Fuel, other costs raise Texas electric rate calculations

When fuel and other costs are included, most Texas electricity prices will be higher in January than in 1999, despite landmark electricity deregulation legislation that called for lower prices. The Texas Public Utility Commission Friday approved the so-called 'price-to-beat' starting in January 2002 for utility service territories.

Ann de Rouffignac
OGJ Online

HOUSTON, Dec. 8 -- When fuel and other costs are included, most Texas electricity prices will be higher in January than in 1999, despite landmark electricity deregulation legislation that called for lower prices.

The Texas Public Utility Commission Friday approved the so-called "price-to-beat" starting in January 2002 for utility service territories. In the two biggest service territories, Reliant HL&P and TXU Electric, units of Reliant Energy Inc. and TXU Corp., respectively, rates will be lower compared to existing rates but higher than they were in January 1999.

The PUC approved rates of $86.20 for 1,000 kw-hr of electricity in Reliant HL&P's service territory, In January 1999, the rate was $79.93. TXU customers will pay a price-to-beat of $82.50 for 1,000 kw-hr, compared to $74.04 in January 1999.

Retailers affiliated with the utilities are required to offer the price-to-beat to consumers under the 1999 law. The price was intended to be high enough to help give competitive electric retailers a running start in luring customers away from the utilities' affiliates when the market was deregulated.

To win support for deregulation, the law also promised a 6% decrease from January 1999 rates. But consumers won't get the full decrease. After cutting rates by 6%, they were to be adjusted again for a so-called "fuel factor." That adjustment raised the price-to-beat.

"Customers did not receive the rate reduction as promised because costs were included in the fuel factor that are not normally included in the regulated fuel factor," said Clarence Johnson, director, regulatory analysis, at the Office of Public Utility Counsel.

Some of these included funding the Electric Reliability Council of Texas and costs associated with running the wholesale market. To ensure their profit margins, some retailers argued for an even higher price-to-beat than what was proposed by the utility affiliates.

Fuel factor adjustment
The new price-to-beat is dramatically lower than current electricity rates, according to numbers provided by the commission. Most of that decrease is accounted for by a big decline in natural gas prices. In TXU's territory, rates will come down by 14.6%, according to the PUC calculations, and in Reliant's territory by as much as 17%.

State Sen. Teel Bivins (R-Amarillo) attributed the 17% difference in Houston to lower gas prices not deregulation. "Fuel costs, they are what they are," he said. The PUC set gas prices at $3.22/Mcf.

The US Energy Information Administration Friday predicted gas prices will average $2.40/Mcf through the winter and expects them to decline to just under $2//Mcf through next year. Last January natural gas prices were in the $10/Mcf range, explaining, in part, why current electricity are still high.

Consumer advocates said they were worried about the concept of keeping electricity prices artificially high in order to create a market for the new competitors. "We are pleased that the PUC didn't give in to jack up the price-to-beat to help out the retailers," said Janee Briesemeister, senior policy analyst with Consumers Union.

Carol Biedrzycki, executive director of Texas Ratepayer Organization to Save Energy, said she agreed. "Rates were supposed to decrease under deregulation," said Biedrzycki. "If prices can't be lower than under regulated cost-based rates, we shouldn't have deregulation. We weren't told that deregulation would be an economic development program."

Retailers, especially New Power Co., a unit of NewPower Holdings Inc., Purchase NY, and Green Mountain Energy Co., Austin, testified before a Texas legislative oversight committee Wednesday the price-to-beat was too low to ensure competitors enough profit for a sustainable competitive market.

Legislators and the PUC said they would be interested in considering changing how the fuel factor portion of the price-to-beat is calculated in response to the retailers' complaints. The PUC didn't decide when and if to take up the issue at Friday's PUC open meeting, said PUC spokesman Terry Hadley.

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