A Plan for TDU Reform
What do we want?
Customer-friendly rate reform.
When do we want it?
Next session of the Texas Legislature.
This story from the trade publication Utility Dive caught our eye. The headline is “76% of Americans want stronger utility oversight.” It reports on a poll by PowerLines, a consumer advocacy group, that found significant distrust of elected officials when it comes to oversight of regulated, monopoly electric utilities.
The findings aren’t surprising in this national poll. We suspect if you polled only Texans, the findings would be very similar. It’s hard to have trust when the system appears to be rigged in favor of the utilities.
As you know, most Texans have the right to choose who provides their electric service. If you don’t like the price or the service you are getting, you can pick another provider. But you don’t get to pick who transmits power from power plants and delivers it to your home or business. That is decided for you based on where you live in the state.
Transmission and distribution utilities (TDUs) – are regulated by the Public Utility Commission of Texas. Since there is no competition, the state is supposed to act as the arbiter of fair, reasonable, and necessary rates. Frankly, what’s happening with your transmission and delivery rates is not fair, reasonable, or necessary.
We discussed that in our previous blog post on this topic. And, that’s why TCA is calling for regulatory reform of electric utilities in the next session of the Texas legislature.
Here’s the core problem. TDUs in Texas are:
Monopolies
Guaranteed to recover what they spend plus a profit, with no incentives to provide lower cost benefits to customers
Largely insulated and therefore unaccountable to customers
Paid mostly through volumetric (¢/kWh) charges that don’t track actual cost drivers
Receiving high-level return on equity while carrying a fraction of the financial risk that other US utilities carry
As a result, Texans are experiencing rising bills, get hit hardest when major storms hit and the monopolies have to rebuild, are unable to tell what they are actually paying for, and are given almost zero ability to reduce TDU costs by changing their behavior.
That’s a recipe for distrust. Distrust of everyone in the electricity business (TDUs, retail electric providers, power generators) and policymakers – especially state elected officials.
The way to restore trust is to reform the TDU ratemaking system in Texas. It’s time to make it more customer friendly.
TCA believes there should be five guiding principles:
Bills should be understandable
Charges should track cost causation
Utilities should share some financial risk, especially if they underperform
Competitive bidding saves customers money
Transparency, not complexity
We have four specific proposals that hold true to those principles and that legislators should consider next year when they meet. They are:
1. Modernize TDU Rate Design
A Texas TDU’s ROE should reflect the level of financial risk the entity has
Rates should be performance-based
Customer service performance
Interconnection performance
Reliability metrics down to the level of individual neighborhoods
Cost and efficiency metrics
Residential and small businesses should have the lowest delivery charges
This protects residential and small commercial customers from subsidizing rapid load growth and from wrongly funding stock growth and dividends to shareholders.
2. Smooth Storm Cost Recovery
Create pre-funded or statewide storm reserves (for example, funding could come from interest earned from the Texas Energy Fund)
TDUs have underperformed in storms, and should have had cost recoveries reduced through financial penalties
Outage frequency and duration
Restoration speed after major events
Longer recovery periods that are securitized
This reduces customer “rate shock” without weakening grid resilience.
3. Simplify and Consolidate Delivery Charges
Reduce rider proliferation by:
Clear separation of energy vs delivery costs
Itemize each component of delivery charges in plain English to give customers visibility
Eliminate mid-year changes
Provide plain-language explanations on bills
This improves trust and understanding.
4. Introduce Competition
Maintain grid reliability standard while promoting cost efficiency and innovation by:
Requiring major new transmission projects to be open to competitive bidding among qualified developers
Providing incentives for on-time, on-budget, safe construction of projects
Ensuring transparencyin project selection and cost allocation to ratepayers
This saves consumers money while still meeting growing transmission needs.
In 1999, Texas fundamentally changed the electricity market in Texas by introducing competition and giving consumers the power to choose their retail provider. Left unchanged is the hodgepodge of regulated monopolies that deliver power to consumers.
At its most basic level, that makes sense. You don’t want any more poles and wires running through the highways, byways, and neighborhood streets than are needed. But the oversight and the way in which they make money needs to change.
TCA believes the steps we’ve outlined here are a good starting point. If you agree, or have your own ideas, please share them with us here: