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Texas Utilities Agree to Temporary Freeze in Fuel (Natgas) Rate Changes in Wake of Katrina

Texas regulators are scheduled to hold an emergency meeting Wednesday to discuss the extent to which the state's electric retail providers should be able to recover post-Hurricane Katrina increases in natural gas prices in their electric rates. A number of utilities already have pledged not to include Katrina price spikes in their calculations.

The Public Utility Commission of Texas called the meeting in response to Gov. Rick Perry's declaration of emergency disaster and emergency conditions in which he urged state agencies to suspend all rules and regulations that may prevent prompt response to the Katrina disaster. The state is housing thousands of evacuees from Louisiana who were displaced by the storm that struck the Gulf Coast two weeks ago.

The PUC's discussion will focus on limiting an agency rule that allows retail electric utilities to seek rate increases only when the price of natural gas rises. Natural gas is the dominant fuel used in Texas to generate electricity.

Specifically, the Texas regulators will discuss whether to exclude the gas price run-ups in the days after Hurricane Katrina when computing how much of a rate increase electric utilities can seek, said Texas PUC spokesman Terry Hadley. He did not know if the issue would be resolved at Wednesday's meeting, or whether further discussion would be warranted.

Hadley said that state retail providers were eligible to seek rate increases prior to Hurricane Katrina given the high natural gas prices. The 20-day average of the 12-month strip on Nymex for natural gas prices ranged from $7.50/Mcf to $7.80/Mcf prior to the hurricane. The 20-day average for gas delivered to the Henry Hub has shot past $10/Mcf following Katrina, he noted.

Faced with the prospect of mandatory action by the PUC, a number of Texas retail providers -- TXU Energy, CPL Retail Energy, WTU Retail Energy, Reliant Energy and First Choice Power -- have voluntarily agreed to put a temporary hold on their requests for fuel factor adjustments in the wake of Katrina.

"TXU Energy is willing to agree to not request a fuel factor adjustment...prior to Oct. 11," Chairman Jim Burke said in a letter Monday to the PUC. "TXU Energy's offer implicitly includes our agreement to not rely on any natural gas prices from trading days within two weeks of Hurricane Katrina. This two-week buffer provides assurance that TXU Energy price-to-beat customers will not be subjected to a fuel factor adjustment that is based on any short-term or speculative natural gas price anomalies resulting from Hurricane Katrina.

Affiliate TXU SESCO would delay its request for a fuel adjustment until Oct. 11 as well, Burke said. In addition, "TXU SESCO had originally been scheduled...to price for its 2006 supply contract on the basis of natural gas prices on Sept. 7. However, in the wake of Hurricane Katrina, TXU SESCO, with the cooperation of short-listed bidders, decided to delay pricing until Sept. 14 to avoid pricing supply immediately following Hurricane Katrina."

Reliant Energy said it would postpone its filing for a fuel factor adjustment until Oct. 1 if the PUC agreed to act on its request by Oct. 28. "Currently the average of the next 12 months forward prices on the Nymex for delivery at Henry Hub is $10.80/MMBtu, the price for calendar year 2006 is $10.31/MMBtu, and prices for delivery this winter are approximately $12.50/MMBtu. In contrast, [Reliant's] fuel factor is set based on $7.50/MMBtu gas and has not been adjusted all year," it said.

Likewise, CPL Retail Energy and WTU Retail Energy said they would not seek fuel factor adjustments before Oct. 1, and would not charge retail prices to customers based on post-Katrina natural gas spikes that occurred during the governor's declared disaster period. First Choice Power said it would voluntarily delay its filing until Oct. 3 in return for expedited processing of its request by Oct. 28.

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