The proposed sale of Oncor, the state’s largest transmission and distribution utility, goes before the Texas Public Utility Commission in January. The PUC must decide whether the transaction serves the public interest. Several ratepayer groups and even PUC staffers have warned that it does not — at least as it is currently structured.
I’ve described some of the concerns in earlier posts. Today I’m focusing on some potential fallout to home utility rates.
But first, as always, let’s start with a bit of background.
Oncor serves approximately 10 million Texans and manages a nearly 120,000-mile-long network of transmission and distribution lines. The utility is owned by Energy Future Holdings, the bankrupt energy giant based in Dallas. A U.S. bankruptcy judge earlier approved a Chapter 11 exit plan for EFH, but that plan can’t be finalized unless the PUC likewise approves the Oncor sale. This raises the stakes considerably for the Texas regulatory agency.
The money man behind the proposed Oncor acquisition is Dallas billionaire Ray L. Hunt. His proposal would place Oncor into a “Real Estate Investment Trust,” a corporate entity that I’ve described in an earlier post.
And this is where we come to the meat of the matter. It’s a bit complicated, so stay with me.
Like other public utilities, Oncor’s rates cover its operating, infrastructure and borrowing costs. Its rates also cover the utility’s imputed federal tax expense and customer rates provide a return to utility shareholders. This return is the utility profit.
The Hunt REIT is expected to reduce the utility’s imputed federal tax rate from 35 percent to 3.5 percent — or perhaps even less, according to experts who have reviewed the plan. But the utility would continue collecting money from ratepayers as if this dramatic reduction never occurred, according to experts. This means that if Hunt takes over, Oncor would charge ratepayers for federal tax expenses that do not exist.
Darryl Tietjen, director the PUC’s Rate Regulatory Division, estimates the non-existent tax expense at nearly a quarter billion dollars annually. This “substantial transfer of wealth from ratepayers to shareholders” would drive the company’s returns to a level “that could not be considered acceptable under any reasonable application of economic or regulatory standards,” Tietjen wrote in a Dec. 8 filing at the PUC.
The Hunt consortium filed its application with the PUC on Sept. 29. The agency has 180 days from that date to determine whether the proposed change of ownership serves the public interest. Tietjen and others advise the PUC commissioners to reject the deal.
Is a policy analyst consultant for TCAP, a coalition of political subdivisions in Texas that purchase electricity in the deregulated market for their own governmental use. Because energy costs are typically a significant budget item to our members, TCAP is consistently looking for ways to save our members money, through cost-saving contracts, energy efficiency or demand response programs.