CenterPoint Asking for $1,400 per Family in Electricity Bill Hike

Corporate Upper Class
CenterPoint Asking for $1,400 per Family in Electricity Bill Hike
By Jimmy Myatt
Jul 16, 2004, 13:40

The Public Utility Commission in Austin next week is hearing final arguments that could increase electricity bills by almost $10 a month for the next 12 to 15 years – for about 85 percent of Houston households.

CenterPoint Energy filed a claim to recover $4.4 billion in so-called "stranded costs" from its investments, primarily, in 1973 in the South Texas Project nuclear plant.

The 14.2 gigawatt twin reactors went online in 1988 and 1989 – 10 years behind schedule and about 800 percent over budget because of construction and design defects and anti-nuclear litigation, according to Greenpeace and anti-nuclear activist Paul Robbins, who wrote the Austin Environmental Directory.

The plant was repeatedly shut down because of leakages and failed safety inspections – even as recently as August of 2003, according to an STP press release. The plant is located 90 miles downwind from Houston, southwest near Bay City.

The plant was the first nuclear plant in Texas. The South Texas Project has two of the largest nuclear reactors in the United States and ranks in the top 20 nuclear electric generating units in the world in output.

CenterPoint’s official position on the stranded costs issue is relatively simple.

”There are groups who argue that we should not recover our true-up balance,” CenterPoint states in a press release on their website and confirmed by company spokesperson, Floyd LeBlanc. “However, that debate was decided in 1999 when the Texas Electric Choice Act was passed. All that is left is for the Public Utility Commission to determine that we followed the law, ran the business properly and are performing the law’s calculations correctly.”

Following the law, running the business properly and using the correct calculations are what the critics have a problem with. Presenting evidence to refute CenterPoint in the case is a diverse group – 30 cities including Houston, the state of Texas and the Texas Medical Center.

Advocates for millions of residential consumers contend in filings submitted to the PUC that ratepayers are not responsible for bailing CenterPoint out from its massive debt. Their main point is that the accumulated profits from the nuclear plant, based on payments already made by ratepayers, have more than repaid the investment and so the stranded costs are a phantom.

The director of regulatory analysis for the Office of Public Utility Counsel, Clarence Johnson, said, "We believe based on the analysis that we’ve done that there is no need for stranded cost recovery in this case."

At the heart of CenterPoint’s claims is a little known company called Texas GenCo, which owns 32 percent of STP and is buying up an added 12 percent of the nuclear plant. Texas GenCo was a spin-off of CenterPoint, which was itself spun off from Reliant Energy when the company separated its regulated and de-regulated business activities. Reliant was the successor corporation of Houston Light & Power, the original investor in STP.

In the corporate restructuring, Reliant Resources became deregulated and took the bulk of assets, and CenterPoint remained regulated and was loaded with immense debt, according to Johnson.

Stock market and energy analysts in briefs and testimony filed for the PUC have questioned the stripping of assets and the bundling of liabilities and saw it as a strategy to preserve claims to the "stranded costs." One compared the deals to Frank Lorenzo's corporate re-structuring that impoverished Eastern Airlines with his bargain-basement selloff of its assets to Continental Airlines and forced unionized Eastern into bankruptcy.

As for GenCo, it remains an attractive subsidiary. CenterPoint currently owns 81 percent of GenCo. About half of CenterPoint’s board of directors also set on the GenCo board.

With $4.4 billion in unrecovered investment costs, GenCo was supposed to be considered a losing investment and set it up for a windfall recovery of HL&P's long-gone capital, according to Johnson and others familiar with the case. Rising natural gas prices, however, have made GenCo’s solid fuel plants, including the STP reactors, profitable.

Reports filed with federal regulators show that the STP nuclear power plant has the lowest average fuel cost of any power plant in the United States at four-tenths of a cent per kilowatt-hour. STP's cost is the best reported by any American nuclear plant, according to a STP press release.

In fact, GenCo has no debt, owns one of the most profitable merchant energy fleets in the country and was the 15th-best performer on the New York Stock Exchange during its first year of trading in 2003.

CenterPoint critics and financial analysts repeatedly argue that the big utility has deliberately suppressed the value of GenCo's stock to enhance the possibility of collecting the $4.4 billion even though enough money has already been made by the so-called losing investment to totally mitigate the costs.

The “true-up” calculation for stranded costs was based on a GenCo stock price of $36.26 per share on March 31, 2004, according to CenterPoint’s filing to the PUC. After the “true-up" filing and GenCo's move to purchase a larger part of STP, its stock rose steadily.

Shares of Texas GenCo closed at $46.05 on July 16, 2004. That constitutes a 27 percent raise in market value in three and a half months.

The story does go much deeper. For more on the PUC hearings go to:
. http://interchange.puc.state.tx.us/webapp/interchange/application/dbapps/filings/pgSearch.aspNext to "Control Number," type in 29526.

Meanwhile, Houston's commercial TV stations have completely ignored a story that could affect the interests of 1.8 million residential customers. Among mainstream metro dailies in the entire state, the Houston Chronicle did two stories and the Corpus Christi Caller-Times did one.

With a possible electricity rate increase of $1,400 per family at stake, an investigative reporting team in the School of Communications at the University of Houston saw a need for more in-depth coverage. To gather opinions and reaction on the issue, the news team at World Internet News www.worldinternetnews.org is hosting a "Public Forum" open to all sides of the controversy.
(updated July 16th 9:55am)