Bill Lowering Electric Rates and Protecting Consumers Lost

May 29, 2007

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Austin – An expansive bill that would have lowered retail electric rates and increased consumer protections was killed on a hyper-technical procedural motion on Monday night. SB 482, sponsored by Representative Phil King (R-Weatherford), included a process to scrutinize the pending $45 billion buy-out of TXU by private investors.

King said, “Over two thirds of the House voted for this legislation last night. It is disappointing that one member chose to kill this bill, which provided rate reductions for electric bills, real consumer protections, and more stringent oversight of public utility buy-outs.”

SB 482 would have:

  • Guaranteed a rate cut for customers on the highest rates in Texas
  • Authorized the PUC to review rates and adjust them if they rise unjustifiably
  • Protected consumers by:
    • eliminating the use of credit scoring
    • protecting critical care, elderly low-income, and low-income customers from disconnection who enter into five month deferred payment plans
    • prohibiting disconnection of any customer on any day when the temperature is below freezing or above 100 degrees
    • eliminating deposits for service for elderly low-income customers
    • barring deposits for electric service for customers with 12 months of positive bill payment history
    • eliminating deceptive advertising by utilities with regard to the level of service a customer will receive by selecting the incumbent retail electric provider
    • eliminating any cancellation fees for month-to-month contracts for electricity
  • Required the functional separation of TXU into four smaller companies and forced each of these companies to:
    • use separate and distinct names and logos
    • operate under exclusive boards of directors with no overlap
    • retain separate officers with no overlap
    • maintain separate headquarters, operations facilities and other office space
    • maintain arm’s length relationships and not share any information among the several companies that could be used to manipulate the market or exercise market power abuse
    • adhere to an enhanced PUC code of conduct in all business transactions with their respective companies
    • require preparation of separate financial statements
    • provide the PUC complete access to all books and records
    • mandate that each CEO sign an affidavit of compliance yearly under threat of felony prosecution
    • Prevented TXU from shifting debt onto the ratepayer-funded wires and poles company.
  • Accelerated retail competition by requiring affiliated retail electric providers (TXU, Reliant and Direct Energy) to gain customers outside their service territory or face fines. The fines will be used to fund any unfunded portion of the System Benefit Fund.
  • Allowed monies appropriated for the System Benefit Fund to be used for its intended purpose and expanding eligibility for low income discounts on electricity.
  • Increased the authority of the PUC to investigate and punish market power abuse. Specifically, the PUC would have now had the ability to assess fines of up to one million dollars a day or treble damages.

“Consumers are going to be hurt because SB 482 was killed. It is a shame when petty partisan differences stand in the way of good public policy,” explained King.

King did proclaim a victory with the last minute passage of HB 624 and HB 1386. HB 624 , the last bill passed by the Legislature, empowers the state to enforce the commitments made to consumers by KKR, the buyers of TXU. These commitments (see following pages) required of KKR are very substantial and provide many protections demanded by legislators and consumer groups. The bill also gives the PUC oversight of future sales of certain electric utilities.

HB 1386 opens the door for construction of nuclear power plants in Texas, which will provide clean, less expensive electricity.

You can view SB 482 online here.

You can view HB 624 online here.

You can view HB 1386 online here.

Commitments Enforced by HB 624:

