Oncor Electric Delivery Company LLC ("Oncor") reported three months ended September 30, 2023 net income of $380 million compared to net income of $318 million in the three months ended September 30, 2022. This $62 million increase was driven by higher revenues primarily from increased customer consumption due to warmer weather in the quarter, updates to transmission annual billing factors, new base rates, updated interim distribution cost recovery factor ("DCRF") rates to reflect increases in invested capital and customer growth, and favorable changes in other income and deductions–net. These increases were partially offset by higher costs associated with increases in invested capital (primarily borrowing costs and depreciation) and higher operation and maintenance expense (primarily regulatory asset amortization and self-insurance reserve accrual recovery amounts in new base rates). Base rates were updated May 1, 2023 following the issuance of a final order by the Public Utility Commission of Texas ("PUCT") in Oncor's comprehensive base rate review ("PUCT Docket No. 53601").
"Today, we announced strong third quarter financial results driven in large part by growth within our service territory and increased customer consumption. In addition to strong financial performance, 2023 has been a great year for operational excellence, and we are making strong progress toward achieving our safety and reliability goals. I am proud of the dedication and resilience of our workforce, who worked tirelessly to help ensure Texans had safe and reliable power this summer – one that saw 10 new peak demand records in the ERCOT market," said Oncor CEO Allen Nye. "We continue to see expansive growth across our service territory. It is keeping up with, and staying ahead of, that growth that provides our company with a particular strategic and operational challenge – as well as a significant opportunity to meet a need in the market for further electric infrastructure."
Oncor's reported net income of $683 million in the nine months ended September 30, 2023 compared unfavorably to net income of $741 million in the nine months ended September 30, 2022. This $58 million decrease was driven by the write-off of rate base disallowances recorded in the first quarter of 2023 resulting from the final order in PUCT Docket No. 53601, higher costs associated with increases in invested capital (primarily borrowing costs and depreciation) and higher operation and maintenance expense (primarily regulatory asset amortization and self-insurance reserve accrual recovery amounts in new base rates), partially offset by higher revenues primarily from updates to transmission annual billing factors, new base rates, customer growth and updated interim DCRF rates to reflect increases in invested capital, and favorable changes in other income and deductions–net.
Oncor's total distribution base revenues in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 increased 18.5% (11.9% increase on a weather-normalized basis). The change in Oncor's total distribution base revenues in the third quarter of 2023 included a 28.1% increase in distribution base revenues from residential customers (15.7% increase on a weather-normalized basis) and a 10.9% increase in distribution base revenues from large commercial and industrial customers. Oncor's total distribution base revenues in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 increased 6.3% (7.4% increase on a weather-normalized basis). The change in Oncor's total distribution base revenues in the nine months ended September 30, 2023 included an 8.3% increase in distribution base revenues from residential customers (10.5% increase on a weather-normalized basis) and a 6.6% increase in distribution base revenues from large commercial and industrial customers. Financial and operational results are provided in Tables A, B, C, and D below.
Growth Within Oncor's Service Territory
Ongoing growth within Texas as a whole and Oncor's service territory in particular continues to be a driver of distribution and transmission operational activity. In the three months ended September 30, 2023, Oncor connected approximately 20,000 new premises to the Electric Reliability Council of Texas, Inc. ("ERCOT") grid as compared to approximately 14,000 in the three months ended September 30, 2022. In the nine months ended September 30, 2023, Oncor connected approximately 57,000 new premises as compared to approximately 49,000 during the same period in 2022. In addition, Oncor built, rebuilt or upgraded approximately 630 miles of distribution and transmission lines in the third quarter of 2023.
In addition, Oncor remains on pace to set a company record for annual new and active generation and retail transmission point-of-interconnection ("POI") requests in queue. At September 30, 2023, Oncor had 755 active generation and retail transmission POI requests in queue, representing a 34% increase as compared to active generation and retail transmission POI requests in queue at September 30, 2022. Of the 447 active generation POI requests in queue at September 30, 2023, 47% were solar, 41% were storage, 9% were wind and 3% were gas. In the three months ended September 30, 2023, Oncor entered 88 new generation and retail transmission POI requests into queue as compared to the 65 new generation and retail transmission POI requests that were entered during the same period in 2022.
Capital Expenditure Plans
The growth in Oncor's service territory and expected continued growth is also evident in Oncor's capital expenditure plans. Oncor's board of directors has approved a capital expenditures budget of approximately $3.6 billion for 2023. Oncor expects to announce a new five-year capital plan for the 2024-2028 period in the first quarter of 2024, and anticipates that its new five-year capital plan will reflect significantly increased expected capital spending compared to its previously announced $19.2 billion capital plan for the 2023-2027 period, due primarily to the continued projected growth in Oncor's service territory, as well as increases in interest rates and borrowing costs, increases in the cost of materials and equipment and increased labor and contractor costs. Oncor also anticipates additional capital spending related to transmission and distribution system resiliency investments pursuant to recently enacted Texas House Bill 2555, subject to the PUCT's finalization of rules implementing such legislation. The PUCT's rules are expected to be finalized in the fourth quarter of 2023, and Oncor is currently targeting filing a resiliency plan pursuant to such rules in the first quarter of 2024.
Operational Highlights
Oncor remains focused on improving reliability performance. For the industry's primary benchmark for reliability, System Average Interruption Duration Index (non-storm), Oncor continued to improve in the twelve months ended September 30, 2023 as compared to the twelve months ended September 30, 2022. On average, Oncor's customers experienced nearly seven fewer minutes of outage over the period – an improvement of approximately 9% over the prior period. Oncor has undertaken various efforts to enhance reliability, including automation and system hardening projects, particularly in its planning for severe weather events.
In October, an independent third party environmental, social and governance ("ESG") ratings company issued its annual ESG risk rating of Oncor, improving Oncor's rating and ranking Oncor in the top 2 percent of electric utilities rated by that company.
Regulatory Updates
On September 22, 2023, Oncor filed an appeal in Travis County District Court relating to its recent comprehensive base rate review proceeding. The appeal seeks judicial review of certain of the rate base disallowances and related expense effects of those disallowances set forth in the PUCT's order on rehearing in the proceeding.
On September 15, 2023, Oncor filed its second application this year for an interim DCRF rate adjustment to recover additional distribution investments that went into service in the period January 1, 2023 through June 30, 2023. Oncor estimates that its interim DCRF rate adjustment would result in an annual revenue impact of approximately $56 million if approved as requested.
Liquidity
As of November 2, 2023, Oncor's available liquidity, consisting of cash on hand and available borrowing capacity under its credit facility and commercial paper program totaled $1.8 billion. Oncor expects cash flows from operations combined with long-term debt issuances and credit agreements, as well as availability under its accounts receivable facility ("AR Facility"), credit facility and commercial paper program to be sufficient to fund current obligations, projected working capital requirements, maturities of long-term debt and capital expenditures for at least the next 12 months.
