Aug. 16, 2000, 9:38AM

HL&P users get 12% jolt to wallets Firm OKs settlement on fuel pass-through By MICHAEL DAVIS Copyright 2000 Houston Chronicle

Reliant Energy HL&P will begin passing higher fuel costs to its customers beginning today in a move that will raise power bills by 12 percent, a company spokesman said Tuesday.

The electric utility serving the Houston metropolitan area had been seeking approval to raise its average residential bill by 14 percent to pass through higher natural gas prices.

Instead, HL&P settled with consumer advocates, large industrial customers and the city of Houston, among others, on a lower increase to avoid a lengthy hearing before the Public Utility Commission of Texas.

An administrative law judge in Austin approved the settlement last week. The company will begin using the newly adjusted fuel rate to calculate bills from meters read beginning today, said Graham Painter, spokesman for HL&P.

Bills calculated starting today that will come due in September will carry the new fuel charge, Painter said. Any outstanding bills that come due in August will carry the old rate.

The math is simple. A $100 bill prior to the new fuel rate will now be about $112.

"We wanted to start this at the top of the September billing cycle so everyone would be treated the same," Painter said.

The judge's ruling on the settlement is contingent upon the approval of the PUC. Later this month, the commission will review the settlement at its Aug. 24 meeting, said Terry Hadley, spokesman for the PUC in Austin.

HL&P burns coal and natural gas at its various power plants to generate electricity. It also owns a stake in the South Texas Project nuclear plant.

The increase in fuel costs would not be a permanent increase in customers' bills. HL&P's fuel rate comes up for review twice a year before the PUC, in April and October.

The settlement drew criticism from one leading consumer advocate who said the commission has allowed Reliant Energy to use two different assumptions on the price of gas in the future in two separate matters, both of which benefit the company.

The company used a higher projection of natural gas costs in the fuel rate settlement -- allowing it to collect more in fuel surcharges -- than it did when seeking stranded costs, funds the company is allowed to recover under the state's move to competition in 2002, said Janee Briesemeister, senior policy analyst with Consumers Union in Austin.

Using a lower natural gas price projection to calculate stranded costs meant HL&P was able to justify a higher recovery than if had it used the number it used to reach the fuel rate settlement, Briesemeister said.

"The price of gas is the price of gas, yet the PUC is using two different numbers for the very same thing in two different cases and the only consistent factor is that it helps out Reliant in both cases and it means money out of the pocket of consumers in both cases," Briesemeister said.

As it stands now, HL&P has received approval from the commission to sell $740 million in bonds to cover its stranded costs. The proceeds from those bonds, backed by ratepayers, will be used to refinance debt mainly related to the South Texas Project. The PUC will conduct a "true up" review of stranded costs in 2004.

If fuel costs go down, the commission could reconsider the utility's fuel rates in October.

The benchmark natural gas contract closed Tuesday at $4.23 per thousand cubic feet, and the contract for every month through February is trading for more than $4. Some predictions are that gas might reach as high as $6 to $7 if the country experiences a severe winter.

The current fuel charge on an HL&P customer is 1.9 cents per kilowatt hour and was computed during the company's last fuel rate adjustment by assuming a gas cost of about $2 per thousand cubic feet. The total cost for service on an HL&P bill is about 10 cents per kilowatt hour.

The new fuel rate will be increased to 2.6532 cents per kilowatt hour, increasing the overall charge to about 10.12 cents per kilowatt hour.

Under the electricity deregulation bill passed by the Legislature last year, the base rate of investor-owned utilities was frozen Sept. 1. But as Reliant's settlement shows, fuel costs can still be passed on.

HL&P's operating income for the second quarter of 2000 was $325 million, up 28 percent from $253 million in the same period of 1999. Increased customer demand and lower depreciation and amortization expense were the primary reasons for the rise in operating income, the company said.

In addition to Reliant Energy HL&P, other large investor-owned utilities that have asked the PUC for relief from higher fuel costs include Central Power & Light, which serves much of South Texas, and Texas-New Mexico Power Co.

http://www.chron.com/cs/CDA/story.hts/metropolitan/635479

-- Martin Thompson (mthom1927@aol.com), August 16, 2000