CenterPoint Energy Houston Electric, the Houston transmission and distribution utility, has reported it is delivering nearly 30 percent more profit to its shareholders than has been authorized by regulators. That may come as good news to shareholders, but it also means than electric customers in Houston and surrounding areas pay too much for power. Like $70 million too much.
Although most of Texas operates under electric deregulation — with retail electric providers competing for business — transmission and distribution utilities such as CenterPoint remain rate regulated. That’s because these companies are natural monopolies and have no competitors. The Public Utility Commission sets their rates, which includes a reasonable amount for its operating expenses, its tax liabilities and its capital investments.
These rates also include a reasonable amount of profit for shareholders. Known as a “return on equity,” this amount is expressed as a percentage. CenterPoint, in a recent report to the PUC, reported it received a 12.8 percent return on equity during 2012. However, in its most recent rate case, the PUC authorized only a 10 percent return on equity. The difference is unauthorized profit — and it’s coming directly from CenterPoint customers.
Keep in mind that CenterPoint has no competitors and its shareholders face very little risk. And yet those shareholders received a nearly 13 percent return on equity in 2012. That’s a great deal — especially given that regulatory commissions in other jurisdictions have authorized returns under 10 percent in recent years.
CenterPoint says all this excess cash may be temporary. The company notes, for instance, that it is installing more smart meters that will require more capital outlay and diminish its short-term returns. But these additional meters also will allow the company to serve additional customers, which will bring it even more money.
Only the PUC can order the necessary rate reductions to bring CenterPoint’s revenues back in line. So far, however, the agency has not opened up an official review of the company’s rates. The PUC last examined the company’s rates in a 2010 case.
Is a policy analyst consultant for TCAP, a coalition of political subdivisions in Texas that purchase electricity in the deregulated market for their own governmental use. Because energy costs are typically a significant budget item to our members, TCAP is consistently looking for ways to save our members money, through cost-saving contracts, energy efficiency or demand response programs.