Part 2.
PUBLIC UTILITY COMMISSION OF TEXAS
Chapter 25.
SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS
Subchapter B. CUSTOMER SERVICE AND PROTECTION
16 TAC §25.41
The Public Utility Commission of Texas (commission) proposes
amendments to §25.41, relating to Price to Beat. The commission has recently
completed the first set of fuel factor adjustments requested by affiliated
retail electric providers (REPs) pursuant to subsection (g) of the rule. As
a result of experience gained in those proceedings, the commission has determined
that several improvements to the rule could potentially benefit retail customers
and the development of the retail electricity market. The proposed amendments
will amend certain requirements related to adjustments to the price to beat,
including: the number of trading days used to calculate the natural gas price
average for fuel factor adjustments; the threshold of price changes needed
to justify an adjustment to the fuel factors; the criteria that apply in order
to substitute an electricity price index for the natural gas price index;
the specific adjustments to the price to beat that will be considered following
the true-up proceedings conducted under Public Utility Regulatory Act (PURA) §39.262;
and the processing guidelines for price to beat adjustments. The amendments
also make other minor changes that are intended to clarify other aspects of
the rule. Project Number 26556 is assigned to this proceeding.
The commission set the initial price to beat fuel factors in the fall of
2001, in part based upon a ten day average of New York Mercantile Exchange
(NYMEX) Henry Hub natural gas futures prices for each month of 2002 of approximately
$3.11 per million British thermal unit (MMBtu). Section 25.41(g)(1) permitted
the affiliated REPs to request adjustments to those fuel factors if the ten-day
average of the closing forward twelve months diverged from the $3.11 per MMBtu
price by more than 4.0%, as the commission had previously determined that
such a change would be reflective of a "significant change in the market price
of natural gas and purchased energy used to serve retail customers." (
The following chart shows the 12-month forward natural gas price average
on a daily, ten-day, 20-day, and 30-day basis for each day from September
4, 2001 through October 10, 2002. Generally, natural gas futures prices remained
at or below the $3.11 per MMBtu embedded within the original price to beat
fuel factors until March of 2002. After that point in time, prices have stayed
consistently higher than $3.11 per MMBtu. Gas price futures did fall for several
months after the adjustment requests were made by the affiliated REPs, but
have since risen back to the level they were at the time of the adjustment
requests. This evidence suggests that §25.41(g)(1) has worked as intended
by permitting the affiliated REPs to adjust the price to beat fuel factors
to recognize significant changes in the price of natural gas and purchased
energy.
Figure: 16 TAC Chapter 25--Preamble (.pdf format)
While the commission believes it to be highly unlikely that an affiliated
REP can "game" the adjustment process outlined in §25.41(g)(1) through
the timing fluctuations in the NYMEX futures market, the commission is concerned
that use of a ten-day average may inadvertently lead to a case where an affiliated
REP may capture a temporary spike in the market. The commission notes that
during a two-week period in June 2002, daily futures prices and the ten-day
average of futures price both reflected a temporary increase in natural gas
prices that subsequently reversed as gas prices continued a decline for the
next seven weeks. In order to prevent a transitory change in gas prices such
as this from being reflected in the fuel factor, the commission proposes to
amend subsection (g)(1)(A)-(D) such that future adjustments will be based
on a 20-day average. The commission also proposes to amend subsection (g)(1)(A)
to remove the flexibility in what days prior to a filing for adjustment an
affiliated REP can be used to calculate the gas price average by stating that
the 20-day period must end the day before the filing is made by the affiliated
REP.
The commission also proposes altering the threshold in subsection (g)(1)(C)
and (D) for a significant change from 4.0% to 5.0% in order to harmonize the
threshold with the threshold to adjust provider of last resort rates contained
in §25.43(l)(1), relating to Provider of Last Resort (POLR). Additionally,
the commission noted in the Order Adopting §25.41 that the "fact that
affiliated REPs may only request fuel factor changes twice per year together
with the materiality threshold…should guard against unnecessary fuel
factor adjustments." However, the commission notes that, if an affiliated
REP retains the ability to request one or both adjustments near the end of
a calendar year, there may be less restraint in requesting an adjustment because
the affiliated REP would gain the ability to make another adjustment in January
of the next year. The commission proposes to raise the threshold in subsection
(g)(1)(C) and (D) to 10% for adjustments requested after November 15th of
a calendar year.
