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Texas regulators ready to approve slashed rate hike for CenterPoint Energy

The Public Utility Commission of Texas on Feb. 14 directed staff to craft a final order in the rate case for Houston's main transmission and distribution utility, CenterPoint Energy Inc. subsidiary CenterPoint Energy Houston Electric LLC, which increases its base rate by $13 million, well below its initial $161 million increase request.

While the CenterPoint utility had reduced its initial request in an errata filing to an increase of $154.6 million, PUCT staff and several intervenors sought overall decreases such as the following:

*PUC staff: $11.1 million.

*Municipal intervenors, including the city of Houston, Houston Coalition of Cities, Gulf Coast Coalition of Cities and Texas Coast Utilities Coalition: $130 million.

*Texas Office of Public Utility Counsel: $184.9 million.

The reasons for the vast differences — effectively almost $340 million between CenterPoint's $154.6 million proposed increase and the public counsel's $184.9 million proposed decrease — include an administrative law judge's conclusion that CenterPoint had not sufficiently proven the prudence of more than $294.4 million of capital spending.

The three most expensive items that the administrative law judge would have disallowed in its Sep. 16, 2019, proposal for decision were:

*$176.3 million for a prepaid pension asset, considered a double counting of a return on unrealized losses already included in CenterPoint Energy's pension costs.

*$51.4 million for items that had been previously expensed, such as microprocessor control devices and underground cable life extension efforts, that are not capitalized.

*$20.1 million as a 35% disallowance of the utility's Major Underground Rehabilitation Program, in which CenterPoint Energy "fell far short of meeting its burden to prove the entire cost of the program was prudent."

The PUCT approved the settlement agreement among CenterPoint Energy Houston and several rate case intervenors, except that its language appears "to bind future commissions," Chairman DeAnn Walker said Feb. 14, adding, "I don't believe we can issue an order that binds future commissions.

"If that ends up blowing up the settlement, we can go back to deciding the case," Walker said.

The intervenors who agreed to the settlement include the PUCT staff, public counsel, city of Houston, Houston Coalition of Cities, Gulf Coast Coalition of Cities, Texas Coast Utilities Coalition, Texas Industrial Energy Consumers, the Alliance for Retail Markets, Texas Energy Association for Marketers and Walmart.

The intervenors who are "unopposed to the agreement" are Texas Competitive Power Advocates, power generator Calpine Corp., Olin, Solar Energy Industries Association, Enel X North America, Generation Park Management District and McCord Development.

Settlement's provisions

Aside from approving an overall base rate revenue requirement increase of $13 million, from $2.496 billion to $2.509 billion, the settlement's provisions include the following:

*The weighted average cost of capital shall be 6.51%, based on 4.38% cost of debt, 9.4% return on equity, and capital structure of 57.5% long-term debt and 42.5% equity.

*Future base rate proceedings will be filed no later than four years from the date of the commission's final order.

*No distribution cost recovery factor proceeding will be filed in 2020, and later proceedings must account for the effects of accumulated deferred federal income tax and excess deferred income tax liability balances.

*Future transmission cost of service proceedings must account for the effects of the tax liability balances.

*Various safeguards shall be used to ensure CenterPoint Energy Houston's financial health is not impaired, regardless of the status of its parent, CenterPoint Energy, or any affiliated companies.

The PUCT's next meeting, when the final order may be approved, is scheduled for Feb. 27.

Mark Watson is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.