  • Name Change Commitment – TEF committed to changing the name of TXU Electric Delivery Company to Oncor Electric Delivery Company on or before closing of the transaction. And, in fact, the name of TXU Electric Delivery Company was changed to Oncor Electric Delivery Company on April 24, 2007. Oncor’s logo will be separate and distinct from the logos of the parent, TXU Corp., the retail electric provider, which will retain the TXU Energy name (TXU Energy Retail), and the power generation company, which we expect to rename with the Luminant Energy brand. TXU Corp. commits to maintaining a name and logo for Oncor that is separate and distinct from the names of TXU Corp.’s retail electric provider and wholesale generation companies.
  • Separate Board Commitment – At closing and thereafter, Oncor will have a separate board of directors that will not include any members from the boards of directors of TXU Energy Retail or Luminant.
  • Separate Headquarters Commitment – Within a reasonable transition period after closing of the transaction, not to exceed 6 months, Oncor’s headquarters will be located in a separate building from the headquarters and operations of TXU Energy Retail and Luminant.
  • No Transaction-Related Debt at Oncor Commitment – Oncor will not incur, guaranty or pledge assets in respect of any incremental new debt related to financing the transaction at the closing or thereafter. Oncor’s financial integrity will be protected from the separate operations of TXU Energy Retail and Luminant.
  • Debt-to-Equity Ratio Commitment – Oncor’s debt will be limited so that is regulatory debt-to-equity ratio is at or below the assumed debt-to-equity ratio established from time to time by the PUC for ratemaking purposes, which is currently set at 60% debt to 40% equity. For ratemaking purposes, in its scheduled rate cases in 2007 and 2008, Oncor will support a cost of debt that does not exceed Oncor’s actual cost of debt immediately prior to the announcement of the transaction.
  • Capital Expenditure Commitment – Following the closing of the transaction, Oncor will continue to make capital expenditures consistent with the capital expenditures in Oncor’s business plan. Total capital spending will depend in part on economic and population growth in Texas, as well as permitting and sitting outcomes. However, in any event, over the five years following the year in which closing of the transaction occurs, Oncor will make capital expenditures in connection with its transmission and distribution business in an aggregate amount of more than $3.0 billion.
  • DSM/Energy Efficiency Commitment – Over the five years following the year in which closing occurs, subsidiaries of TXU Corp. will expend an aggregate of at least $200 million on demand-side management/energy efficiency programs (DSM) over the amount included by the PUC in Oncor’s rates. This commitment will approximately double the level of spending on DSM currently included in Oncor’s rates. Oncor will not seek to recover in rates any of the $200 million in incremental DSM expenditures.
  • Service and Safety Commitment – Oncor will support the inclusion of negotiated commitments with appropriate stakeholders regarding reliability, customer service and employee safety in any final order regarding the transaction issued pursuant to PURA Section 14.101.
  • Rate Case Commitment – If, for any reason, the PUC has not initiated a general rate proceeding for Oncor or its predecessor prior to July 1, 2008, Oncor will not later than that date file a general rate case at the PUC, consistent with its currently effective settlement agreement with certain municipalities.
  • Continued Ownership Commitment – TEF will hold a majority of its ownership interest in Oncor, in the current regulatory system, for a period of more than five years after the closing date of the transaction.
  • Holding Company Commitment – A new holding company, Oncor Electric Delivery Holdings, will be formed between TXU Corp. and Oncor.
  • Independent Board Commitment – Each of Oncor Electric Delivery Holdings and Oncor will have a board of directors comprised of at least nine persons. A majority of the board members of each of Oncor Electric Delivery Holdings and Oncor will qualify as “independent” in all material respects in accordance with the rules and regulations of the New York Stock Exchange, from TXU Corp. and its subsidiaries (including TXU Energy Retail and Luminant), TPG and KKR. Consistent with TEF’s commitments, the directors of Oncor and Oncor Electric Delivery Holdings will also not include any members from the boards of directors of TXU Energy Retail or Luminant.
  • Affiliate Asset Transfer Commitment – Neither Oncor Electric Delivery Holdings nor Oncor will transfer any material assets or facilities to any affiliates (other than Oncor Electric Delivery Holdings, Oncor and their subsidiaries), other than such transfer that is on an arm’s length basis consistent with the PUC’s affiliate standards applicable to Oncor, regardless of whether such affiliate standards would apply to the particular transaction.
  • Arm’s Length Relationship Commitment – Oncor Electric Delivery Holdings and Oncor will maintain an arm’s length relationship with TXU Corp. and its subsidiaries (other than Oncor Electric Delivery Holdings, Oncor and their subsidiaries) consistent with the PUC’s affiliate standards applicable to Oncor.
  • Separate Books and Records Commitment – Oncor Electric Delivery Holdings and Oncor will maintain accurate and appropriate detailed books, financial records and accounts, including checking and other bank accounts, and custodial and other securities safekeeping accounts that are separate and distinct from those of any other entity.
  • Ten Percent Price Cut – As a result of the transaction, TXU Energy Retail will provide a 10 percent price reduction (applicable to certain residential rates that were in effect on December 31, 2006) for residential customers in its traditional service area who have not already selected one of TXU Energy Retail’s lower priced offers. Additionally, TXU Energy Retail customers entitled to receive the two remaining customer appreciation bonus payments of $25 per quarter will receive those payments.
  • Five Year TXU Corp. Investment Commitment – In the current regulatory system, the investor group will commit to hold a majority of its ownership in TXU Corp. for more than five years after the transaction closes.
  • Coal Unit Commitment – The planned coal units will be reduced from 11 to three. Plans to build the other eight coal units have been suspended and will be cancelled when the transaction is closed.
  • Emerging Technologies Commitment – Significant resources will be invested in emerging energy technologies, such as integrated gasification combined cycle coal plants, including an increased commitment to renewable energy.