Texas Administrative Code › Title 16 - ECONOMIC REGULATION › Part 2 - PUBLIC UTILITY COMMISSION OF TEXAS › Chapter 25 - SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS › Subchapter J - COSTS, RATES AND TARIFFS › Division 1 - RETAIL RATES › Section 25.231 - Cost of Service

Current through Reg. 49, No. 28; July 12, 2024
(a) Components of
					 cost of service. Except as provided for in subsection (c)(2) of this section,
					 relating to invested capital; rate base, and §
											23.23(b) of this
					 title, (relating to Rate Design), rates are to be based upon an electric
					 utility's cost of rendering service to the public during a historical test
					 year, adjusted for known and measurable changes. The two components of cost of
					 service are allowable expenses and return on invested capital.
(b) Allowable expenses. Only those expenses
					 which are reasonable and necessary to provide service to the public will be
					 included in allowable expenses. In computing an electric utility's allowable
					 expenses, only the electric utility's historical test year expenses as adjusted
					 for known and measurable changes will be considered, except as provided for in
					 any section of these rules dealing with fuel expenses.
(1) Components of allowable expenses.
					 Allowable expenses, to the extent they are reasonable and necessary, and
					 subject to this section, may include, but are not limited to the following
					 general categories:
(A) Operations and
					 maintenance expense incurred in furnishing normal electric utility service and
					 in maintaining electric utility plant used by and useful to the electric
					 utility in providing such service to the public. Payments to affiliated
					 interests for costs of service, or any property, right or thing, or for
					 interest expense will not be allowed as an expense for cost of service except
					 as provided in the Public Utility Regulatory Act §36.058.
(B) Depreciation expense based on original
					 cost and computed on a straight line basis as approved by the commission. Other
					 methods of depreciation may be used when it is determined that such
					 depreciation methodology is a more equitable means of recovering the cost of
					 the plant.
(C) Assessments and
					 taxes other than income taxes.
(D)
					 Federal income taxes on a normalized basis. Federal income taxes must be
					 computed according to the provisions of the Public Utility Regulatory Act
					 §36.060.
(E) Advertising,
					 contributions and donations. The actual expenditures for ordinary advertising,
					 contributions, and donations may be allowed as a cost of service provided that
					 the total sum of all such items allowed in the cost of service must not exceed
					 three-tenths of 1.0% (0.3%) of the gross receipts of the electric utility for
					 services rendered to the public. The following expenses must be included in the
					 calculation of the three-tenths of 1.0% (0.3%) maximum:
(i) funds expended advertising methods of
					 conserving energy;
(ii) funds
					 expended advertising methods by which the consumer can effect a savings in
					 total electric utility bills;
(iii)
					 funds expended advertising methods to shift usage off of system peak;
					 and
(iv) funds expended promoting
					 renewable energy.
(F)
					 Nuclear decommissioning expense. The following restrictions must apply to the
					 inclusion of nuclear decommissioning costs that are placed in an electric
					 utility's cost of service.
(i) An electric
					 utility owning or leasing an interest in a nuclear-fueled generating unit must
					 include its cost of nuclear decommissioning in its cost of service. Funds
					 collected from ratepayers for decommissioning must be deposited monthly in
					 irrevocable trusts external to the electric utility, in accordance with §
														25.301 of this title (relating to
					 Nuclear Decommissioning Trusts). All funds held in short-term investments must
					 bear interest. The level of the annual cost of decommissioning for ratemaking
					 purposes will be determined in each rate case based on an allowance for
					 contingencies of 10% of the cost of decommissioning, the most current
					 information reasonably available regarding the cost of decommissioning, the
					 balance of funds in the decommissioning trust, anticipated escalation rates,
					 the anticipated return on the funds in the decommissioning trust, and other
					 relevant factors. The annual amount for the cost of decommissioning determined
					 pursuant to the preceding sentence must be expressly included in the cost of
					 service established by the commission's order.
(ii) In the event that an electric utility
					 implements an interim rate increase, including an increase filed under bond, an
					 incremental change in decommissioning funding must be included in the
					 increase.
