A bill that could force Texas electric utilities to start offering significant refunds to customers early next year passed a key Texas House panel earlier this month, but now faces a series of hurdles that it must clear before the current session of the Texas Legislature expires at the end of May. That’s a tight deadline, but one that could be met, a spokesperson for Texas-based TXU Electric told NGI.
At issue is Texas House Bill 2107, a measure that would direct the state public utility commission to put a dollar figure on state utility over-collections, and then use that figure as a basis for utility refunds that would occur in January of next year. Overall, the state’s utilities could be facing refunds totaling billions of dollars under the legislation.
The bill, sponsored by State Rep. Sylvester Turner, recently cleared the Texas House State Affairs Committee and now moves forward to the House Calendars Committee, which would have had the opportunity to clear HB 2107 as early as last Thursday at its regular meeting, according to TXU Electric spokesperson Christopher Schein.
He noted that once the bill gets out of the Calendars Committee, a date will then be assigned for the measure to be heard on the House floor. “Obviously, if you take it up on Thursday then … the earliest it could be considered by the House is the last week in April,” Schein told NGI.
Assuming the bill makes it out of the full House, it would then need a Senate sponsor to carry it over into the Texas Senate for additional consideration. A Senate sponsor of the legislation would have the power to assign the bill to a committee or bring it to a vote, Schein said. If the Senate in turn approved the measure, the bill would then go to a House-Senate conference committee for further consideration.
But the current session of the Texas legislature expires at the end of May. That’s not a lot of time for the bill to make it through all of the necessary hoops before it lands on the Texas governor’s desk. “It’s a tight deadline, but certainly one that could be accomplished,” Schein said. As to its merits, Schein questioned the logic of having the state PUC estimate the windfall prior to 2004. The state PUC, under a separate Texas electric restructuring bill, already has been tasked with implementing a “true up” in 2004.
“Essentially, in order to estimate the windfall, they have to guess at the value of the plants and guess what the value of the plants will be in the future, as well as guess what the price of natural gas will be in 2004,” Schein told NGI.
“The concern that we and others have is that if we knew what the price of gas was going to be in 2004, we would be retired to a nice island in the Caribbean,” Schein went on to say. “In 2004, we’re going to have an actual true up where we will know exactly to the penny what those plants are worth,” he noted.
“The one thing that we’ve always said is that the whole stranded cost issue is very similar to income taxes, in that at the beginning of the year you estimate how much you’re going to earn, and from that estimation then you estimate how much taxes you’re going to owe,” he said. “The way stranded costs works is if we have over-mitigated after true up, then we’ll return the money to consumers,” he said. “If we have under-mitigated, then we will continue to collect,” Schein said.
Just as individuals run the risk of owing a sizeable amount of money to the IRS over a short period of time if they make decisions based on promised tax cuts that don’t materialize, utilities run the same risk when it comes to mitigation. “In that if we return the amount that has been currently mitigated, as well as stop mitigation proceedings for the next two years, then when we get to true up, you’re going to have a nice, fat spike in prices,” Schein continued.
“So, the way 2107 is written now, just as competition is beginning to take place, consumers are going to have a big increase in their electric rates and if I am a competitor, I’m going to sit on the sidelines until I know for sure whether my customers are going to face that rate shock,” he added. “And the fewer competitors you have, then it’s less healthy for competition in the state,” Schein noted.
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