Texas Supreme Court hears arguments about securitization

A small power marketer in Texas, Power Choice Inc., presented its final arguments before the Texas Supreme Court yesterday in a lawsuit that challenged the rights of the investor-owned utilities to securitize their stranded costs. Specifically, Power Choice challenged the legislative determination that retail electric customers should bear the full stranded costs of the utility providing electric service, even if they no longer receive electricity from the power plants with excess costs.


A small power marketer in Texas, Power Choice Inc., presented its final arguments before the Texas Supreme Court yesterday in its lawsuit that challenged the rights of the investor-owned utilities to securitize their stranded costs.

Specifically, Power Choice challenged the legislative determination that �retail electric customers should bear the full excess cost over market (stranded costs) of the utility currently providing electric service, even if they no longer receive electricity from the generating units with excess cost,� according to the original petition.

Power Choice filed the suit last spring in State District Court. Power Choice appealed the lower court's decision last summer directly to the Supreme Court, which accepted the case on an expedited schedule.

Billions of dollars of stranded costs that are supposed to be securitized by issuing bonds that will be serviced by local electricity customers are on hold until the case is decided.

Recovering the stranded costs by issuing bonds, a process called securitization, was part of the restructuring of the electric industry in the Texas market mandated by the legislature in September 1999. The bonds will be fully amortized over a 15-year period. Full competition is set to begin in January 2002.

Power Choice objected to the provision that the utility�s current ratepayers and any new customers that enter into the utility�s geographical service area would have to service the bonds.

�It�s not correct that electricity customers pay for something they never got,� says Bob Webb, general counsel for Power Choice.

The marketer argued that the bonds do not serve a public purpose because it is essentially compelling ratepayers to pay billions of dollars to the utilities over the 15 years unrelated to service provided in those years. Power Choice questions how this is in the public interest.

Power Choice claims in its petition that securitization could take place if there were a constitutional amendment to allow for public money to be used for private use, or if there were a general uniform tax on all Texans to pay for the costs.

�The legislature cannot order Peter to pay the State so that the State can simply turn the money over to Paul,� the petition states.

The transition charge that will be tacked onto every electricity consumer's bill is really designed to raise revenue to pay utilities for the stranded costs. It is a tax, and therefore must have a public purpose, Power Choice says.

The suit was filed against Central Power & Light Co. CP&L�s attorneys argued that the stranded costs were incurred because of the state-sanctioned rate making process. CP&L argued the state is responsible for making sure this money is paid back.

The court is expected to have a decision before the end of the year.

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