Why rate regulation?
The state’s electric and gas utilities are monopolies. As such, they can charge unreasonably high prices if left unchecked. A company without competition and without oversight also will deliver inconsistent service. This is especially problematic if that service is essential to the public welfare, such as heating or electric service.
Why are cities involved?
Cities play a role in rate regulation because their citizens are captive customers to gas and electric monopolies, because utilities depend upon city rights of way for their distribution systems and because high utility bills for city facilities can undermine city budgets. Texas cities historically always have served as rate regulators.
How does the process work?
Under Texas law, municipal governments possess authority over gas and electric utility rates charged within city limits. This means that city councils can reject local rate hikes if they deem them unwarranted. However, utilities can appeal those decisions to state regulators. The Texas Public Utility Commission adjudicates electric cases and the Texas Railroad Commission adjudicates gas cases. Cities intervene in such cases on behalf of their citizens.
How do cities limit expenses?
Under Texas law, cities can recover their reasonable rate case expenses through very small charges in utility rates. In order to keep these expenditures at a minimal level, cities pool resources by joining in coalitions. These coalitions hire legal counsel and consultants. The largest such city coalition for electric cases is the Steering Committee of Cities Served by Oncor. The largest such city coalition for gas cases is the Atmos Cities Steering Committee.
Does city involvement save money?
Absolutely. City participation in rate cases limits the size of rate increases, and this has paid off by margins of 100 to 1 or more. Home consumers and businesses benefit from city involvement in rate cases and it likewise promotes economic development. A 2006 case involving CPL cost cities $2.5 million in legal expenditures, but saved consumers more than $1.8 billion. A 2009 rate case involving the Oncor utility cost cities $1.3 million in legal expenses, but saved consumers more than $300 million. Cities spent less than $1 million in a 2010 SWEPCO case, but it saved consumers more than $57 million. The same pattern is true when it comes to gas utilities. In 2012, cities spent $1.1 million in an Atmos case, but it saved gas utility customers $8 million on an annual basis for multiple years.
Other benefits from Coalitions?
Coalitions such as the Steering Committee of Cities Served by Oncor and the Atmos Cities Steering Committee allow cities to present a unified voice in rate cases. This is important because multi-billion dollar monopoly utilities have the financial resources to mount complicated defenses of proposed rate increases. Cities, through their expertise and resources, also provide Texas regulators valuable insight into complicated rate issues.