Bill could lower price of power in Texas after competition begins

By Ann de Rouffignac
OGJ Online

HOUSTON, Apr. 12, 2001—A Texas House of Representatives committee passed legislation that could mean electric bills will be lower than originally anticipated when the state opens the retail electricity markets for competition in Jan. 2002.

The bill passed the committee by an 8-6 vote Monday and is pending in the Calendars Committee to set a date for full House debate.

HB 2107 provides that distribution and transmission charges will be lowered and electric retailers participating in the deregulated market will have to pass the savings through to customers. The savings are expected because stranded costs have evaporated as the price of natural gas increased.

Billions of dollars collected by the state’s utilities for stranded costs should be returned to customers, consumer advocates said. In preparation for deregulation, utilities were allowed to accumulate billions collected from customers to pay off bad investments in power plants previously assumed to be uncompetitive, explained Janee Briesemeister, senior policy analyst with Consumers Union.

These supposed uneconomic investments such as nuclear power plants approved by past regulatory decisions compose the “stranded costs.” But stranded costs began to evaporate as the price of natural gas rose, making nuclear power competitive with gas-fired generation.

But the utilities continued to collect money through several schemes approved by Texas Public Utilities Commission starting in 1998. The pending legislation sponsored by Rep. Sylvester Turner (D-Houston) provides that these excess funds collected from consumers to compensate the utility for stranded investments instead be used by the utilities to reduce customers’ transmission and distribution charges.

Transmission and distribution owned by the incumbent utilities will remain under regulation and the charges set by the PUC. Turner’s bill will change the original legislation deregulating the electricity market so consumers will receive a reduction in what they pay for transmission through the prices offered by retail providers and by the so-called “price-to-beat” offered by the utility.

During the first 3 years of competition, utilities will still serve customers who don’t want to shop for electricity. They will charge what is termed the “price to beat.” Other retail electric providers competing for customers will attempt to charge less than this threshold price.

The framework for establishing each utilities’ “price to beat” is spelled out in the restructuring legislation or SB 7 that became effective Sept. 1, 1999.

“Turner’s bill allows the commission to lower the ‘price to beat’ to reflect the lower wires charges,” said Briesemeister. “Before, there was no requirement that this money be passed back to consumers.”

Commission staff in a Apr. 2 memo to Chairman Patrick Wood and Commissioner Brett Perlman found that five utilities have collected $3.1 billion in excess earnings and other schemes approved by the commission as compensation for stranded costs.

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