from the Jurisdiction of the Public Utility Commission

Background

The Public Utility Commission (PUC) was created in 1975 to establish a comprehensive regulatory system for public utilities and to assure rates, operations and services are just and reasonable to both the utilities and to the consumers they serve. The PUC is charged with representing and protecting the public interest inherent in public utility rates and services.

The PUC sets rates and service standards for approximately 160 utilities. They include all local telephone companies in Texas, AT&T long-distance service, investor-owned electric utilities and electric cooperatives operating in unincorporated areas of Texas and river authorities. The PUC does not have jurisdiction over long-distance carriers, other than AT&T, or over city-owned electric utilities.

The argument for regulating utilities is that unlike other businesses, utilities are monopolies not subject to competition and other forces of our free enterprise system. Consumers usually must use the only phone company (local service) or the only electric utility in town. Utility cooperatives are unique in that members of the cooperative agree to use the utility service furnished by the cooperative utility.

Utility Cooperatives. The Public Utility Commission regulates all electric and telephone cooperatives (co-ops). Co-ops comprise over two-thirds of the number of utilities subject to regulation in Texas but comprise approximately 10 percent of the PUC's staff hours.[1]

Cooperatives are organized under the law as a utility company that will generate, transmit and/or distribute supplies of electric energy to a specific area not being served by another utility. Most co-ops have initially been financed by the U.S. Department of Agriculture's Rural Electrification Administration. In Texas, the Telephone Cooperative Act (Article 1528c, V.T.C.S.) and the Electric Cooperative Act (Article 1528b, V.T.C.S.) authorize the incorporation of cooperative utilities. The members of a utility cooperative own the utility and elect its board of directors. The board then selects the management of the cooperative.

Other States. Many states do not regulate cooperatives. For instance, of the 44 states that have electric cooperatives, less than 20 regulate the cooperatives' rates.[2] Approximately 28 of 30 states that have telephone co-ops are regulated.[3] When compared with other states, Texas ranks first in the number of electric cooperatives, 86, and second in the number of telephone cooperatives, 24. Iowa has 48 telephone co-ops.

Recommended Policy

The Public Utility Regulatory Act (PURA) should be amended to remove cooperative corporations from the definition of public utility and to provide for appellate jurisdiction, the regulation and supervision of cooperatives' own rates or services and continued maintenance of accounts and records.

The recommendation would amend Sec. 3(c), PURA to include electric and telephone cooperatives in the exemption of a municipal utility. Ratepayers of a utility cooperative could appeal a rate decision of the co-op's governing body in the same manner that ratepayers of a municipality may appeal a decision. Amending Sec. 27(f) of PURA would require cooperatives to maintain accounts and records.

Since a co-operative's utility ratepayers are its owners, the need for regulation should be eliminated. The cooperative's board of directors, who are elected by the owners (ratepayers) are more accountable to the market demands of its consumers. Cooperative members could appeal any decision to the PUC.

All utility cooperatives would remain subject to the gross utility assessment and all other relevant utility taxes.

Implications

The electric and telephone cooperatives would be allowed to set their own rates. The cooperatives would still be required to apply for Certificates of Convenience and Necessity which provide for changes in service area and facilities such as transmission lines.

Fiscal Implications

The PUC estimates that the total number of hours involved with cooperatives would equal to about seven positions, if they devoted 100 percent of their time to these dockets.[4] Staff hours include the Electric Utility Analysis Division, Telephone Utility Analysis Division, Operations Review and General Counsel and Hearings. The average salary with benefits at the PUC is estimated to be $38,300.

Since most cooperatives do not generate their own power, but purchase their services from other regulated utilities, co-ops should still be charged the gross utility assessment in PURA, Sec. 78. Therefore, there would be no effect to the utility gross assessment receipts. Any effect to the charges per transmission line (or access line) would be negated since those charge fees can only be allocated either to the Public Utility Commission or the Office of Public Utility, the utility consumer advocate.

Fiscal Estimated Savings from the Change

Year PUC to the General Revenue Fund in FTEs

1992 $ 268,000 -7

1993 268,000 -7

1994 268,000 -7

1995 268,000 -7

1996 268,000 -7

Endnotes