TXU and PUC staff proposes $1.3 billion settlement for stranded cost issue

Ann de Rouffignac
OGJ Online

HOUSTON, Dec. 28, 2001 à‚– TXU Electric and the staff of the Public Utility Commission of Texas agreed that TXU could collect $1.3 billion for so-called stranded costs. The issue of stranded costs or costs previously incurred under regulation that might be uncompetitive once competition begins, had been mired in legal disputes.

The settlement plan, to be filed at the PUC Dec. 31, will resolve all pending issues related to TXU’s transition to competition set to begin in Texas in Jan. 1, 2002, said Tom Baker, president of TXU Electric, a unit of TXU Corp. The full commission still has to approve the proposed settlement.

Under the proposed settlement, TXU will collect $1.3 billion for stranded regulatory assets from all customers through a charge on transmission and distribution rates.

“We originally asked for $1.65 billion,” said Chris Schein, spokesman for TXU. “This settlement lays the foundation to move beyond these regulatory and legal issues.”

Other stranded costs for power plants especially TXU’s nuclear plant will be zeroed out. TXU had asked the PUC for $2.5 billion in stranded generation costs. But none of the consumer groups or the staff of the PUC could agree on that value. The costs of producing power at the nuclear plant are more competitive than previously estimated because of the volatility of natural gas prices. In fact, the PUC staff had estimated TXU’s stranded costs to be negative.

A final determination of the value of the stranded costs would be made in 2004 when data from the market prices of electricity can be compared with the estimates. There was a risk to rate payers in 2004 that transmission and distribution rates might jump if market prices for electricity had stayed low rendering electricity from the nuclear plant uncompetitive.

“The settlement reduced ratepayer exposure to the risk of much higher rates in 2004,” said Clarence Johnson, director regulatory analysis of the Office of Public Utility Counsel.

The settlement also gives a credit to competitive retailers on transmission and distribution costs of $350 million over 2 years. The credit resolves the overcollection from ratepayers since 1998 in preparation for the opening of the market. Overcollection of earnings and some transmission rates was designed to spread out the collection of stranded costs over several years before the market opened. But later, the PUC staff and consumer groups found that TXU had collected much more since stranded generation costs were coming up negative.

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