Reliant HL&P forecasts higher prices when Texas deregulates

Reliant HL&P projected electricity prices will be higher after the Texas market deregulates in 2002 than prices in 1999 and 2000, but municipalities and consumer advocates complained the company doesn’t adequately justify its price forecasts.

The utility unit of Reliant Energy Inc., Houston, made the prediction as part of its case to incorporate a fuel factor based on $4.71/MMbtu of gas into the price of power that a company affiliate will be allowed to charge customers when competition begins in the Texas electricity market next year.

Hearings in Austin began Wednesday to determine what the marketing affiliate of Reliant Energy Inc. will be able to charge customers next January. The 1999 law deregulating the Texas market required regulators to set a price for marketing affiliates of the incumbent utilities.

Consumers who decide to stay with Reliant rather than choosing a competitor will be charged the so-called discounted “price-to-beat” for 5 years. Whatever the Texas Public Utility Commission determines is the price-to-beat will also help determine what Reliant’s competitors will charge customers next January.

The state consumer advocate and cities served by Reliant said the company’s electricity and gas price projections are faulty and should not be used. Moreover, the Office of Public Utility Counsel (OPUC), which represents consumer interests before the commission, complained Reliant wouldn’t supply supporting data.

Reliant asked the commission to set a winter price-to-beat of 9.47&cent,/kw-hr. That price is based, in part, on a fuel factor incorporating purchased power costs of $56.52/Mw-hr in 2002. Reliant calculated its fuel factor for purchased power using forecasts that assume gas will cost $4.71/MMbtu.

Last year, the median price of power was $47.78/Mw-hr with a range of $21.55 to $287.78/Mw-hr, according to the PUC market oversight committee. In 1999, prices ranged from $15.79 to $370/Mw-hr with a median price of $25.28/Mw-hr.

With a projected statewide reserve margin of 30% in 2002, compared to a 16% reserve margin in 1990 and 2000, power prices should be falling not rising, said Clarence Johnson, director of regulatory analysis at OPUC.

Reliant developed its forward prices based on an analysis of daily trading activities and current market conditions but didn’t keep information supporting its calculations, OPUC said. Reliant also said it developed forward prices for gas and power “judgmentally” when no trading data is available, said OPUC.

Because none of the forward price data is verifiable in company books or records or based on a publicly available market trading information, OPUC said Reliant’s forward price curves should not be used in calculating a fuel factor.

Reliant HL&P said it will purchase a 2002 1-year strip of capacity auction product to serve its projected load. Reliant also proposed to buy power during the peak 16 hr of the 5-day work week to maintain a 15% reserve margin to serve customers who stay with the company, plus large industrial and commercial customers who are expected to leave its system.

“These blocks of power have a high cost,” Randall J. Falkenberg, a consultant for OPUC, said in testimony.

Falkenberg called an obligation to buy expensive power for 300 or more hr/month rather than using lower cost self-generation a costly strategy. “The company may have ignored the obligation to provide service at least cost,” he said.

OPUC proposed an alternative fuel factor of 3.1208à‚¢/kw-hr, lower than Reliant’s proposal of 3.9232à‚¢/kw-hr, but higher than the 1.9477à‚¢/kw-hr in effect in January 1999. The staff of the PUC proposed Reliant rely on a mix of short and long-term contracts to keep power costs down, but did not raise objections to the company’s proposed fuel factor.

Industrials concerned
Large industrial and commercial customers are ineligible for the price-to-beat and must go to the competitive market immediately in January 2002. Reliant is under no obligation to provide those customers with electricity at a discounted price.

The City of Houston, the Gulf Coast Coalition of Cities, and Texas Industrial Energy Consumers (TIEC) said Reliant inappropriately excluded 15% of its generation resources in projecting fuel expenses and inappropriately stated that it will continue to serve 100% of its native load.

The use of spot market purchase projections to maintain a 15% reserve margin, including customers who will leave the system, adds .411à‚¢/kw-hr Texas Industrial Energy Consumers (TIEC) said in its testimony.

Reliant must use all its generation and all its load to estimate the fuel factor, or alternately 15% less of its capacity and subtract the load of large industrial and commercial customers, said TIEC, which represents the state’s largest industrial energy consumers. Otherwise, Reliant’s fuel factor filing is “inconsistent,” it said.

“Up to 40% of Reliant’s kilowatt hour sales are to customers with demands in excess of 1,000 kw,” according to TIEC’s testimony. “It would be wrong to calculate a fuel factor assuming that Reliant would continue to serve 100% of its native load customers.”

TIEC also pointed out that Reliant included other fees that should not be part of a fuel factor calculation such as scheduling fees, unaccounted for energy, additional transmission losses, and congestion management fees.

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