Filings: Reliant overcollecting stranded costs

Reliant HL&P�s ratepayers should get a credit instead of extra charges tacked on to their transmission and distribution bills once competition begins in 2002, the Office of Public Utility Counsel and potential competitors said in a filing at the Public Utility Commission of Texas. A spokeswoman for Reliant HL&P said the company 'clearly does not agree with their methodology' for computing stranded costs.


Ann de Rouffignac
OGJOnline

Reliant HL&P�s ratepayers should get a credit instead of extra charges tacked on to their transmission and distribution bills once competition begins in 2002, the Office of Public Utility Counsel said in a filing at the Public Utility Commission of Texas.

This view contrasts sharply with conventional wisdom that customers will have to pay utilities for uneconomic assets (stranded costs) through added charges on their electric bills once the market opens up for competition.

Potential electricity retail competitors, including Shell Energy Services, a unit of Shell Oil Co.; Enron Energy Services, a unit of Enron Corp.; and NewEnergy Texas LLC, a unit of AES Corp.; jointly filed testimony last week challenging Reliant�s stranded cost demands. The utility had filed to recover an extra $1.7 billion in stranded costs from customers through wires charges.

Shell, Enron, and NewEnergy said Reliant had �negative� stranded costs and consumers should pay nothing in added wires charges and should get a credit instead.

A spokeswoman for Reliant HL&P said the company "clearly does not agree with their methodology" for computing stranded costs.

Competitors are concerned about what the wires charges will be. The higher the charge the more difficult it will be to offer electricity at a price that will be competitive with the utility's prices.

Negative stranded costs means that the deregulated market value of generation assets is greater than what it would be under regulation.

When negative stranded costs exist, "charges for retail generation services are likely to be higher in a deregulated market than rates would be with continued regulation," the city of Houston said in its filing opposing Reliant's request for stranded cost compensation.

Reliant HL&P, a unit of Reliant Energy Inc., will have already collected $2.4 billion by 2002 to �mitigate� stranded costs, according to the filing by the Office of Public Counsel.

�This is more than negative ECOM (a measure for stranded costs). This is overcollection that should be refunded,� says Thomas Brocato, assistant public counsel for OPC.

Retailers who might compete with Reliant in the future agree.

�Give back the overcollected stranded costs,� says Vanus Priestley, Austin business leader for NewEnergy Texas. �We say credit back what it takes to get stranded costs to zero.�

Market changes
Changes in the market are the reason Reliant doesn�t have the right to collect for stranded costs, potential competitors say. Power and natural gas are also higher. That means Reliant�s electric generation assets don�t need to be subsidized in the competitive market by collecting additional money from customers through added on wires charges, Priestley says.

Several years ago under different market circumstances, stranded costs were anticipated to be hefty.

In 1998, the commission authorized Reliant to accelerate depreciation of the South Texas nuclear plant, by redirecting depreciation away from transmission and distribution wires and to the plant. It was also authorized to accumulate excess earnings in order to reduce ahead of time its anticipated stranded costs. Reliant was also allowed to sell long-term bonds to pay for its regulatory assets, such as deferred taxes and rate case expenses. The bonds will be serviced by customers through added transmission and distribution charges.

By 2002, these �mitigation� measures will yield $1 billion in redirected depreciation, $679 million in accumulated excess earnings, and $700 million in securitized regulatory assets, according to the OPC filing.

�Ratepayers will pay for all these �mitigation� measures,� testified Randall Falkenberg, on behalf of the Office of Public Utility Counsel. �The total is $2.4 billion. But the revenue requirement effect is much larger as ratepayers will pay higher T&D rates for many years to come.�

The arguments that Reliant will have significant stranded costs no longer exist so the �mitigation� measures should no longer be allowed. The funds should be returned to ratepayers, he said.

Reliant overcollected
The City of Houston and the Texas Industrial Energy Consumers came to similar conclusions in separate filings last week. Though the estimates for stranded costs differed in all the filings, they all agreed that Reliant had large negative stranded costs that should somehow be credited back to ratepayers.

The legislation that provided the framework for deregulation allows for a reckoning or �trueup� of the collection of stranded costs 2 years after competition begins. When accounts are settled with real market data in 2004, if utilities have overcollected stranded costs, then the money could be paid back.

New market participants say overcollecting stranded costs for the first 2 years of competition will deter new competitors from entering the market.

�Potential market entrants must suffer the overcollection of stranded costs for the first 29 months of competition hoping they can remain viable until receiving a retroactive credit in June of 2004,� said the NewEnergy, Shell, Enron filing. �A rational marketer would not enter with only a possibility of a retroactive rate credit occurring in June 2004.�

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