Item 5HCity of Southlake, Texas
MEMORANDUM
TO: Shana Yelverton, City Manager
FROM: Sharen Elam, Director of Finance, Ext. 1713
SUBJECT: Resolution No. 05 -020, Accept settlement with TXU Electric Delivery
Action Requested: Approval of Resolution No. 05 -020
Background
Information: Southlake is a member of a I10 member city coalition known as the Steering
Committee of Cities Served by TXU. The Committee has been in existence
since the late 1980s. It took on a formal structure in the early 1990s when
TXU Cities gave up their statutory right to rate case expense reimbursement in
exchange for higher franchise fee payments. Empowered by city resolutions
and funded by per capita assessments, the Steering Committee has been for
approximately 17 years the primary public interest advocate before the Public
Utility Commission, the Courts, and the Legislature on electric utility
regulation matters dealing with TXU.
After months of consideration in 2004, the Steering Committee recommended
that TXU be forced into a full scale review of its historic cost of service,
something that had occurred in more than a decade. To facilitate the efforts of
the Steering Committee, twenty (20) cities passed resolutions requiring TXU
Electric Delivery to show cause why the non - bypassable transmission and
distribution charges should not be reduced.
The rate inquiry was justified by several factors. First, the PUC had thrown
municipal accounts in with broader commercial services in the 2001 rate
proceedings that led to the deregulated environment. This led to application of
unfair demand ratchets and higher charges for water pumping. It also led to
outrageous charges for street lighting. Second, TXU had filed earnings
monitoring reports at the PUC that established the Company was over - earning.
Third, the Company had recently gone through massive reorganization and the
hypothetical cost structures the PUC had used to justify current rates in 2001
were no longer valid.
Information was to have been filed by TXU with the 20 cities initiating the rate
review in late November 2004. Assuming that the cities that reviewed that
material would have passed ordinances reducing rates in the January - February
time frame, appeals to the PUC would have been triggered that would have led
to a statewide rate case in the summer of 2005. A final order would have been
expected in mid to late 2006.
The Steering Committee and TXU began settlement discussions last fall and
before Thanksgiving sufficient progress had been made to justify delaying the
required rate filing. A Settlement Agreement was signed on February 22,
Shana Yelverton, City Manager
December 21, 2010
Page 2
2005. The Agreement postpones or abates the statewide rate proceeding for
approximately 14 months. In exchange for abating its rate inquiry, the cities
have been promised rate design changes to be proposed to the PUC that should
significantly reduce future electric charges. The Agreement also includes
certain lump sum payments by TXU to the Steering Committee.
As soon as all original jurisdiction city members of the Steering Committee
ratify the Settlement Agreement, TXU will pay $8.5 million to the Steering
Committee. The Committee has decided to distribute funds back to members
by: (1) providing an amount equivalent to 25% of the total street lighting
revenues collected by TXU in 2004; (2) holding back $100,000; and (3)
distributing the residual based upon per capita participation in the Committee.
Since all prior assessments have been on a per capita basis, it was believed
that this manner of distribution would be the fairest to all cities. Additional
payments of $8 million are expected in 2006 and 2007.
There is no one factor that tilted the Steering Committee toward accepting a
Settlement with TXU. Instead, all of the following factors were influential:
1. Most residential customers remain on price to beat (PTB) rates.
Cost of service rate reductions cannot be shared with PTB
customers until after January 1, 2007. Neither a litigated
outcome nor a settlement will benefit PTB customers before that
date.
2. The settlement delays rather than terminates a rate review. TXU must
file a statewide case on or before July 1, 2006. The settlement provides
that the Company must cooperate with cities in the interim period before
the rate filing by funding a cities' consultant to evaluate affiliate
transactions of TXU. Additionally, the Company must provide up to $2
million of reimbursement of cities' future rate case expenses. Without
the settlement, the Steering Committee would have to make assessments
to raise a comparable amount of money.
3. Cities have been consistently treated unfairly in the cost allocation/rate
design process associated with the transition from regulated to
competitive industry. This is especially true with regard to street
lighting and water pumping. The settlement guarantees that TXU will
propose fixes to those tariff problems when it files its rate case. That is
particularly significant since rate design issues typically do not receive
adequate consideration in a rate case. The settlement provides specific
relief to cities that would be difficult to obtain in a rate case.