During the recent fuel factor adjustment cases, the commission found it
difficult to complete processing of the cases within the 45-day time period
prescribed by subsection (g)(1)(D). The commission proposes to amend subsection
(g)(1)(D) and (E) to give more flexibility in the processing of the cases,
as well as permit the parties in the cases to mutually agree to extend the
timelines and/or agree upon interim rate relief.
The commission continues to believe that it is appropriate to allow affiliated
REPs to request changes in the price to beat fuel factor based upon changes
in the price of electricity, once a sufficiently liquid and reliable index
exists. However, the commission notes that such an index has yet to develop,
and there appears to be a lack of standardized products traded in Texas that
would aid in the development of such indices. In order to facilitate and encourage
the development of liquid electricity indices in Texas, the commission proposes
an amendment to subsection (g)(1)(F) to encourage the development of liquid
trading hubs in Texas, and proposes to remove the requirement that the power
generation company affiliated with the affiliated REP must have finalized
its stranded cost determination before the affiliated REP may transition to
the use of electricity prices to adjust the price to beat fuel factor.
In order to provide more certainty to both retail customers and REPs, the
commission also proposes amendments to subsection (f)(3) of the rule to provide
more specificity as to what adjustments to the price to beat the commission
will consider to following the true-up proceedings. The commission proposes
to adjust the fuel factor downward following the true-up, if natural gas and/or
purchased energy prices are lower than that the prices used to calculate the
then-current fuel factors. Additionally, the commission proposes to adjust
the base rate portions of the price to beat to account for changes in non-bypassable
charges.
The commission also proposes several other clarifying changes and corrections
of typographical errors in subsections (c), (g), and (l).
Brian Lloyd, Director, Retail Market Oversight Section, Electric Division,
has determined that for each year of the first five-year period the proposed
section is in effect there will be no fiscal implications for state or local
government as a result of enforcing or administering the section.
Mr. Lloyd has determined that for each year of the first five years the
proposed section is in effect the public benefit anticipated as a result of
enforcing the section will be to clarify the requirements related to adjustments
to the price to beat, reduce the potential that transient fluctuations in
the market price of natural gas and purchased power will be reflected in permanent
adjustments to the fuel factors, and provide more certainty to retail customers
and market participants as to how the price to beat may change following the
true-up proceedings. There will be no adverse economic effect on small businesses
or micro- businesses as a result of enforcing this section. There may be an
anticipated economic cost to persons who are required to comply with the section
as proposed as it alters the methodology under which an affiliated REP can
request adjustments to the price to beat; however, such costs are difficult
to project as they are largely dependent upon changes in the market prices
of natural gas and purchased energy. However, it is believed that the benefits
accruing from implementation of the proposed section will outweigh these costs.
Mr. Lloyd has also determined that for each year of the first five years
the proposed section is in effect there should be no effect on a local economy,
and therefore no local employment impact statement is required under Administrative
Procedure Act, Texas Government Code Annotated §2001.022 (Vernon 2000 &
Supplement 2002).
When commenting on specific subsections of the proposed amendment, parties
are encouraged to describe "best practice" examples of regulatory policies,
and their rationale, that have been proposed or implemented successfully in
other states already undergoing electric industry restructuring, if the parties
believe that Texas would benefit from application of the same policies. The
commission is only interested in receiving "leading edge" examples which are
specifically related and directly applicable to the Texas statute, rather
than broad citations to other state restructuring efforts.
In addition to comments on the specific subsections of the rule, the commission
requests specific comments on the following questions.
1. The current rule provides for the use of a ten-day rolling average of
NYMEX natural gas futures prices in order to determine whether or not a significant
change in the market price of natural gas and purchased energy has occurred.
