City Council
Page 3 of 3
Supporting
Documents:
Resolution 08-055
Staff
Recommendation:
Staff recommends approval
RESOLUTION NO. 08-055
A RESOLUTION OF THE CITY OF SOUTHLAKE, TEXAS
FINDING THAT ONCOR ELECTRIC COMPANY’S
REQUESTED INCREASES TO ITS ELECTRIC
TRANSMISSION AND DISTRIBUTION RATES AND
CHARGES WITHIN THE CITY SHOULD BE DENIED;
FINDING THAT THE CITY'S REASONABLE RATE CASE
EXPENSES SHALL BE REIMBURSED BY THE
COMPANY; FINDING THAT THE MEETING AT WHICH
THIS RESOLUTION IS PASSED IS OPEN TO THE PUBLIC
AS REQUIRED BY LAW; REQUIRING NOTICE OF THIS
RESOLUTION TO THE COMPANY AND LEGAL
COUNSEL.
WHEREAS, pursuant to § 33.001 of the Public Utility Regulatory Act ("PURA"), the
City has exclusive original jurisdiction over the electric rates, operations, and services provided
within city limits;
WHEREAS, on or about June 27, 2008, Oncor Electric Delivery Company ("Oncor" or
"Company"), pursuant to PURA §§ 33.001 and 36.001 filed with the City of Southlake ("City") a
Statement of Intent to increase electric transmission and delivery rates by $275 million on a
system-wide basis within its service area effective August 8, 2008; and
WHEREAS, pursuant to PURA § 36.108, the City lawfully suspended the August 8,
2008, effective date by resolution to provide time to study the reasonableness of the Company's
application to increase rates; and
WHEREAS, the City is a member of the Oncor Cities Steering Committee (Steering
Committee) and has cooperated with 145 similarly situated city members to conduct a review of
the Company’s application, to hire and direct legal counsel and consultants, to prepare a common
response to the filing, to negotiate with the Company and to direct any necessary litigation
appealing final city action; and
WHEREAS, the City, in a reasonably noticed meeting that was open to the public,
considered the Company’s application; and
WHEREAS, the consultants who were retained by the Steering Committee to evaluate
the merits of the Company’s application have determined that the Company’s requested $275
million increase in revenues for its transmission and distribution system is not supported by
evidence; and
WHEREAS, PURA § 33.023 provides that reasonable costs incurred by cities in
ratemaking activities are to be reimbursed by the regulated utility.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SOUTHLAKE, TEXAS:
1. That the rates proposed by Oncor Electric Delivery Company, to be recovered
through its electric transmission and distribution rates charged to customers located within the
City limits, are hereby found to be unreasonable and shall be denied.
2. That the Company shall continue to charge its existing rates for transmission and
distribution services to customers within the City.
3. That the City’s reasonable rate case expenses shall be reimbursed by Oncor.
4. That it is hereby officially found and determined that the meeting at which this
Resolution is passed is open to the public as required by law and the public notice of the time,
place, and purpose of said meeting was given as required.
5. A copy of this Resolution shall be sent to Oncor, care of Debra Anderson, Oncor
Electric Delivery Company, 1601 Bryan St., Suite 23-055C, Dallas, Texas 75201 and to
Geoffrey Gay, General Counsel to the Oncor Cities Steering Committee, at Lloyd Gosselink
Rochelle & Townsend, P.C., P.O. Box 1725, Austin, Texas 78767-1725.
PASSED AND APPROVED, this the ______ day of __________, 2008.
APPROVED: ATTEST:
_____________________________ ___________________________