4. TXU has agreed to provide the Steering Committee $8.5 million after
approval of the Settlement Agreement is obtained from cities. A
payment of $8 million will be paid in 2006 and a third payment in 2007
will be based on $8 million pro rata to the point of a final rate order
from the Public Utility Commission.
Shana Yelverton, City Manager
December 21, 2010
Page 3
5. CAPP has an extremely important legislative agenda and the potential
benefit to residential citizens and the cities where they reside from the
four bills drafted by CAPP exceed benefits expected from a rate case. It
is better to postpone the rate case and concentrate current efforts on the
Legislature.
Financial
Considerations: Southlake's portion of the settlement $25,298.32
Citizen Input/
Board Review: None required
Legal Review: Steering Committee's legal counsel Lloyd Gosselink Blevins Rochelle &
Townsend, P.C.
Alternatives: Approve or deny resolution
Supporting
Documents: Resolution No. 05 -020
Settlement Agreement
Staff
Recommendation: Approval of the resolution ratifying the Settlement Agreement
Shana Yelverton, City Manager
December 21, 2010
Page 4
RESOLUTION NO. 05 -020
RESOLUTION ABATING SHOW -CAUSE
AND ACCEPTING SETTLEMENT WITH
TXU ELECTRIC DELIVERY
WHEREAS on or about April 5, 2005, the City of Southlake, acting under its original jurisdiction to regulate electric
transmission and distribution utilities and as a member of the Steering Committee of Cities served by TXU
(Steering Committee) did pass a resolution requiring TXU Electric Delivery (Electric Delivery) to show -cause
why its rates should not be reduced; and
WHEREAS Electric Delivery and the Steering Committee engaged in settlement discussions regarding abatement of any full -
scale rate investigation and interim relief that may be available to Cities; and
WHEREAS it remains impractical, if not impossible, to deliver rate relief to the vast majority of residential customers until
the expiration of price to beat (PTB) on January 1, 2007; and
WHEREAS the unfair and adverse impacts of street lighting and water pumping tariffs that Cities have experienced since the
implementation of retail deregulation on January 1, 2002 can be addressed on an interim basis pending a final
order in a future rate case through a financial distribution from the Steering Committee of funds received from
Electric Delivery as part of a Settlement; and
WHEREAS the coupling of interim relief with the Steering Committee's recognition that resources should be devoted to the
2005 Legislative Session to promote overall enhancements in electric retail competition for the benefit of all
end - users; and
WHEREAS the Steering Committee and Electric Delivery have entered into a Settlement Agreement pending approval by the
20 Cities that passed show -cause resolutions; and
WHEREAS Electric Delivery has agreed to improve communication, coordination and timing of construction in rights of
way, permit development of a tariff that will allow city mandated underground placement of distribution
facilities, modify certain franchise renewal negotiation positions and improve meter reading on certain city
accounts that are estimated: and
WHEREAS Electric Delivery has committed to the Steering Committee during the period of rate case abatement to share
information on certain company operations and procedures that should enhance the Cities' ability to
appropriately exercise regulatory responsibilities in the rate proceeding that Electric Delivery has agreed to file
on or before July 1, 2006; and
WHEREAS that Agreement calls for immediate and long -term benefits to flow to all city members of the Steering Committee
which in turn have indirect but positive benefit to all city residents and public safety in general.
THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SOUTHLAKE that:
1. The Show -Cause proceeding initiated against TXU Electric Delivery is abated and no rate case filing will be
expected from Electric Delivery before July 1, 2006.
2. The Settlement Agreement between the Cities' Steering Committee and TXU Electric Delivery is hereby
ratified.
Shana Yelverton, City Manager
December 21, 2010
Page 5
Approved this day of 1 2005.
Mavor
Attest:
Shana Yelverton, City Manager
December 21, 2010
Page 6
SETTLEMENT AGREEMENT
This Settlement Agreement ( "Agreement ") is made and entered into between TXU
Electric Delivery Company ( "Electric Delivery ") and the Steering Committee of Cities Served
by TXU Electric Delivery Company on behalf of all cities listed on Exhibit A to this Agreement
( "Cities "), hereinafter referred to jointly herein as "Signatories."