While it does not appear that the recent adjustments to the price to beat
fuel factors have captured a temporary change in natural gas price, but instead
appear to have reflected significant and long-term price change, a review
of natural gas prices over the course of 2002 suggests that there is a potential
for capturing temporary changes in gas price due to the use of a ten-day average.
Does the proposed change to a 20-day average, combined with the changes in
the significance threshold reduce or minimize the potential for such an occurrence?
2. In order to provide more certainty to both retail customers and the
marketplace, the commission has proposed additional detail as to what factors
will be considered with respect to adjustments to the price to beat following
the stranded cost true-up proceedings pursuant to the commission's authority
under PURA §39.202. Is the proposed methodology appropriate, or should
a different adjustment mechanism be used? If the commission instead ordered
that the price to beat be adjusted (either up or down) such that initial headroom
that existed on January 1, 2002 was achieved, what would be the proper method
of distributing adjustments to the price to beat, between the base rate components
and the fuel factor component of the price to beat?
3. What objective criteria should the commission consider adopting with
respect to what constitutes a "sufficiently liquid" electricity commodity
index or trading hub? The commission desires comments on specific criteria,
such as volume of trades, number of participants, spread between bid and ask
prices, etc.
Comments on the proposed amendment (16 copies) may be submitted to the
Filing Clerk, Public Utility Commission of Texas, 1701 North Congress Avenue,
PO Box 13326, Austin, Texas 78711-3326, within 21 days after publication.
Reply comments may be submitted within 28 days after publication. Comments
should be organized in a manner consistent with the organization of the proposed
rule. The commission invites specific comments regarding the costs associated
with, and benefits that will be gained by, implementation of the proposed
amendments. The commission will consider the costs and benefits in deciding
whether to adopt the amendments. All comments should refer to Project Number
26556.
The commission staff will conduct a public hearing on this rulemaking under
the Administrative Procedure Act, Texas Government Code §2001.029 at
the commission's offices, located in the William B. Travis Building, 1701
North Congress Avenue, Austin, Texas 78701, on Tuesday, January 7, 2003 at
10:00 a.m. in the Commissioners' Hearing Room.
This amendment is proposed under the Public Utility Regulatory
Act, Texas Utilities Code Annotated §14.002 (Vernon 1998, Supplement
2002) (PURA), which provides the Public Utility Commission with the authority
to make and enforce rules reasonably required in the exercise of its powers
and jurisdiction, and PURA §39.202 which establishes the price to beat
obligation for affiliated retail electric providers.
Cross Reference to Statutes: PURA §§14.002, 39.202, and 39.262.
§25.41.Price to Beat.
(a) - (b)
(No change.)
(c)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context indicates
otherwise:
(1) - (2)
(No change.)
(3)
Headroom -- The difference between the average price to
beat (in cents per kilowatt hour (kWh)) and the sum of the average non-bypassable
charges or credits approved by the commission in a proceeding pursuant to
PURA §39.201, or PURA Subchapter G (in cents per kWh) and the representative
power price (in cents per kWh). Headroom may be a positive or negative number.
A separate headroom number shall be calculated for the typical residential
customer and the typical small commercial customer. The calculation for the
typical residential customer shall assume 1,000 kWh per month in usage. The
calculation of the typical small commercial customer shall
assume
[
(4)
Nonaffiliated REP -- Any competitive retailer conducting
business in a transmission and distribution utility's (TDU's) certificated
service territory that is not affiliated with that TDU
unless the competitive
retailer is a successor in interest to a retail electric provider affiliated
with that TDU
.
(5) - (8)
(No change.)
(9)
Representative power price -- The simple average of the
results of:
(A)
a request for proposals (RFP) for full-requirements service
of 10% of price to beat load for a duration of three years expressed in cents
per kWh; and
(B)
the price resulting from the capacity auctions required
by PURA §25.381 of this title (relating to Capacity Auctions) for baseload
capacity entitlements expressed in cents per kWh. The calculation of the price
resulting from the capacity auctions shall assume dispatch of 100% of the
entitlement and shall use the most recent auction of a 12-month forward strip
of entitlements, or the most recent aggregated forward 12 months of entitlements.
