Prospects poor for Texas performance-based rate proposal

The Public Utility Commission of Texas sent the controversial performance-based rate proposal that would give utilities extra financial benefits for providing good service back to the drawing board Thursday. If a consensus cannot be reached, the plan will be dropped. Instead, a return on equity that will apply to all utilities will be decided at a contested hearing in early November.


Ann de Rouffignac
OGJ Online

The Public Utility Commission of Texas sent the controversial performance-based rate proposal that would give utilities extra financial benefits for providing good service back to the drawing board Thursday.

Utilities, consumer groups, and commission staff were instructed to try to reach a settlement on the plan, says Terry Hadley, spokesman for the commission. If a consensus cannot be reached, the plan will be dropped. Instead, a return on equity that will apply to all utilities will be decided at a contested hearing in early November.

Participants said the parties are so far apart there is little chance of reaching an agreement.

The incentive-based proposal, developed by the commission staff, generated considerable criticism from small business, consumers, cities, and electric retailers who objected to the idea that regulated utilities should get financial incentives for doing what they were supposed to be doing anyway.

The plan, filed Aug. 15, would have allowed so-called "wires" utilities to collect a return on equity of 11.2%, or 2.9% higher than the average utility bond yield of 8.3%. Conversely, they would be docked financially for underperforming. (OGJ Online, Sept. 1, 2000)

Critics disliked the plan because it would give utilities the bonuses upfront. The bonuses would be reduced only if performance did not meet the standards set, a proposal some critics dubbed the "carrot and steak" approach.

Tuesday, attorneys for 12 different groups jointed filed a set of objections.

�The plan would reward utilities that fail to meet even a single performance standard with a rate of return 10 basis points higher than the level deemed reasonable,� according to the joint filing. �The plan would simply replace an incentive program already in place for at least 5 utilities at a higher cost to customers and with no additional benefits.�

The parties are too far apart on the incentive plan for a settlement to be reached without considerable time and effort, says Melissa Caro, attorney with the Office of Public Utility Counsel.

�It doesn�t look real good to reach a consensus,� says Caro. �We are not even close.�

Sources close to the commission say Chairman Pat Wood was behind the performance-based plan concept in the first place. He favored performance-based incentives to determine rate of return on equity that could be earned by the transmission and distribution utilities after deregulation in 2002.

But observers in today�s meeting note Wood finally agreed that hammering the proposed plan into shape and keeping all the parties satisfied would take too much time given the short time left to get all the rules and regulations approved for the new deregulated market.

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