WHEREAS, the city councils of 23 cities who are members of Cities passed resolutions
in 2004 requiring Electric Delivery to file with those cities information that demonstrates good
cause for showing that Electric Delivery's transmission and distribution rates should not be
reduced (hereinafter referred to as "Show Cause Actions ");
WHEREAS, other cities who are members of Cities are contemplating initiating similar
Show Cause Actions against Electric Delivery;
WHEREAS, Cities and Electric Delivery desire to resolve all outstanding issues related
to the existing and potential Show Cause Actions and other regulatory issues; and
WHEREAS, after extensive negotiations, Cities and Electric Delivery have reached a
compromise and settlement to resolve those issues.
NOW, THEREFORE, the Signatories, through their undersigned representatives, hereby
agree to the following.
I. Electric Delivery agrees to propose and support in its next system -wide rate case or city
rate inquiry one or more municipal rates, each without a demand ratchet, that together will cover
all municipal accounts, including a street lighting rate and municipal pumping rate that will be
lower than they otherwise would be. Cities agree to provide to Electric Delivery any information
needed to design the rates described in this paragraph.
2. Electric Delivery agrees to file a system -wide rate case at the Public Utility Commission
of Texas ( "PUC ") no later than July 1, 2006, based on a test year ending December 31, 2005
unless Cities and Electric Delivery mutually agree that such a filing is unnecessary. For those
cities that do not have a City Council meeting in July, 2446, Electric Delivery will extend its
effective date to accomplish suspension by August 31, 2406. However, if Electric Delivery files
a system -wide rate case at the PUC on or before June 1, 2406, then Electric Delivery will not
extend its effective date.
3. Cities agree that Electric Delivery is not required to respond to any pending Show Cause
Action initiated by any city listed on Exhibit A to this Agreement prior to July 1, 2006. Cities
further agree to abate or dismiss all pending Show Cause Actions, not to pursue any abated Show
Cause Actions, and not to initiate similar actions before July 1, 2006, provided the provisions of
this Settlement Agreement are honored. Cities agree not to intervene in, or participate in any
manner in, any show cause action initiated at the PUC or in any other jurisdiction prior to the
proceeding described in paragraph 2, or in any appeals of such show cause actions, except as
necessary to protect the tariff or tariff - efforts associated with paragraph 1 or to protect the city or
Shana Yelverton, City Manager
December 21, 2010
Page 7
its residents from being prejudiced in any show cause action pending on appeal at the PUC. If
Cities intervene in a show cause action pending on appeal at the PUC, then Cities agree not to
take any position in that proceeding that is inconsistent with its obligations under this Settlement
Agreement.
4. In consideration for Cities' obligations under this Agreement, Electric Delivery agrees to
make a cash payment of $8.5 million to Cities by the later of March 31, 2005 or two weeks after
receiving notice from Cities that (1) all cities listed on Exhibit B to this Settlement Agreement
have abated or dismissed show cause actions pending against Electric Delivery, and (2) each city
on Exhibit C to this Settlement Agreement has passed a resolution ratifiying this Settlement
Agreement or provided to Cities a letter in substantially the same form as Exhibit D to this
Settlement Agreement that has been signed by an authorized representative of the city. Starting
March 31, 2006, and each March 31" thereafter, Electric Delivery will make an annual cash
payment of $8 million to Cities. Electric Delivery's obligation to make this payment ceases on
the date upon which Cities fail to comply with their obligations under this Agreement or the date
upon which the tariffs approved in Electric Delivery's next system -wide rate case at the PUC or
in a city rate inquiry become effective on a temporary or permanent basis ( "Termination Date ");
provided, however, in the year the new tariffs become effective, the annual payment shall be
prorated until the Termination Date.
5, Electric Delivery agrees to w•.�rk with Cities to improve the timeliness of streetlight
maintenance and to develop a proses; so that every city -owned and Electric Delivery- owned
street light is assigned an identifiable geographic location. Signatories agree to establish a task
force of senior employees that will develop, by .Tune 30, 2405, the process and planned rollout
for the street light assignment project. Electric Delivery also agrees to provide to Cities a
specific contact person (or persons) within Electric Delivery who will be responsible for
handling all unresolved Cities' requests with respect to streetlights, including, but not limited to,
billing, maintenance, installation, removal, and account initiation and closure. Signatories agree
to diligently pursue resolution of the issues discussed in this paragraph; however, failure to reach
an agreement with respect to these issues will not constitute a breach of this Settlement
Agreement by either Cities or Electric Delivery.
