Written on: October 23, 2014
Texas regulators report that Houston’s CenterPoint Energy collected $46.5 million in “excess revenue” during 2013 alone. And the utility itself — in comments to investors — boasts it has been collecting excess revenues since at least 2012.
“For the last three years, we’ve been earning well in excess of (our) … authorized return,” CenterPoint vice president Tracy Bridge said during a June 30th investors meeting.
CenterPoint Energy is a monopoly transmission and distribution provider with more than 2 million captive customers. Its rates, which are imbedded in all electric bills in the Houston area, are authorized by the Texas Public Utility Commission. The PUC allows the company to charge customers for operating expenses and construction projects, plus a reasonable profit to stockholders — denoted generally as a percentage.
A key component of that profit is “return on equity.” Return on equity reveals how much profit a utility is authorized to earn in comparison to the total amount of shareholder equity or ownership. In 2011 the PUC authorized a 10 percent return on equity. This means CenterPoint’s shareholders should have an opportunity to make a $1 profit on each $10 they own in the company.
But in statements to investors, the company boasts of much greater returns. PUC staff says CenterPoint had a nearly 11.4 percent return on equity during 2013 alone.
As a monopoly utility, CenterPoint faces very little financial risk. It also can avail itself of regulatory “recovery mechanisms” that allow for rapid rate increases with reduced scrutiny. It employs numerous lobbyists at the Texas Legislature that push for even more regulatory advantages.
“We don’t really have exposure to bad debt (and) we’ve got recovery mechanisms that are really pretty robust,” CenterPoint president Scott Prochazka told investors during a June 30th presentation.
CenterPoint’s overearnings since 2011 may have exceeded $175 million, according to rough estimates by the Texas Coalition for Affordable Power. But rather than looking to decrease its rates, CenterPoint, in comments to PUC staff, indicates it will file for a rate increase in April.
CenterPoint’s millions of dollars in excess earnings have attracted the attention of the press. In a Houston Chronicle article, a company vice president acknowledged it crossed the 10 percent threshold in 2012, when it had a return-on-equity of 12.8 percent.
“We want to earn as much as we reasonably can for our investors,” he told the newspaper’s Ryan Holeywell.
In a separate radio report for StateImpact Texas, journalist Dave Fehling asked a CenterPoint VP how the company can justify seeking a rate increase in April when its boasting to investors of returns “well in excess” of authorized amounts.
“Certainly our investors would like for us to earn our allowed return and beyond,” said the VP.
Regulatory expert Thomas Brocato, an attorney working on behalf of a coalition of cities in the Houston area, is among those raising concerns about the company’s over-earning. “They’ve got a pretty long history of over-earning and that’s frustrating, disappointing,” Brocato told NPR.
Cities exercise regulatory authority over monopoly electric and gas utilities and have long played a watchdog role on behalf of consumers at the state’s regulatory agencies. But CenterPoint, which is one of the top political contributors to the Texas Legislature, aggressively has lobbied to limit municipal oversight authority at the PUC and the Texas Railroad Commission.
According to a campaign finance watchdog group, CenterPoint spent between $885,000 and $1.8 million on lobby contracts during the 2013 session of the Texas Legislature.