(iii) An electric
					 utility's decommissioning fund and trust balances will be reviewed in general
					 rate cases. In the event that an electric utility does not have a rate case
					 within a five-year period, the commission, on its own motion or on the motion
					 of commission staff, the Office of Public Utility Counsel, or any affected
					 person, may initiate a proceeding to review the electric utility's
					 decommissioning cost study and plan, and the balance of the trust.
(iv) An electric utility must perform, or
					 cause to be performed, a study of the decommissioning costs of each nuclear
					 generating unit that it owns or in which it leases an interest. A study or a
					 redetermination of the previous study must be performed at least every five
					 years. The study or redetermination should consider the most current
					 information reasonably available on the cost of decommissioning. A copy of the
					 study or redetermination must be filed with the commission and a copy provided
					 to the Office of Public Utility Counsel. An electric utility's most recent
					 decommissioning study or redeterminations must be filed with the commission
					 within 30 days of the effective date of this subsection. The five-year
					 requirement for a new study or redetermination must begin from the date of the
					 last study or redetermination.
(G) Accruals credited to reserve accounts for
					 self-insurance under a plan requested by an electric utility and approved by
					 the commission. The commission may consider approval of a self insurance plan
					 in a rate case in which expenses or rate base treatment are requested for a
					 such a plan. For the purposes of this section, a self insurance plan is a plan
					 providing for accruals to be credited to reserve accounts. The reserve accounts
					 are to be charged with property and liability losses which occur, and which
					 could not have been reasonably anticipated and included in operating and
					 maintenance expenses, and are not paid or reimbursed by commercial insurance.
					 The commission will approve a self insurance plan to the extent it finds it to
					 be in the public interest. In order to establish that the plan is in the public
					 interest, the electric utility must present a cost benefit analysis performed
					 by a qualified independent insurance consultant who demonstrates that, with
					 consideration of all costs, self-insurance is a lower-cost alternative than
					 commercial insurance and the ratepayers will receive the benefits of the self
					 insurance plan. The cost benefit analysis must present a detailed analysis of
					 the appropriate limits of self insurance, an analysis of the appropriate annual
					 accruals to build a reserve account for self insurance, and the level at which
					 further accruals should be decreased or terminated.
(H) Postretirement benefits other than
					 pensions (known in the electric utility industry as "OPEB"). For ratemaking
					 purposes, expense associated postretirement benefits other than pensions (OPEB)
					 must be treated as follows:
(i) OPEB expense
					 must be included in an electric utility's cost of service for ratemaking
					 purposes based on actual payments made.
(ii) An electric utility may request a
					 one-time conversion to inclusion of current OPEB expense in cost of service for
					 ratemaking purposes on an accrual basis in accordance with generally accepted
					 accounting principles (GAAP). Rate recognition of OPEB expense on an accrual
					 basis must be made only in the context of a full rate case.
(iii) An electric utility will not be allowed
					 to recover current OPEB expense on an accrual basis until GAAP requires that
					 electric utility to report OPEB expense on an accrual basis.
(iv) For ratemaking purposes, the transition
					 obligation must be amortized over 20 years.
(v) OPEB amounts included in rates must be
					 placed in an irrevocable external trust fund dedicated to the payment of OPEB
					 expenses. The trust must be established no later than six months after the
					 order establishing the OPEB expense amount included in rates. The electric
					 utility must make deposits to the fund at least once per year. Deposits on the
					 fund must include, in addition to the amount included in rates, an amount equal
					 to fund earnings that would have accrued if deposits had been made monthly. The
					 funding requirement can be met with deposits made in advance of the recognition
					 of the expense for ratemaking purposes. The electric utility must, to the
					 extent permitted by the Internal Revenue Code, establish a postretirement
					 benefit plan that allows for current federal income tax deductions for
					 contributions and allows earnings on the trust funds to accumulate tax
					 free.
(vi) When an electric utility
					 terminates an OPEB trust fund established pursuant to clause (v) of this
					 subparagraph, it must notify the commission in writing. If excess assets remain
					 after the OPEB trust fund is terminated and all trust related liabilities are
					 satisfied, the electric utility must file, for commission approval, a proposed
					 plan for the distribution of the excess assets. The electric utility must not
					 distribute any excess assets until the commission approves the disbursement
					 plan.