R-2004-10 Failed/no Motion-participate with City of Houston/other municipalities in Coalition of Cities

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. CITY OF HOUSTON 'p/ .J~ Finance and Administration Department TO: T.713.837,9630 F. 713,837.0631 ~ www.cityofhouston.go Tina Paez, Assistant Director, Regulatory Services Division 'tl ... , City of Houston Finance & Administration Department y Summary of Organizational Meeting for Participation in Coalition of Cities in CenterPoint " Energy 2004 True-Up of Stranded Costs ~€.Ct..\\jt..Q r.VV- '\.~ ~ tI ,t Judy Gray Johnson Director Finance and Administration Department f) P.O. Box 1562 ' Houston, Texas 77251-1562 \:> April 7, 2004 ApJR ., h l!. 2 :.lfflfj~ ~. f '.. Cities Served by CenterPoint Energy , '(.iT'. '~~:::;'l~~;,;~?E(~',S FROM: RE: ~ ~0 On March 31, 2004, the City of Houston hosted an organizational meeting for municipalities interested in participating in a Coalition of Cities in the CenterPoint Energy 2004 True-Up of Stranded Costs proceeding at the Public Utility Commission of Texas (PUC). Present at the meeting representing the City of Houston were myself, Melba Pourteau, Senior Assistant City Attorney, Alton Hall, a partner with the firm of Epstein, Becker, Green, Wickliff & Hall, and Jim Daniel, a principal in the consulting firm of GDS Associates, Inc. Epstein, Becker, Green, Wickliff & Hall has been retained by the City to represent its interests before the PUC and it is contemplated that Mr. Hall will represent. the interests ofthe Coalition members as well. Mr. Hall gave a presentation of the issues before the PUC and the advantages to other municipalities in participating with the City of Houston in forming a Coalition of Cities. A summary of those comments is presented below. Senate Bill 7 (SB7) became effective September 1999. SB7 mandated that the electric utility industry be restructured to permit open. competition in most areas of the state effective January 1,2002. The conversion to a competitive market was ultimately intend.ed to lower costs to c'onsumers. Authority for implementation of SB7 was vested in the Public Utility Commission of Texas (PUC). ' Under the statute, electric utility companies were required to separate their operations into three core components: (1) power generation;" (2) transmission and distribution (T&D - commonly referred to as "wir~s"); and, (3) a retail energy provider (REP). The power generation and REP components were deregulated, while the T &D remains regulated. Due to the restructuring of the industry in this manner, the legislature created a means for utilities to recover any stranded costs incurred as a result of deregulation. Stranded costs are those costs incurred to increase or diversify a utility's power generation capacity that are in excess of what the competitive market will pay - Le. the difference between the book value of the utility's generation plants and the market value of those assets. To the extent stranded costs are positive, the T&D (CenterPoint Energy) will be permitted to adJust T&D rates to recover the stranded costs. SB7 mandated that the Commission conduct a final true-up proceeding for each utility in 2004. The fma1 true- up is intended to reconcile all fuel balances and determine a final stranded cost figure for each utility. CenterPoint Energy submitted its true-up application to the PUC on March 31, 2004. If CenterPoint is awarded stranded costs in the amount requested ($4.4 billion), the impact to the average residential customer's bill will amount to an estimated additional $12.92 per month. The cumulative rate impact since the onset of deregulation is a staggering 43% increase in residential electric rates. Council Members: Toni Lawrence Carol Mims Galloway Mark Goldberg Ada Edwards Addie Wiseman M.J, Kahn Pam Holm Adrian Garcia Carol Alvarado Mark Ellis Gordon Quan Shelley'Sekula-Gibbs, M.D, Ronald C. Green Michael Berry Controller: Annise D. Parker