Alternatively, the affiliated REP may conduct an RFP or purchase auction for
equivalent products for 10% of its price to beat load.
(10)
(No change.)
(11)
Small commercial customer -- A non-residential retail
customer having a peak demand of 1,000 kilowatts (kW) or less. For purposes
of this section, the term small commercial customer refers to a metered point
of delivery. Additionally, any
non- residential,
non-metered point
of delivery with peak demand of less than 1,000 kW shall also be considered
a small commercial customer.
(12)
(No change.)
(d) - (f)
(No change.)
(g)
Adjustments to the price to beat.
(1)
Fuel factor adjustments. An affiliated retail electric
provider may request that the commission adjust the fuel factor(s) established
under subsection (f)(3) of this section not more than twice in a calendar
year if the affiliated retail electric provider demonstrates that the existing
fuel factor(s) do not adequately reflect significant changes in the market
price of natural gas and purchased energy used to serve retail customers.
As part of a filing made pursuant to this paragraph, an affiliated REP may
also request an adjustment to the seasonality imparted to the fuel factor
in accordance with subsection (f)(3)(C) of this section. Alternatively, the
commission may, as part of its approval of an adjustment to the fuel factor,
impose a change in the seasonality imparted to the fuel factor. The methodology
for calculating the adjustment to the fuel factor(s) shall be the following:
(A)
For each [
(B)
The average forward price for each [
(C)
The percentage difference between the averaged
20
trading-day
[
(D)
If the percentage difference calculated in subparagraph
(C) of this paragraph exceeds 5.0% (or 10% if applicable), then the current
fuel factors are deemed to be unreflective of significant changes in the market
price of natural gas and purchased energy.
To adjust the current fuel
factor(s), the percentage difference is added to one and then multiplied by
the current factor(s). The results are the adjusted fuel factor(s) that will
be implemented according to the procedural schedule in clause (i) and (ii)
of this subparagraph:
(i)
if no hearing is requested within 15 days after the petition
has been filed, a final order shall be issued within 20 days
, or as soon
as practicable thereafter,
after the petition is filed;
(ii)
if a hearing is requested within 15 days after the petition
is filed, a final order shall be issued within 45 days
, or as soon as
practicable thereafter,
after the petition is filed.
The 45 day
timeline for issuance of an order may be extended upon mutual agreement of
the parties. Such agreement may provide for interim rate relief.
(E)
In addition to the adjustment permitted under subparagraphs
(A)-(D) of this paragraph, an affiliated REP may also request an adjustment
to the fuel factor if the headroom under the price to beat decreases as a
result of significant changes in the price of purchased energy. In making
a request under this subparagraph:
(i)
an affiliated REP shall demonstrate that:
(I)
the representative power price has changed such that the
headroom under the price to beat has decreased; and
(II)
the adjustment to the fuel factor is necessary to restore
the amount of headroom that existed at the time that the initial price to
beat fuel factor was set by the commission using then current forecasts of
the representative power price.
(III)
an affiliated REP making an adjustment under this subparagraph
shall also file the gas price calculation in subparagraphs (A) and (B) of
this paragraph for purposes
of
subsequent adjustments to the fuel
factor based on changes in natural gas prices.
(ii)
the commission will issue a final order on an application
filed under this subparagraph within 60 days
, or as soon as practicable
thereafter,
after the application is filed.
The 60 day timeline
for issuance of an order may be extended upon mutual agreement of the parties.
Such agreement may provide for interim rate relief.
(F)
The commission shall, upon a showing made by an interested
party, that a sufficiently liquid electricity commodity
trading hub (or
hubs) or
index has developed for the affiliated REP's relevant
geographic or
power region, allow an affiliated REP to transition to
the use of [
(2)
(No change.)
(3)
True-up adjustment. The commission may adjust the price
to beat following the true- up proceedings under PURA §39.262.
The commission may consider the following adjustments to the price to beat
on a schedule consistent with the processing of the TDU rate adjustment application
pursuant to §25.263(n) of this title (relating to True-up Proceeding):
(A)
Fuel factor adjustment. A 20 trading-day
rolling price shall be calculated in accordance with paragraph (1)(A)-(D)
of this subsection. If the 20 trading-day rolling price is less than the price
used to calculate the then-current fuel factor (i.e. the percentage difference
is negative), then the price to beat fuel factor shall be adjusted downward
by the percentage difference in the prices.
