Utility affiliates, QFs oppose Texas regulators rate proposal

The Texas Public Utility Commission has proposed an emergency rule to alter the way rates are calculated for small generators known as qualifying facilities (QFs). But both the utility affiliates and the QFs oppose the PUC plan and have asked for a formal hearing.

Dec 14th, 2001

Ann de Rouffignac
OGJ Online

HOUSTON, Dec. 14 -- The Texas Public Utility Commission has proposed an emergency rule to alter the way rates are calculated for small generators known as qualifying facilities (QFs).

But both the utility affiliates and the QFs oppose the PUC plan. Under the PUC staff interpretation of federal law, retailers that are affiliates of large electric utilities offering commission-approved, price-to-beat rates would have to pay the same QF rates as the utilities. The price-to-beat is set by the PUC and guaranteed Texas consumers by the affiliated utility retailer.

The staff asked the new rule be approved on an emergency basis so a contested hearing could be avoided. The staff wants the rule in place before the market opens Jan. 1.

"The emergency rule has not been thoroughly analyzed and developed through public comment, [and] it has the distinct potential of being more disruptive than simply proceeding with normal rulemaking process," said American Electric Power Service Co., a unit of American Electric Power Co. Inc., Columbus, Ohio.

About 14 qualifying facilities jointly asked for a full hearing and rejected the PUC's staff's proposed method of calculating rates for electricity they generate. The QFs objected to the rule because "it utterly fails to implement avoided cost pricing rates for purchases of QF energy."

The QFs said in a filing they oppose the proposal because it does not set clear avoided cost rates for the electric utilities and allows the affiliates to determine their own avoided costs. The Public Utility Regulatory Policies Act (PURPA) passed in the late 1970s requires electric utilities to buy power from QF power plants at "avoided cost."

Avoided cost is the cost to produce electricity that an electric utility would otherwise have to pay if it produced the power itself. Most Texas QFs are cogenerators. Depending on conditions, the price QFs charge is often higher than the market price. Opponents have tried repeatedly to get Congress to kill the law.

Utility affiliate Reliant Resources Inc. said it should not have to comply with such a rule, because the PUC has only limited ratemaking authority over the affiliates. Instead, Reliant prefers to "self implement" the federal law. "The commission's limited authority to review and approve the price-to-beat fuel factors and the [provider of last resort] POLR rates does not constitute broad ratemaking authority," Reliant said.

Reliant said the commission's rate setting authority only applies to an "electric utility." Retail electric providers and utility affiliates are not electric utilities, it said. The PUC mandate concerning QF power purchases doesn't apply to Reliant, the company said.

The full commission is set to consider the issue and make a final ruling if the emergency status is approved on Wednesday. The PUC faces a tough job setting the QF rates because the electricity market in Texas is expected to be open for competition on Jan. 1.

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