6. Electric Delivery agrees to work with Cities to establish improved communication,
coordination, and timing of construction concerning relocations of Electric Delivery's facilities
in public right of way. Signatories agree to establish a task force of senior employees that will
develop, by .Tune 30, 2005, the process and planned rollout of an improved relocation process.
Signatories agree to diligently pursue resolution of the issues discussed in this paragraph;
however, failure to reach an agreement with respect to these issues will not constitute a breach of
this Settlement Agreement by either Cities or Electric Delivery.
7. Electric Delivery agrees to discuss with Cities the payment of franchise fees on a
quarterly basis regardless of whether the basis for a quarterly payment is historic or prospective
and the standardization of a franchise renewal process that permits transition from a prospective
basis to a historic basis where the franchise is up for renewal. Signatories agree to diligently
pursue discussion of the issues discussed in this paragraph; however, failure to reach a resolution
Shana Yelverton, City Manager
December 21, 2010
Page 8
of these issues will not constitute a breach of this Settlement Agreement by either Cities or
Electric Delivery.
8. Electric Delivery agrees to negotiate with Cities, and Cities agree to approve, a tariff that
permits Cities to request undergrounding of new or existing distribution facilities. The tariff
shall ensure full cost recovery by Electric Delivery through a surcharge in the requesting city in
the event that no third party is required by Electric Delivery's tariff, or applicable city ordinance,
to pay for undergrounding costs. That tariff will also allow Cities to request undergrounding of
transmission lines to the extent Electric Delivery determines that (a) such undergrounding is
feasible, (b) such undergrounding is consistent with the PVC's Substantive Rules and ERCOT's
requirements, and (c) Electric Delivery can recover the costs of such undergrounding through a
surcharge in the requesting city. Electric Delivery will not be obligated to file the tariff for city
approval until after the expiration of the Price to Beat or the modification of the Price to Beat in
a manner that allows pass through of tariff charges to the ultimate consumer.
9. Electric Delivery agrees to provide quarterly updates to representatives designated by
Cities and their consultants concerning Electric Delivery's capital expenditure projects and
affiliate transactions, the creation and regulatory treatment of a Pension and Health Benefits
Reserve for Electric Delivery, possible workable parameters for performance based rates for
Electric Delivery, and other topics as agreed upon by the Signatories. Electric Delivery will
work with Cities to provide information requested by Cities concerning those topics.
10. Electric Delivery shall pay up to $10,000 per month in regulatory expenses directly to
Cities' consultants, after receipt of appropriate documentation and invoices, provided said
expenses may be deferred for recovery. Cities agree to support recovery of such costs in Electric
Delivery's next rate case. Should recovery be denied by the PUC, then the payments will
immediately cease,
11. Electric Delivery agrees to work with Cities to establish better communications between
the Cities and Electric Delivery with respect to access to city meters for monthly reading. Each
city shall provide in writing, by March 31, 2005, a contact person for inaccessible meters for city
accounts, and shall promptly notify Electric Delivery of any change in the contact person. In
months where a meter reader is unable to gain access to the premises to read the meter on regular
meter reading trips, or in months when meters are not read, Electric Delivery agrees to provide
the customer with a postcard and request the customer to read the meter and return the card to
Electric Delivery. If the postcard is not received by Electric Delivery in time for billing, Electric
Delivery may estimate the meter reading and issue a bill. Electric Delivery agrees that all
municipal meters will be read at least once every three months by it or by the respective city.
The failure of a city to designate a contact person for inaccessible meters affects only that city
and does not adversely impact any other city or mitigate responsibilities and benefits otherwise
inherent: to this Agreement.
