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HomeMy WebLinkAboutPO 7142: AUTHORIZING THE SETTLEMENT OF THE PROPOSED RATE INCREASE OF ENTERGY TEXAS P. O. No. 7142 04/25/2023 gt ORDINANCE NO. AN ORDINANCE BY THE CITY OF PORT ARTHUR, TEXAS ("CITY") AUTHORIZING THE SETTLEMENT OF THE PROPOSED RATE INCREASE OF ENTERGY TEXAS, INC.; FINDING THAT THE MEETING COMPLIES WITH THE OPEN MEETINGS ACT; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND DECLARING AN EFFECTIVE DATE WHEREAS, on or about July 1, 2022, Entergy Texas, Inc. ("ETI" or the "Company") filed a Statement of Intent and Application for Authority to Change Rates with the City of Port Arthur ("City") and concurrently with the Public Utility Commission of Texas (Commission") to increase electric rates in the Entergy Service Area by approximately $131.4 million per year; and WHEREAS, the City denied the Company's rate request and the Company appealed the City's rate denial ordinance to the Commission; and WHEREAS, ETI, Commission Staff, and other intervening parties including the Steering Committee of Cities participated in settlement discussions to resolve the rate case issues without litigation; and WHEREAS, ETI has agreed to settle the rate request at a rate increase level of $54 million per year; and WHEREAS, the Lawton Law Firm and Commission Staff have recommended approval of the Settlement terms as a reasonable alternative to resolve the rate case issues without litigation. NOW THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PORT ARTHUR, TEXAS: Section 1. That the statement and findings set out in the preamble to this Ordinance are hereby in all things approved and adopted. Section 2. That the City of Port Arthur hereby authorizes the settlement of the ETI rate case proceedings at the rate increase level of $54 million per year. 1 Section 3. That the meeting at which this ordinance was approved was in all things conducted in strict compliance with the Texas Open Meetings Act, Texas Government Code, Chapter 551. Section 4. That this ordinance shall become effective from and after its passage. READ, ADOPTED AND APPROVED on this day of May A.D., 2023, at a Meeting of the City Council of the City of Port Arthur, by the following vote: AYES: Mayor: , Councilmembers: , NOES: . Thurman Bill Bartie, Mayor ATTEST: Sherri Bellard, City Secretary APPROVED AS TO FORM: YR, / / p Valecia Tizeno, Ci7 Attorne APPROVED FOR ADMINISTRATION: Ronald Burton, City Manager 2 THE LAWTO\ LAW FIRM, P.C. 12600 Hill Country Blvd.,Suite R-275 • Austin,Texas 78738 • 512/322-0019 April 25, 2023 Sent via e-mail Mr. Richard G. Baker Ms. Sharae Reed City Attorney—City of Anahuac City Attorney—City of Beaumont P.O. Box 10066 P.O. Box 3827 Liberty, Texas 77575 Beaumont, Texas 77704 Mr. Chris Boone Mr. Paul Fukuda Interim City Manager—City of Beaumont City Attorney—Bridge City P.O. Box 3827 City Attorney—Pine Forest Beaumont, Texas 77704 260 Rachal Post Office Box 846 Bridge City, Texas 77611 Mr. Scott Swigert Ms. Mary Ann Powell City Manager—City of Cleveland City Attorney—City of Cleveland 907 E. Houston Wortham Tower, Suite 600 Cleveland, Texas 77327 2727 Allen Parkway Houston, Texas 77019 M. Terry Blackwell Mr. Gary Scott Interim City Secretary—City of Cleveland City Attorney—City of Conroe 907 E. Houston P.O. Box 3066 Cleveland, Texas 77327 Conroe, Texas 77305 Mayor Nyla Akin Dalhaus Amy L. Wade City of Cut and Shoot City Secretary—City of Cut and Shoot P.O. Box 7364 P.O. Box 7364 Cut and Shoot,Texas 77306 Cut and Shoot,Texas 77306 CONFIDENTIAL ATTORNEY CLIENT COMMUNICATION 1 Mayor Caroline Wadzeck Ms. Kimberly Judge City of Dayton City