Texas PUC ordered TXU and Reliant to return billions to ratepayers

By Ann de Rouffignac
OGJ Online

HOUSTON, Apr. 27, 2001—TXU Electric and Reliant HL&P will have to return $1.6 billion and $2.1 billion respectively to electric customers over a period of several years.

The Public Utility Commission of Texas ordered Wednesday that customers be credited back these funds collected since 1999. When the restructuring legislation, or Senate Bill 7, was crafted in early 1999, it was presumed that nuclear power would not be competitive with power produced by gas and coal-fired power plants once the market opened for competition in 2002. The nuclear plants owned by TXU and Reliant would be ‘stranded’ in the Texas market by competition.

The legislature allowed the companies to redirect depreciation from the transmission and distribution assets to pay down debt on the so-called stranded assets. The legislation also allowed the utilities to apply earnings beyond the approved rate of return to reduce the book value of those plants.

“The most recent estimates of stranded costs show that these excess earnings are not needed to mitigate the stranded costs,” according to a memo from the PUC’s financial review staff.

What happened was a dramatic and prolonged change in the price of natural gas suddenly making nuclear power more competitive with natural gas and meaning that the utilities over collected stranded costs from customers.

The commission decided to return the money to consumers in two different ways.

Redirected depreciation means the transmission and distribution assets have not been paid down during the last 3 years. This means transmission and distribution rates are higher than they would have been if the assets had been depreciated in a normal fashion.

The commission ordered redirected depreciation be reversed and Reliant will remove $863.4 million from its rate base and TXU will remove $798.4 million from its rate base.

By reducing the rate base on transmission and distribution, customers will pay less. The commission estimates the average TXU Electric residential customer will pay $1.30 a month less and $2.80 less for each Reliant customer.

Regarding the excess earnings, Reliant will return $1.24 billion to Reliant customers over 7 years as a monthly credit of about $4.87 against transmission and distribution charges.

For TXU, the commission ordered $887.9 million, or about $2.06/month on average, be credited to consumers over 7 years.

A TXU spokesman says it is unclear if Senate Bill 7 allows such credits. The legislation established a “true-up” period when the exact figure for stranded costs would be determined in 2004 after the market opened. The value of the ‘stranded costs’ can be determined from actual market data at that time.

“If we have overcollected, we will return it then,” said Chris Schein. “Otherwise consumers will be angry if it is determined that the commission miss guessed the amount of stranded costs and there is a big price increase in 2004.”

Reliant HL&P did not return calls.