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From: Geriann Warner on 04/24/2001 11:26 AM
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Subject: Fwd: Dow Jones Newswires - Article on TX Stranded Cost Issue

FYI



Geriann Warner
Government Affairs - The Americas
1400 Smith Street, EB 4740C
Houston, TX  77002
Tel: 713-853-5036
Fax: 713-853-7297
E-Mail: geriann.warner@enron.com
----- Forwarded by Geriann Warner/NA/Enron on 04/24/2001 11:26 AM -----

	"Bill L. Bryant" <BILL@katzlaw.com>
	04/24/2001 10:23 AM
		 
		 To: <Marchris.Robinson@enron.com>
		 cc: 
		 Subject: Fwd: Dow Jones Newswires - Article on TX Stranded Cost Issue





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Subject:	Dow Jones Newswires - Article on TX Stranded Cost Issue
Dow Jones Newswires 
Texas PUC To Rule On Thorny Stranded-Cost Issue 
 
 
Dow Jones Newswires 
 
 
HOUSTON -- The Texas Public Utility Commission 
is set to unleash a hornet's nest of protest 
from three investor-owned utilities this week 
if it orders the electric firms to return 
billions of dollars to rate payers. 
 
 
At issue is money the utilities have collected 
to offset expenses they contend will be left 
"stranded" when electric retail competition 
begins in Texas next year. 
 
 
If the two-member PUC agrees with the proposed 
rulings, it could be the first reversal of 
stranded-cost recovery policy in the country. 
 
 
The PUC is holding a two-day meeting, Tuesday 
and Wednesday, to complete its work on several 
contentious issues that must be resolved soon. 
 
 
Texas is caught between early expectations that 
wholesale power prices would fall under 
deregulation and recent recognition that 
wholesale prices may not fall due to higher 
fuel costs. 
 
 
Over-recovery of "stranded costs" - past 
utility investment in generating units, 
primarily nuclear power plants, that may not be 
competitive in a deregulated electric market - 
emerged with the dramatic rise in natural gas 
prices over the past year. 
 
 
Higher priced gas-fired generation makes 
nuclear power more competitive in Texas' open 
market, thereby reducing the stranded costs 
utilities expected, say critics. 
 
 
Texas PUC chairman Pat Wood and several Texas 
legislators are worried that ongoing efforts by 
TXU (TXU) unit TXU Electric & Gas, Reliant 
Energy's (REI) Reliant HL&P and American 
Electric Power's (AEP) Central Power & Light to 
collect money to mitigate their stranded costs 
will result in excess recovery which could hurt 
new entrants and stifle early market 
competition. 
 
 
The PUC wants to use revised stranded-cost 
estimates to decide if ongoing mitigation 
efforts should be reversed. 
 
 
When the Texas bill electric restructuring bill 
was passed in 1999, the trio of utilities 
expected total stranded costs to reach $7 
billion. 
 
 
Updating the economic model to reflect higher 
natural gas prices eliminated the stranded 
costs and led to talk of "negative" stranded 
costs of nearly $5 billion. 
 
 
The utilities say they don't believe they are 
recovering excess dollars and argue that the 
PUC can't alter the mitigation process until 
2004 when the Texas restructuring law calls for 
a final accounting procedure using actual 
market data, not the economic model they call 
flawed. 
 
 
They argue that if PUC estimates are wrong, 
power prices will jump in Texas in 2004. 
 
 
They staunchly oppose the idea that customers 
should benefit from negative stranded costs. 
 
 
By the end of the year, TXU will have collected 
roughly $1.2 billion; Reliant about $1.5 
billion CP&L about $36.5 million. 
 
 
The stranded-costs rulings are part of an 
"unbundling" process each Texas investor-owned 
utility is undergoing to establish transmission 
and distribution rates. In addition, the PUC 
will set certain non-bypassable wires charges 
which will come into play as the state moves to 
a competitive retail electric market beginning 
in January. 
 
 
TXU has said it will challenge any PUC ruling 
to change the mitigation process before 2004. 
 
 
In addition to the PUC effort, a bill is under 
consideration in the Texas House of 
Representatives that addresses over-recovery 
and "negative stranded costs" not just for TXU, 
Reliant and CP&L, but for other Texas utilities 
as well.