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AGENDA INFO AT ON SHEET SUBJECT Resolution Requiring TXU Electric Del'very t Show Cause for Rates BACKGROUND The Steering Committee of Cities Served by TX , of which the City of Paris is member, has reason to believe the transmission and distri ution (liT &D") rates currently charge by TXU Electric Delivery ("TXU", formerly known as ncor) re excessive. The purpose of t is agenda item is to seek authorization to require TXU to how c use to justify the existing T & rates, to establish a procedural schedule for the review 0 the r te information provided by TX , to hire and direct legal counsel and consultants, and to s t a pub ic hearing to determine ifTXU s existing rates are unreasonable. DESCRIPTION On July 16, 2004, the Steering Committ e of ities Served by TXU met in A ington to discuss TXU' s current T &D rates. The Steering ommi tee unanimously recommended that cities pass a resolution requiring TXU to show cause why it T &D rates should not be red ced. The Steering Committee also authorized the retent on of ate case attorneys and consu tants and intervention in any related appeal. Finally, the S eering Committee approved a lO-cent er capita fee for 2004. The T &D rates currently charged by T U we e set by the Public Utility Co ission ("PUC") in 2001 in anticipation of the start of r tail el ctric competition. While tradi ional rate regulation in the public interest is based upon a s apsho of historic costs, the PUC base its 2001 approval of TXU's T&D rates upon projected c sts an expenses for 2002, Enormou changes have occurred since TXU's T&D rates were app oved, nc1uding significant decreases' the cost of capital, large reductions in TXU's costs and expen es, mass TXU employee layo fs, and a complete change in TXU affiliate transactions. s a res It, it is likely that TXU's curr nt T &D rates are excessive. Since T&D rates typically c prise one-half of the total electric bil , curbing excessive T&D rates will reduce the high cost f stree lighting and other off-peak 10 d, A rate review of TXU' s T &D rates also permits the inv tigati n of unfair and/or irrational cos s that are currently reflected in off-peak tariffs, as well as other ervice standards issues, Addit onally, a T &D rate case may provide cities served by TX anoth r forum to address the horrible nequities that would result if a nodal pricing scheme were imple ented. Some precedent exists for rate review of &D ra es since the deregulation of ret '1 electric rates. Several cities in South Texas initiated a sh w cau e inquiry at the local level last year that precipitated a T&D rate proceeding at the PU invol ing their wires company, A - Texas Central Company ("TCC", formerly CP&L). L'ke T U, TCC's existing T&D rates were set based upon 2002 inflated cost projections that ne er c e to pass. In the TCC T&D rate case, the