Dive Brief:

• The Public Utility Commission of Texas (PUCT) has scheduled a meeting for Aug. 10 to conduct a public hearing on alternative ratemaking mechanisms.

• Stakeholders at the meeting will discuss the findings of a report by Christensen Associates Energy Consulting that evaluates revisions to traditional cost-of-service ratemaking, including mechanisms such as “straight fixed-variable rates” that allow for the recovery of fixed costs through demand changes and “lost revenue adjustment mechanisms” that address the impact of conservation on utility sales.

• The PUCT commissioned the report to review questions related to performance incentives, deregulation in wholesale markets, public policy support for renewable resources, and declining utility sales growth.

Dive Insight:

Utilities face a variety of challenges from the increasing penetration of renewable resources to declining load growth.

Among the most challenging issues are how utilities can adjust their rates to better reflect the value of providing back up power as distributed generation becomes more prevalent. Many utilities are looking at adopting demand charges to adapt to those changes, but the move is controversial.

Texas, which runs one of the largest competitive wholesale power markets in the world and is a leader in renewable generation, is trying to get in front of those challenges before distributed generation becomes widespread. State regulators contracted with Christensen Associates Energy Consulting to evaluate a variety of alternatives to current ratemaking practices.

Christensen came back with a report that outlines six broad revisions and five incremental revisions to cost-of-service ratemaking.

Among the major revisions that would allow for adjustments that would facilitate less frequent rate cases, price caps and mechanisms to adjust for declining utility revenue resulting from conservation measures.

The Christensen report also evaluates the expanded use of demand charges and lower volumetric charges in utility rate design and revenue decoupling as a means of encouraging energy efficiency.

Among the minor or incremental revisions evaluated by the Christensen report items such as mechanisms for future test years, earnings sharing mechanisms, and infrastructure surcharges that would allow utilities to recover a portion of their capital costs before construction on a project is completed.