In the first major rate proceeding under a new state law bringing competition to the wholesale electric market, the Texas Public Utility Commission has ordered Central Power and Light Co. to accelerate recovery of above-market generating investments and reduce and unbundle its rates.
The commission said the aging of existing electric facilities and the development of new technologies were driving generation costs down. It described the company's investment in the South Texas nuclear plant as "inherently economically and technologically unuseful,"and ordered a faster write-off to reflect a shortened 20-year useful life. It also ordered a $32.3-million decrease in base rates, plus further cuts for 1998 and 1999. (For more on the rate cut, return on equity, and accelerated depreciation for the South Texas nuclear project, see "Texas Orders Rate Cuts; Legislation Proposed," May 15, 1997, p. 13.)
Importantly, the commission rejected a proposal by the utility to balance the accelerated recovery of the generating facility by increasing the length of depreciation on its transmission investment. The PUC said ratepayers would not benefit from such a plan. Reducing the rate of return on equity applied to the plant resulted in a fairer balance between ratepayers and shareholders, it said.
Also in the same case, the commission estimated stranded cost levels that the utility might incur under several different competitive scenarios. The estimates ranged from $1.7 billion if retail access were implemented abruptly in 1998 to $30 million under a "Poolco" model. The commission ruled that the