PUCT Staff Oppose Higher TNMP Customer Charge

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November 17, 2010

PUCT Staff have opposed Texas-New Mexico Power's application to raise the monthly customer charge for the Residential and Secondary Less Than or Equal to 5 kW customer classes, in filing direct testimony in TNMP's rate case (38480).

As only noted in Matters, TNMP is seeking to raise the customer charge for residential customers from $1.40 to $19.93, and for the Secondary Less Than or Equal to 5 kW class, from $2.50 to $9.46 (11/9, 8/30).

Staff noted that the elements to be included in the customer charge were established in Docket No. 22344, during the unbundling process, and said that TNMP's proposal would redefine the traditional definition of what constitutes demand charges and customer-related charges.  Staff testified that such a change would only be appropriate where TNMP has shown, upon a preponderance of the evidence, that the business environment in which TNMP operates has changed enough to undermine its financial integrity absent a change in the rate design.

However, Staff noted that TNMP's current financial condition is stable, and said that TNMP is able to issue debt with investment-grade ratings.  "[T]he information TNMP provided in its filing provides no indication of deterioration in its financial condition," Staff testified.

Furthermore, Staff said that the change in TNMP's residential customer charge would be more than a 1300% increase from the current approved amount of $1.40.  "Given that the customer charge is on average about 7% of the TDU electric bill, rate shock would be a very real scenario for lower use customers where intra-class cost shifting would occur in which costs would be borne by and shifted to them from higher usage customers," Staff testified.

"Moreover, TNMP's 'one-size-fits-all-customers' pricing proposal ignores the differences in consumption patterns among customers.  In the same vein, this type of rate design would actually discourage the conservation of electricity usage, contradicting statute and the Commission's recent policy decisions and rulemakings on energy efficiency," Staff added.

Staff proposed that, in order to completely account for load growth in the collection of transmission costs, TNMP's wholesale transmission costs should be removed from base rates and placed into Rider TCRF (Transmission Cost Recovery Factor).  TNMP is seeking the opposite, proposing to collect wholesale transmission costs through base rates by zeroing out Rider TCRF.

Staff said that, if TNMP experiences load growth, the billing determinants used to set transmission rates collected through base rates would not increase until a subsequent rate proceeding, after the ones currently used to set rates had been approved.  "Thus, TNMP would over-recover the difference between the higher billing determinants from increased load growth, and the lower billing determinants in base rates, multiplied by the base transmission rates," Staff said.

However, if all transmission costs were recovered through the TCRF and additional transmission costs were collected through Rider TCRF once transmission charges were set in a base rate proceeding, the likelihood of an over-recovery of costs is remote, Staff testified.

Staff supported TNMP's request to remove the demand ratchet waiver for Municipal Pumping customers with a peak annual demand of more than 20 kW in the prior 12-month period.  This change would apply the same rules to Municipal Pumping customers regarding ratchets as those applied to other customers -- specifically, that only customers with a maximum demand equal to or less than 20 kW are eligible for a waiver of the ratchet.

"Providing a demand ratchet waiver to a customer simply because of its status as a Municipal Pumping customer would be unreasonably preferential," Staff said.

Staff opposed TNMP's proposed rider for storm hardening cost recovery, stating that TNMP has not provided enough information to distinguish between what would be defined as storm hardening investments and expenses eligible for cost recovery through the rider, as opposed to ongoing investments and expenses utilities are required to make to maintain safe and reliable service.  "Moreover, the collection of storm hardening costs through a rider like TNMP has proposed is a form of piecemeal ratemaking," Staff said.

TNMP has sought approval to include municipal franchise fees in the Discretionary Service Fees.  Staff opposed this request as the Commission, "has a longstanding precedent of including franchise fees in base rates to be spread across customer classes."

"TNMP's request would invert the concept and lead to piecemeal ratemaking whereby different customers paid different rates depending on the locations of businesses and residences," Staff said.

   
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