On Wednesday, Houston City Council passed an ordinance opposing CenterPoint's request to increase price rates for its 2 million-plus customers. CenterPoint was asking to bill its customers $49 million, in the form of rate increases, for large capital investment costs, even though it had already succeeded in hiking prices last year — and wants to continue hiking them another $60 million the next year.
Even though the city stands opposed to the company's request, it's the Public Utility Commission of Texas that will have the final say. Last year the city also opposed CenterPoint's request to be reimbursed $16 million, but PUC later approved it anyway.
“It is critical that CenterPoint Energy is financially strong so we can continue to meet the demands of Houston’s vibrant economy,” CenterPoint spokeswoman Leticia Lowe said to us in an email, explaining why it is necessary for the company to do this again.
CenterPoint's critics, however, say they aren't so sure that price increases for customers are quite as necessary as the company claims. Though the rate hikes may be minimal per household — about 63 cents per month — they add up in revenue for Houston's monopoly electricity provider. Thomas Brocato, an attorney specializing in energy and utility with the Gulf Coast Coalition of Cities, said the risk is that CenterPoint may simply be splurging on capital investments in order to increase its rate of return — which, in the long run, just means customers pay more while basically subsidizing the company's growth.
CenterPoint is allowed to ask for higher prices each year under a 2011 law passed in the Legislature allowing companies to recover some of the money they invest in capital improvements intended to make their service more reliable. According to CenterPoint, it spent $700 million on those types of projects last year: wires, poles and insulators in the Galveston area; three new distribution circuits in the Heights area to account for all the new apartment buildings and subdivisions; and an “intelligent grid,” which is able to locate power outages as they occur and speed up recovery, so repair crews don't have to hunt down the source of the outage.
To be sure, Brocato said, these are important projects — he's an attorney who represents cities, and cities like their lights to be on. But it's also important to note, he said, that, before this new law was on the books, CenterPoint was spending about half of what it is now. In fact, as recently as 2013, CenterPoint was bringing in so much revenue that it was more than what regulators even allow — $46 million in excess, to be exact. According to CenterPoint, though, it is no longer above regulators' threshold but below it, and so is allowed to apply for the rate increase under the 2011 law.
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Still, Brocato said that, on the surface, it may appear reasonable that CenterPoint could ask to be reimbursed for its service investments — but that really, simply presenting costly investments without also showing how much revenue those investments generate may cause the rate hikes to appear more necessary than they really are.
“They do have growth in their service area, and nobody's going to dispute that. When they have growth, they have to put new poles and wires and infrastructure in place — no one doubts that,” Brocato said. “But with that investment also comes revenue. When you only look at the expense side, and not the revenues associated with it, you get an incomplete picture.”
Brocato said that the challenge is that it's extremely difficult for regulators to determine whether CenterPoint's expensive capital improvement projects are necessary or not. In more than 20 years, Brocato can't recall a single time regulators ruled that a utility company's expenditure was “imprudent.” But looking at CenterPoint's jump in spending in recent years, coupled with its repeated requests for rate hikes that don't appear to be slowing down, Brocato said it's cause for concern. The company spent $380 million in 2011 compared to $700 million last year, though its customer base only grew from 2.1 million to 2.3 million in the same time period.
“The concern is, are they gold-plating the system? Are they overspending to increase their rate base? And what return are rate-payers getting for that additional investment — meaning, how much of their service is really improving?”