Manager—City of Dayton 117 Cook Street 117 Cook Street Dayton, Texas 77535 Dayton, Texas 77535 Mr. Brandon Monk Mr. D. E. Sosa City Attorney—City of Groves City Manager—City of Groves 4875 Parker Drive P.O. Box 3286 Beaumont,TX 77705 Port Arthur, Texas 77643 Ms. Tina Paez Ms. Yushan Chang City of Houston Administration & Regulatory City of Houston Legal Department Affairs Department(ARA) P.O. Box 368, Houston,Texas 77001-0368 611 Walker, 13 th Floor City Hall Annex, 4th Floor Houston,Texas 77002 900 Bagby Houston, Texas 77002 Mr. Leonard Schneider Mr. Aron Kulhavy City Attorney—City of Huntsville City Manager—City of Huntsville City Attorney—City of Splendora 1212 Ave. M Liles Parker PLLC Huntsville,Texas 77340 2261 Northpark Dr., Suite 445 Kingwood,TX 77339 Mr. Brandon Davis Mr. Tom Warner City Attorney—City of Liberty City Manager—City of Liberty City Attorney—City of Dayton 1829 Sam Houston 1517 Trinity Liberty, Texas 77575 Liberty, Texas 77575 Mr. Alan P. Petrov Mr. Richard Tramm City Attorney—City of Montgomery City Administrator—City of Montgomery Johnson Petrov LLP 101 Old Plantersville Road 2929 Allen Parkway, Suite 3150 Montgomery, TX 77316 Houston, Texas 77019 Mr. Cary Bovey Mr. Jason Weeks City Attorney—City of Navasota City Manager—City of Navasota Bovey& Cochran, PLLC 200 E. McAlpine Street 2251 Double Creek Dr., Suite 204 Navasota,Texas 77868 Round Rock, Texas 78664 Mr. Christopher Duque Mr. Jesse Branick City Manager—City of Nederland City Attorney—City of Nederland P.O. Box 967 221 Hwy. 69 South, Suite 100 Nederland, Texas 77627 Nederland, Texas 77627 CONFIDENTIAL ATTORNEY CLIENT COMMUNICATION 2 • Ms. Elizabeth Harrell Ms. Heather Neeley City Secretary—City of Oak Ridge North City Manager—City of Oak Ridge North 27424 Robinson Road 27424 Robinson Road Oak Ridge North,Texas 77385 Oak Ridge North,Texas 77385 Mr. Guy Goodson Mr. Mike Kunst City Attorney—City of Orange City Manager—City of Orange GERMER PLLC 812 North 16th Street 550 Fannin, Suite 400 P.O. Box 520 Beaumont,Texas 77701 Orange, Texas 77630 Mr. Rodney Price Mr. Jerry Flood City Attorney—City of Rose City City Administrator—City of Pinehurst P.O. Box 310 2497 Martin Luther King Jr. Drive Vidor, Texas 77670 Orange, Texas 77630 Mr. Tommy Gunn Ms. Val Tizeno City Attorney—City of Pinehurst City Attorney—City of Port Arthur 202 S. Border P.O. Box 1089 Orange, Texas 77630 Port Arthur, Texas 77641 Mr. Ronald Burton Mr. Lance Bradley City Manager—City of Port Arthur City Attorney—City of Port Neches P.O. Box 1089 P.O. Box 1148 Port Arthur, Texas 77641 Port Neches,Texas 77651 Mr. Andre' Wimer Mr. Larry L. Foerster City Manager—City of Port Neches City Attorney—City of Roman Forest P.O. Box 758 City Attorney—City of Panorama Village Port Neches, Texas 77651 Darden, Fowler and Creighton, LLP 414 West Phillips, Suite 100 Conroe, Texas 77301 Ms. Kathie Reyer Mr. Solomon Freimuth City Administrator—City of Shenandoah City Attorney—City of Silsbee 29955 IH-45 N. P.O. Box 186 Shenandoah, Texas 77381 Port Neches, Texas 77651 Ms. DeeAnn Zimmerman Mr. Alex Stelly City Manager—City of Silsbee City Attorney—City of Sour Lake 105 South 3rd Street 2615 Calder Ave., Ste. 1070 Silsbee,Texas 77656 Beaumont, Texas 77702 CONFIDENTIAL ATTORNEY CLIENT COMMUNICATION 3 • Mr. Jack Provost Mayor Dorothy Welch City Manager—City of Sour Lake City Attorney Leonard Schneider 625 Hwy 105 W City of Splendora Sour Lake, Texas 77959 P.O. Box 1087 Splendora,Texas 77372 Mr. Robbie Hood Mr. Chris Leavins City Manager- City of Vidor City Attorney—City of Vidor 1395 N. Main St. City Attorney—City of West Orange Vidor, Texas 77662-3726 P.O. Box 4915 