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Texas PUC directs staff to draft order approving Oncor-Sempra deal

Houston (Platts)--18 Feb 2018 435 pm EST/2135 GMT


The Public Utility Commission of Texas on Thursday directed its staff to draft an order approving Sempra Energy's purchase of Oncor Electric Delivery, majority owner of Texas' largest transmission system, in a deal valued at almost $16.5 billion.

DeAnn Walker, who chairs the PUC, directed Stephen Journeay, the commission's director of commission advising and docket management, to delegate to a staffer the preparation of an Oncor -Sempra proposed order.

Walker expressed hope the order might be ready in time for the PUC's March 8 open meeting.

The discussion took relatively little time in an eventful meeting. The PUC also:

Directed staff to draft an order approving the transfer of most of Lubbock Power & Light's load from Southwest Power Pool to the Electric Reliability Council of Texas

Decided to postpone for one month a change in ERCOT 's Operating Reserve

Demand Curve calculation

Received an update on how Texas utilities plan to adjust their rates to account for last year's federal corporate tax cut

If Sempra succeeds in acquiring Oncor, it will be a significant milestone in the 46-month-old Chapter 11 bankruptcy proceedings of Dallas-based Energy Future Holdings, selling off the last major asset in the giant successor of TXU, which had been acquired in 2007 in a leveraged buyout by Kohlberg Kravis Roberts, Texas Pacific Group and Goldman Sachs Capital Partners that left EFH more than $40 billion in debt.

In October 2016, EFH's Luminant generation and TXU retail electricity provider businesses were spun off to form Vistra Energy.

On February 1, Matthew Henry, the Vinson & Elkins attorney representing Oncor Electric Delivery, reported to the PUC that a joint stipulation about the terms of the deal had achieved the unanimous support of all intervenors, including PUC staff, the Texas Office of Public Utility Counsel, the Steering Committee of Cities Served by Oncor, Texas Industrial Energy Consumers, Texas Energy Association for Marketers, the Alliance for Retail Markets, Golden Spread Electric Cooperative, Nucor Steel and the Texas Legal Services Center.

The PUC was scheduled to conduct a hearing on the merits of the case February 21 and February 23, which the commission on Thursday cancelled.

LP&L load switch order requested

The commission also directed Journeay to ask for a draft order approving Lubbock Power & Light, Texas' third-largest municipal utility, to connect 470 MW of its estimated 600-MW load to ERCOT beginning June 1, 2021. Walker asked that the order be ready for the March 8 open meeting.

LP&L applied for the transfer on September 1, and the City of Lubbock on February 8 filed an unopposed joint stipulation outlining the terms of the transfer.

Xcel Energy 's Southwestern Public Service currently supplies power to LP&L with one short-term agreement for 470 MW through May 30, 2021, and a long-term agreement serving the remainder through 2044.

The deal's terms include the following:

LP&L pays $22 million a year for five years to ERCOT wholesale transmission customers

LP&L makes a one-time $24 million hold-harmless payment to SPS upon the date of integration into ERCOT, allocated and credited to SPS customers

LP&L takes no action that would cause the Federal Energy Regulatory Commission to assert jurisdiction over ERCOT

Walker added that the order should make it clear that LP&L cannot convert its two natural gas -fired generation units, totaling about 125 MW, to connect to the ERCOT system without approval by ERCOT .

Regarding the construction of transmission facilities to connect the load to the ERCOT grid, Walker said the order should assign that work to Sharyland Utilities and LP&L, allowing them to divide the work between them.

If they are unable to reach agreement on that, the issue should be brought to the PUC for a decision, she said.

In Project No. 47199, regarding a possible reform of ERCOT pricing rules, the commissioners discussed a staff memo which had advocated the possibility of removing generation committed for reliability purposes from calculations of ERCOT 's Operating Reserve Demand Curve price adder, which would result in higher prices during periods of relative capacity scarcity.

All three commissioners said that "as a matter of policy" it would be correct to remove reliability-unit-committed units, which are dispatched to resolve short-term problems, and reliability-must-run units, which are dispatched to resolve longer-term issues, from the ORDC adder calculation.

The idea had been proposed in a paper entitled "Priorities for the Evolution of an Energy-Only Market Design in ERCOT," by Harvard's William Hogan and FTI Consulting's Susan Pope. This paper had spurred the PUC to initiate Project 47199.

Excess power 'ain't our problem anymore'

However, Commissioner Brandy Marty Marquez said that in private discussions with Hogan after the paper was submitted, she said Hogan agreed that ERCOT's main trouble was "too much power."

"Well, guess what?" Marquez said Thursday. "That ain't our problem anymore."

After Luminant Energy, NRG Texas and the City of Garland, Texas, retired more than 5,400 MW of generation this winter, the summer of 2018 is expected to have a planning reserve margin of 9.3% or less, compared with a target of 13.75% -- designed to ensure ERCOT has a blackout due to a lack of capacity no more often than once every 10 years.

"We are prepared for what the summer is going to bring, which is higher prices," Marquez said. "Is there a signal we could send that is going to change anything? Not at this point, I think."

Kenan Ogelman, ERCOT first vice president for commercial operations, said ERCOT has performed an internal analysis of the effects of removing RUC and RMR units from the ORDC adder calculation, which the commissioners said they want to review before taking any action at the March 8 meeting.

Ogelman said that if the PUC decides to order the deduction of RUC and RMR capacity from the reserves used in the ORDC adder calculation, ERCOT could implement the change by July 1.

Regarding actions utilities might take to revise their rates in light of last year's federal corporate income tax cut from 35% to 21%, Darryl Tietjen, PUC director of rate regulation, said utilities generally are considering changing their interim transmission cost-of-service mechanism, the distribution cost recovery factor and/or a credit rider adjustment.

"They all plan to do it in a fairly timely manner," Tietjen said, indicating some file changes in March and others in April.

An Entergy Texas representative said his company plans to include changes "in a full-blown rate case the first week of May."

--Mark Watson, markham.watson@spglobal.com




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