The Electric Competition Debate in...Texas

Fortnightly Magazine - May 15 1998
EES North America

PAT WOOD III LIKENS HIS JOB TO CLEARING THE UNDER-brush "so the general can march through."

The "general" is the Texas Legislature; Wood is chairman of the state Public Utility Commission; the battle is electric utility restructuring.

To an outsider, it looks like Wood's commission is way out in front of the state's elected officials. Legislators are adjourned this year but the seven-member Senate Interim Committee on Electric Utility Restructuring is doing its best to sort through hearings on market power, transmission and distribution, reliability and other issues. A hearing on the contentious subject of stranded costs was set for early June.

The committee, chaired by Sen. David Sibley (R), may not be moving fast enough (em at least not for state regulators.

The PUC first stepped ahead with the Central Power & Light rate case last year (Docket No. 1496). It scrutinized the utility's rates and decided to lower the return on equity for CP&L's stranded assets. It also provided for some accelerated recovery of that investment.

Wood says the rate case took a hard look at "things like affiliate transactions and all this historic stuff that utilities had done to kind of bury costs and puff up the rate base."

Although the case is on appeal, it snapped back the heads of many a utility executive in Texas (not to mention Wall Street investors). Suddenly, legislated solutions, previously lobbied against, didn't look so bad.

One Case at a Time

The state's elected leaders got as far as considering restructuring in committee last year, but a measure known as "the governor's bill" died when the state's cooperatives insisted they wouldn't support it. The proposed bill had a complex securitization plan, which put off the co-ops. The co-ops serve only 14 percent of the state's retail customers but wield political clout because they have customers spread over all but two of 254 counties.

Since then, the commission has taken on two more rate cases. After the dust settles from those, the panel promises to take on two more.

On March 31, the PUC approved stipulations for rate reductions for Texas Utilities Co. (Docket No. 18490) and Houston Light & Power (Docket No. 18465). Final orders were expected by April 21.

Both companies were about to be brought in for an "over earnings" case for earning too much. To preempt that, the two companies (em serving about 57 percent of the Texas market (em filed transition plans. The stipulations accelerated recovery of investments that could have been stranded in a competitive market. The commission also approved rate reductions of 4 percent for residential customers and as high as 2 percent for commercial customers. In 1999, base rates will drop 1.4 percent for TU's core customers and 2 percent for HL&P's residential users. Total rate reductions for both utilities over two years equal $444 million.

TU also agreed to redirect $335 million in transmission and distribution depreciation to production in 1998 and 1999. HL&P will redirect $362 million over the same period to pay off production plant costs. There will be no 1999 depreciation