Bill to return billions to utility customers hanging in Texas Senate

By Ann de Rouffignac
OGJ Online

HOUSTON, May 9--Foot dragging in the Texas Senate may kill a House-passed bill that would put half of the $3.7 billion in "accumulated excess earnings" by Reliant HL&P and TXU Electric back into consumer pockets.

If the bill sponsored by Rep. Sylvester Turner (D-Houston) dies in the Senate, ratepayers may not get the money back for years, if ever, consumer advocates said.

"The primary benefit for ratepayers of this bill is it gets at least part of the excess earnings back to end users," said Clarence Johnson, director of regulatory analysis for the Office of Public Utility Counsel.

The bill provides that half the money collected from ratepayers to pay off "stranded costs" will be returned as a credit on September's utility bill.

But a source close to the Senate Business and Commerce Committee said there is not much support to get the bill "heard, passed and reported out" of committee by midnight Friday. Utilities have opposed any return of the funds.

The funds have been collected since 1999 when it was presumed Reliant HL&P, a unit of Reliant Energy Inc., and TXU Electric, a unit of TXU Corp., and others would have stranded costs for nuclear power plants that were not competitive with coal or gas-fired power plants. Increases in natural gas prices changed those economics.

Utilities were allowed to collect the money in preparation for restructuring of the Texas market which opens to competition in 2002. Lawmakers wanted to put utilities on a level playing field with competitors.

Besides allowing the so-called excess earnings, the Texas Public Utility Commission also allowed utilities to redirect depreciation from transmission and distribution assets to stranded assets to pay down debt. Utilities have not been retiring debt for the transmission and distribution assets during the last 3 years. As a result, transmission and distribution rates are higher than they would have been.

But the commission in a series of hearings and workshops determined stranded costs were negative and money collected through excess earnings as compensation should be returned to ratepayers in the form of a credit through reduced transmission and distribution charges. In open meetings Apr. 24-25, the commission ordered the excess earnings and redirected depreciation be returned to consumers as a credit.

According to a PUC staff memo, the commission ordered Reliant to return $1.24 billion in accrued excess earnings to consumers over a 7-year period. This would reduce transmission and distribution charges about $4.87/month. The commission ordered TXU to return $887.9 million in excess earnings over the same period. This would result in credit of $2.06/ month, the memo said.

Even though the commission ordered the credit, Johnson said, it doesn't mean consumers will ever get it. Under Texas' deregulation law, retail electric providers do not have to pass through to customers the new lower costs for transmission and distribution.

By law, the utility's retail affiliate can't lower its rates and pass through the credit. What this means is utilities and their affiliates can keep the money, Johnson said. The legislation was introduced to insure consumers get the refund.

But the commission is optimistic consumers will eventually get the credit.

"Customers who switch to the retail providers will get the credit now. And when the price to beat is over (in 2004) the rest of the customers will get the benefit," said Martha Hinkle, director of the financial review division.

Alan Raymond, CEO of Shell Energy, a unit of Shell Oil Co., and one of the new Texas competitors, said, "We would love to be able to return the stranded costs to customers."

Contact Ann de Rouffignac at annd@pennwell.com