12. Electric Delivery agrees to reimburse Cities for the expenses incurred related to the Show
Cause Actions in an amount not to exceed $100,000 after receipt of appropriate documentation
and invoices, and Cities agree that those costs can be deferred for recovery in its next rate case
and agree to support deferral and recovery in that case. Notwithstanding any provisions in
Shana Yelverton, City Manager
December 21, 2010
Page 9
existing applicable franchise agreements to the contrary, Electric Delivery agrees to reimburse
Cities for reasonable and necessary expenses incurred in Electric Delivery's next rate case in an
amount not to exceed $2,000,000. The rate case expense reimbursements will be made monthly,
beginning with the first month after the consultants are hired. Cities further agree not to contest
the recovery of Cities' rate case expenses and Electric Delivery's reasonable and necessary rate
case expenses in Electric Delivery's next rate case. Electric Delivery further agrees to pay, and
Cities agrees to accept, $150,000 in settlement of all previously disputed regulatory expenses.
Electric Delivery will not seek reimbursement of that $150,000 amount in Electric Delivery's
rates.
13. Electric Delivery agrees that, in franchise negotiations, it will not seek to extend the
prohibition on reimbursement of municipal rate case expenses beyond June 2008.
14, Electric Delivery agrees that if the 2005 Texas Legislature considers the implementation
of a nodal pricing system in ERCOT, then Electric Delivery will provide information to the
Legislature concerning the importance of a vibrant electric transmission system and the benefits
of the expansion of transmission facilities in helping to reduce congestion costs.
15. Signatories acknowledge that Electric Delivery intends to offer certain terms of this
Settlement Agreement to cities served by Electric Delivery that are not listed on Exhibit A
("Negotiations"). Electric Delivery agrees that all cities listed on Exhibit A are entitled to Most
Favored Nations protection during those Negotiations and that any benefits that Electrir Delivery
agrees to provide to any city during those Negotiations that are not already included in this
Settlement Agreement will be offered to all cities listed on Exhibit A. Cities acknowledge and
agree that to receive any additional benefits from Electric Delivery, additional consideration
from Cities to Electric Delivery may be required.
16. The Signatories agree that the amounts paid by Electric Delivery to Cities pursuant to
paragraphs 4, 10, and 12 of this Agreement are paid solely in consideration for Cities' abatement
or dismissal of, and forbearance from filing or pursuing, Show Cause Actions against Electric
Delivery and Cities' agreement to abide by the terms of this Agreement, and to reimburse Cities'
expenses associated with the Show Cause Actions and other regulatory proceedings. To the
extent that the amounts paid may be in excess of Cities' expenses, the excess is paid solely in
order to settle the maters that are the subject of this Agreement. Signatories recognize and agree
that the payments specified in this Agreement are not a rate reduction, refund, rebate, discount,
preference or privilege of any kind for services provided by Electric Delivery or any of its
affiliates or predecessors in interest under any tariff, whether in the past, now, or in the future.
As such, the provision of electric delivery service to Cities by Electric Delivery or any affiliate
or predecessor has been and will continue to be governed solely by the rates, terms, and
conditions of the applicable tariffs.
17. Cities agree that for a ten -day period following the date this Settlement Agreement is
executed, neither Cities nor the cities listed on Exhibit A will make any public statements or tape
any public action concerning the existence of a settlement or the terms of the Settlement
Agreement.
Shana Yelverton, City Manager
December 21, 2010
Page 10
18. This Agreement shall become effective only upon the execution of this Agreement and
the entry of resolutions or orders abating or dismissing the Show Cause Actions.
19. Each person executing this Agreement represents that he or she is authorized to sign this
Agreement on behalf of the party represented.
20. The Signatories expressly acknowledge and agree that oral and written statements made
by any party or its representative during the course of the settlement negotiations that led to this
Agreement cannot be used or portrayed as an admission or concession of any sort and shall not
be admissible as evidence in any proceeding in any forum.
Executed on this the 22 day of February, 2005, by the Signatories hereto, by and through
their undersigned duly authorized representatives.