(B)
Base rate adjustment. Using the typical
residential and small commercial usage calculations described in subsection
(c)(3) of this subsection, the base rate components of the price to beat shall
be adjusted such that the difference between the average price to beat base
rate and the average non-bypassable charges that exist following the proceeding
pursuant to §25.263(n) of this title is the same as existed on January
1, 2002. Each component of the base rates shall be adjusted in the same proportion
in complying with this section.
(C)
Filing by affiliated REP. An affiliated
REP shall make filings necessary to implement subparagraphs (A) and (B) of
this paragraph on a schedule to be determined by the commission.
(h) - (k)
(No change.)
(l)
Filing requirements.
(1) - (2)
(No change.)
(3)
No later than December 31, 2001, each transmission and
distribution utility shall determine the power consumption threshold targets
under subsection (i) of this section for residential and small commercial
customers within its certificated service area and shall file this information
with the commission and shall also make this information publicly available
through its Internet website. Each transmission and distribution utility,
together with its affiliated REP, shall update the small commercial power
consumption threshold as needed to reflect additional small commercial load
that has met the requirements of subsection (h)(3) of this section and therefore
is
appropriately
[
(4) - (5)
(No change.)
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State on November 8, 2002.
TRD-200207336
Rhonda G. Dempsey
Rules Coordinator
Public Utility Commission of Texas
Earliest possible date of adoption: December 22, 2002
For further information, please call: (512) 936-7308
assumer
]35 kilowatts (kW) of demand and 15,000 kWh per month in usage.
business
]day of the
20 trading-day
[
ten-day
] period ending
the day
[
no more
than ten business days
] before the filing of a fuel factor adjustment
application, an average of the closing forward 12-month NYMEX Henry Hub natural
gas prices, as reported in the
Wall Street Journal
, is calculated.
business
]
day calculated in subparagraph (A) of this paragraph will then be averaged
to determine a
20 trading-day
[
ten-day
] rolling price.
ten-day
] rolling price calculated under subparagraphs
(A) and (B) of this paragraph and the averaged [
ten-day rolling
]
price used to calculate the current fuel factor(s) is calculated. If the current
fuel factor was calculated through an adjustment under subparagraph (E) of
this paragraph, then the averaged
20 trading-day
[
ten-day
] rolling price calculated concurrent with that adjustment shall be
used. If the percentage difference is
5.0%
[
4.0%
] or
more,
then
the current fuel factor(s) may be adjusted
, unless
the filing is made after November 15 of a calendar year, in which event the
percentage difference must be 10% or more
.
an
] electricity commodity
prices at that hub or
index to adjust the fuel factor for significant changes in the price
of purchased energy. [
The commission shall only allow the use of the
index after the power generation company affiliated with the affiliated REP
has finalized their stranded cost determination.
] After the commission
has made a finding that a sufficiently liquid electricity commodity
trading hub or
index has developed, the affiliated REP shall be required
to perform an additional adjustment under subparagraphs (A) through (D) or
(E) of this paragraph before utilization of the
prices at that trading
hub or
index to change the fuel factor so that a benchmark
electricity
[
index
] price can be established. Subsequent changes to
the fuel factor shall be based on the percentage change in the electricity
commodity index
using the same methodology for the natural gas price
adjustment under subparagraphs (A)- (D) of this paragraph.
appropriate
] removed from the calculation
of the threshold target. Concurrent with this update, the transmission and
distribution utility, together with its affiliated REP, shall provide, for
each group of aggregated customers that have been removed from the calculation
of the threshold target, the customers' names, electric service identifiers,
size of the customers' loads (individually and in the aggregate), and how
the customers meet the requirements of subsection (h)(3). Such information
may be filed under confidential seal. All certificated REPs shall be deemed
to have standing to review such filings.
Subchapter H. ELECTRICAL PLANNING