Beaumont, Texas 77704-4915 Mayor Randy Branch Mr. Michael S. Stelly Mayor—City of West Orange City of West Orange, Texas 2700 Western Avenue 2700 Austin Avenue West Orange, TX 77630 West Orange, TX 77630 Ms. Marissa Quintanilla City Secretary—City of Willis 200 N. Bell Willis, Texas 77378 Re: Proposed Settlement of Entergy's 2022 Base Rate Case and Proposed Ordinance Dear Cities: This letter is to update the Cities on the status of Entergy Texas, Inc.'s ("ETI" or "Company") 2022 base rate case currently pending at the Public Utility Commission of Texas ("Commission").The Company,the Commission Staff,and other intervening parties have reached a final agreement regarding the Company's request for a base rate increase, including revenue requirement, class allocation, and rate design. The one remaining issue to be decided by the Commission is the Company's request to own and operate transportation electrification related infrastructure, including electric vehicle charging facilities. As we will describe further below, customers stand to benefit from the terms of the settlement agreement,which we recommend that the Cities approve. We have attached a proposed ordinance for Cities to approve the settlement. If your City takes no action,we will assume your City remains unopposed to the settlement. The Company agreed to a revenue requirement increase of $54 million, which is approximately 58.9% lower than their original requested revenue requirement increase of$131.4 million. Other key components of the proposed settlement include: CONFIDENTIAL ATTORNEY CLIENT COMMUNICATION 4 • A return on equity of 9.57% as opposed to ETI's proposed 10.8% return. This 9.57%profit level is a slight decrease from the Company's current return on equity of 9.65%. • Several adjustments to the Company's proposed depreciation rates, lowering the Company's depreciation expense by approximately $23.7 million per year. • Longer amortization periods for recovery of expenses related to the Company's pension accounts, self-insurance storm reserve accrual, bad debt recovery related to COVID-19 costs and impacts, and its transition to AMS or "Smart" meters. Lengthening the amortization periods will lower costs to customers by about $6.5 million per year compared to the Company's original proposal. • A reasonable allocation of the revenue requirement between the various customer classes. The breakdown of the settlement revenue requirement between the customer classes can be seen in Table 1, below. • A smaller increase to the residential fixed monthly customer charge than what was proposed by ETI and Commission Staff. In the past,the Commission has approved a gradualist approach to ratemaking where,for instance,monthly customer charges could be adjusted downward to prevent a dramatic rate increase.Commission Staff has recently shifted to setting customer charges strictly according to cost basis, regardless of the impact on customers. To support this policy shift, Commission Staff cited their concern that gradualism may result in improper cost-shifting between rate classes. ETI calculated that a cost-based customer charge in this case would be $16.33, but the parties ultimately settled on $14.00 for the monthly residential customer charge. The lower customer charge reduces the risk of"rate shock" and is particularly beneficial for the lower-usage customers. In addition, the reduced return on equity and depreciation rates will continue to benefit customers in expected future interim rate adjustment filings such as Distribution Cost Recovery Factor, Transmission Cost Recovery Factor, and Generation Cost Recovery Rider proceedings. The