TXU Electric Delivery Company Steering Committee of Cities Served by
TXU Electric Delivery Company on behalf
of all cities listed on Exhibit A to this
Agreement
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Shana Yelverton, City Manager
December 21, 2010
Page 11
Exhibit A
City of Addison
City of Highland Park
City of Allen
City of Honey Grove
City of Alvarado
City of Howe
City of Andrews
City of Hurst
City of Archer City
City of Hutto
City of Arlington
City of Irving
City of Belton
City of Jolly
City of Benbrook
City of Josephine
City of Big Spring
City of Justin
City of Breckenridge
City of Kaufman
City of Bridgeport
City of Keller
City of Brownwood
City of Kerens
City of Buffalo
City of Lakeside
City of Burkburmett
City of Lamesa
City of Burleson
City of Lindale
City of Caddo Mills
City of Little River Academy
City of Cameron
City of Luella
City of Canton
City of Malakoff
City of Carrollton
City of Mansfield
City of Celina
City of McKinney
City of Centerville
City of Midland
City of Cleburne
City of Milford
City of Colleyville
City of Murphy
City of Collinsville
City of Murchison
City of Comanche
City of New Chapel Hill
City of Corinth
City of North, Richland Hills
City of Crowley
City of O'Donnell
City of Dallas
City of Oak Leaf
City of Dalwortl>on
City of Oak Point
Gardens
City of Odessa
City of DeLeon
City of Ovilla
City of Denison
City of Palestine
City of Early
City of Pantego
City of Eastland
City of Paris
City of Edgecliff Village
City of Plano
City of Euless
City of Ranger
City of Farmers Branch
City of Rhome
City of Flower Mound
City of Richardson
City of Forest Hill
City of Richland Hills
City of Fort Worth
City of Roanoke
City of Frisco
City of Robinson
City of Frost
City of Rockwall
City of Glenn Heights
City of Rosser
City of Grand Prairie
City of Rowlett
City of Granger
City of She
City of Grapevine
City of Snyder
City of Gunter
City of Southlake
City of Harker Heights
City of Sulphur Springs
City of Heath
City of Sunnyvale
City of Henrietta
City of Sweetwater
City of Hewitt
City of Temple
City of The Colony
City of Tyler
City of University Park
City of Venus
City of Waco
City of Watauga
City of White Settlement
City of Wichita Falls
City of Woodway
Shana Yelverton, City Manager
December 21, 2010
Page 12
Exhibit B
City of Arlington
City of Benbrook
City of Brownwood
City of Burleson
City of Carrollton
City of Dallas
City of Dalwonhington Gardens
City of Denison
City of Ft. Worth
City of Harker Heights
City of Heath
City of Pantego
City of Plano
City of Richland Hills
City of Robinson
City of Rockwall
City of Snyder
City of Sulphur Springs
City of The Colony
City of Woodway
Shana Yelverton, City Manager
December 21, 2010
Page 13
City of Addison
City of Allen
City of Andrews
City of Archer City
City of Belton
City of Big Spring
City of Breckenridge
City of Bridgeport
City of Burkbburnett
City of Celina
City of Cleburne
City of Colleyville
City of DeLeon
City of Early
City of Eastland
City of Euless
City of Farmers Branch
City of Flower Mound
City of Forest Hill
City of Frisco
City of Glenn Heights
City of Grand Prairie
City of Grapevine
City of Henrietta
City of Highland Park
City of Howe
City of Hurst
City of Irving
City of Keller
City of Lakeside
City of Lamesa
City of Lindale
City of Little River Academy
City of Mansfield
City of McKinney
City of Midland
City of Murphy
City of North Richland Hills
City of Oak Point
City of OVonnell
City of Odessa
City of Palestine
City of Paris
City of Richardson
City of Roanoke
City of Rowlett
City of Sherman
City of SoutWake
City of Sunnyvale
City of Sweetwater
City of Temple
Exhibit C
City of Tyler
City of University Park
City of Waco
City of Watauga.
City of White Settlement
City of Wichita Falls
Shana Yelverton, City Manager
December 21, 2010
Page 14
IW41
April 5, 2005
Mr. Geoffrey Gay
Lloyd Gosselink Blevins Rochelle Baldwin & Townsend, P.C.
111 Congress Avenue, Suite 1800
Austin, Texas 78701
Re: Settlement Agreement between Steering Committee of Cities Served by TXU Electric Delivery and TXU
Electric Delivery Company
Dear Mr. Gay:
I hereby acknowledge that the Steering Committee of Cities Served by TXU Electric Delivery has the authority to act on
behalf of the City of Southlake, Texas in the negotiation and execution of a settlement agreement with TXU Electric Delivery
Company, dated February 22, 2005.
I also represent that I am duly authorized by the City of Southlake, Texas to sign this letter.
Sincerely,
Andy Wambsganss
Mayor