Texas Supreme Court rules on electrical transmission utility’s appeal involving rate calculations



This is a Texas Supreme Court case which held several things, but the main issue of interest to local governments is factors used in determining rates as well as the validity of certain franchise fee agreements.

OncorElectric DeliveryCo., LLC (“Oncor”) is the largest transmission and distribution utility in Texas and the sixth largest in the United States. Oncor is regulated by the Public Utility Commission (“PUC”), even after deregulation of certain parts of electric utility operations. In June 2008, Oncor initiated a ratemaking proceeding with the PUC, its first request for a comprehensive rate increase since deregulation. Several parties intervened during the administrative matter. After extensive hearings, the administrative law judges recommended only an increase of 1/7th of the requested rate increase. Oncor and other parties to the administrative proceeding sued for judicial review and then appealed to the court of appeals. Various parties appealed to the Texas Supreme Court, which granted all petitions and consolidated the cases.

The Court first held that while the Public Utilities Regulatory Act (“PURA”) requires an end-user electrical utility to discount rates to a state funded university, Oncor cannot sell to end-users. It can only charge for transmission and distribution. As a result, it does not have to provide any such discount. Next, the Court held that when Oncor’s parent corporation sold 19% of the ownership to other investors, it could not file an “affiliated group” consolidated tax return with the parent corporation.  Filing under a consolidated tax return can affect the tax liability in a calculation for long term expenses. Long term expenses is one element the PUC reviews in determining rate changes. Oncor filed its return individually, not consolidated and the Court held it was proper.  Next, the Court held municipalities are entitled to franchise to utilities the use of streets, alleys, and other public areas. The Court then held that the PUC’s determination Oncor could not pay a negotiated franchise fee to the cities was improper. Section 33.008(f) of PURA does not restrict renegotiated franchise charges to only those agreed to on the expiration of franchise agreements existing on September 1, 1999. The provision simply precludes the inference that §33.008(b) is exclusive.

If you would like to read this opinion click here. Chief Justice Hecht delivered the opinion of the court. The Court’s docket page with all attorney information can be found here.

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