Electricity Fight Powers Up With Billions at Stake

Lining up against CenterPoint: the state of Texas, Houston and 30 other cities, the Texas Medical Center and other large electricity users as well as millions of residential ratepayers. Lawyers representing those parties argue that CenterPoint is due much less and may even owe refunds to customers.

At issue before the three-member commission is whether CenterPoint has recovered its so-called "stranded costs" -- assets such as older, less-efficient generating plants and nuclear plants that it wouldn't be able to charge ratepayers for in a competitive market.

Lawmakers allowed CenterPoint and other utilities to keep excess earnings during the transition to an open market to reduce their stranded costs. The law said that in 2004 there would be a "true- up" proceeding that would look at the market value of the generation assets to determine whether the utilities had recovered stranded costs as well as money spent to improve pollution controls on older plants.

Billions of dollars are at stake, but the case could also determine whether deregulation has been a success.

"If the company receives a very large stranded cost assessment, the impact will be to substantially raise rates for ... customers. Deregulation was supposed to result in lower rates for customers. That was the selling point for it," said Clarence Johnson, director of regulatory analysis for the Office of Public Utility Counsel, a state agency that represents small commercial and residential ratepayers.

Rates for most Houstonians have steadily increased since the market opened on Jan. 1, 2002. CenterPoint attributes the increases to climbing natural gas costs.

If CenterPoint prevails on all issues, rates for the average residential customer could increase by $10 a month.

CenterPoint spokesman Floyd LeBlanc said the company has documented its stranded costs, and some of the parties just "don't like the number."

"No one likes to see costs go up. We're following the law, and the law always intended for there to be a settling of accounts around the stranded cost issue in 2004," LeBlanc said.

The PUC staff has reviewed CenterPoint's documents and concluded that its request should be reduced by about $3 billion. The staff said CenterPoint did not pass through certain tax benefits to ratepayers. It also said that rate credits ordered in 2001 were retained by Reliant and never returned to residential and small commercial ratepayers.

LeBlanc said CenterPoint and Reliant are no longer legally nor financially related.

CenterPoint owns the electricity transmission and distribution system in Houston, are well as area power plants. It doesn't charge power consumers directly.

Instead it deals with retail electric providers such as Reliant Energy, which has about 85 percent of Houston's residential market.

As a result of its claim, the PUC could allow CenterPoint to charge Reliant and other providers higher rates. And the providers may pass some or all of those costs on to consumers.

The $4.4 billion that CenterPoint is seeking includes $631 million in interest that the PUC previously said couldn't be recovered. That issue is pending before the Texas Supreme Court.

The commission, which has scheduled three weeks for the hearing, will be examining the market value of CenterPoint's generating assets, which have been placed in a publicly traded company called Texas Genco Holdings.

Lino Mendiola, an Austin lawyer who represents a group of Texas industrial users, said some of CenterPoint's business practices have caused Genco's stock price to be lower than it otherwise could have been.

For example, he said Genco has a large amount of cash, which can signal uncertainty to investors.

LeBlanc said he "finds it inconceivable that Texas Genco is operating at a business disadvantage because it is debt-free."