statutory formulas to calculate these rate adjustments utilize the rate of return and depreciation rates approved in the Company's most recent base rate case; therefore, keeping these components of base rates as low as possible reduces future interim rate increases. There were many contested issues in this case. Although our consultants' recommended adjustments to Entergy's proposed base rate increase were all reasonable, the final litigated outcome is not known on each contested issue. Given the cost of successfully litigating each issue and litigation risk,a settlement at$54 million increase is reasonable.Settlement of the case reduces the risk of an unanticipated or negative outcome and reduces litigation expenses. A detailed breakdown of the proposed settlement revenue requirement compared to present rates is attached to this letter as Attachment 1. In addition, Table 1 below highlights the proposed percentage increase to each customer class, with and without fuel costs included: CONFIDENTIAL ATTORNEY CLIENT COMMUNICATION 5 • Table 1 Proposed Settlement Base Rate Increase by Customer Class Customer Class Proposed Settlement Change in Non-Fuel Change in Total Allocation Revenues Revenues Residential $40,360,687 6.59% 4.74% Small General Service $875,244 1.85% 1.33% General Service $7,705,142 3.41% 2.22% Large General Service $683,493 1.01% 0.58% Large Industrial $3,553,240 1.74% 0.73% Lighting Service $823,964 5.04% 4.16% Total: $54,001,770 4.60% 2.86% The rate impact of the proposed settlemcn< on the various customer classes can be seen below on Table 2. The typical bill amounts shown include the base rate charge, fuel charges, and all applicable riders. Table 2 Comparison of Average Monthly Bills for Entergy Texas,Inc. Customer Class Typical Usage Entergy Entergy Proposed Present Rates Proposed Settlement Rates Rates Residential 1000 kWh $140.81 $154.31 $147.16 Small General Service 1000 kWh $135.97 $142.48 $137.50 General Service 50 kW $1,458.52 $1,532.86 $1,483.24 12,775 kWh Large General Service 1000 kW $38,055.87 $39,480.20 $38,329.16 401,500 kWh Industrial Service 10,000 kW $347,283.54 $362,469.30 S352,188.66 5,840,000 kWh The average residential customer (using 1000 kWh per month) is expected to see an increase of approximately $6.35 per month, or 4.51%over current rates. Given the above, I am recommending that Cities approve the settlement as detailed above. I have attached a rate ordinance for your consideration. In my opinion, a settlement on the terms I discussed above will provide economic benefits to customers versus continued litigation of this matter. CONFIDENTIAL ATTORNEY CLIENT COMMUNICATION 6 In terms of timeline, we are asking each City to make a final decision at its next available meeting. If your City does not take action regarding the proposed settlement, we will assume your City remains unopposed to the settlement. Please forward passed ordinances to us at molly@mayhallvandervoort.com and danlawtonlawfirm@gmail.com. If you have any questions or need any further information, please feel free to call. Sincerely, /s/ Daniel J. Lawton CONFIDENTIAL ATTORNEY CLIENT COMMUNICATION 7 • W rnJ o m N N ° N 00 ry LL O X &c,, C: c O � N O O V N V • o e a a ` c m X p m O <O N In O 4 aU n N M 0 O `m 2 e m O N R I-CC J 0 0 O 0 vi N N O CO CO mE Ai cIn CO CO vw • m m O M co A yO N 10 ul N CO ,N N 01 M M a M a m M AO O n0O0 .mOC _ - n N OF O m a CDN w a CD $ aD�1fpp�mm a N U N NCO DIA A A m J8 p p J m Y inW cD N O f0 .51. a O` LL m Y N O 0 m- W a a Z N N WA W W . N N CO 0 A N CO v • a 2m n of 0 m ra p8 ^e ON Q ? 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