City Council voted to launch a rate case against CenterPoint Energy over its natural gas rates Wednesday, saying the utility company appears to be overcharging nearly 400,000 customers in Houston by more than $15 million a year.
Both sides, however, said negotiations begun in earnest in December are ongoing in hopes of reaching an agreement before the case goes to the Texas Railroad Commission.
As regulator, the city is tasked with balancing the interests of rate payers, including 370,000 residential natural gas users, against CenterPoint’s right to a fair return on its investment under state law, City Attorney David Feldman said. By law, Feldman said, all municipalities in Texas act as natural gas regulators unless they defer that duty to the Railroad Commission.
This is the first time the city has initiated a rate case on behalf of natural gas customers, said Chris Newport, public information officer for the city’s Administration and Regulatory Affairs Department. Utilities often initiate such cases in order to increase rates.
“We’re saying, ‘Look, we’ve got $15.7 million of what we think is real over-earnings,’ and we’ve had several meetings with them asking them to tell us where we’re wrong, and they haven’t done so,” Newport said. “We’re not being provided with the information to have a complete picture, so the rate case is the vehicle that provides that information.”
Newport’s department asked Council last July to initiate a rate inquiry, and gathered data for a “test year” from September 2011 to last September.
Based on that information and other filings, the city believes CenterPoint understated its revenues in a 2011 earnings filing by not factoring in customer growth or some recent rate increases, and overstated its costs by, for example, not incorporating technology-driven savings in meter reading.
The company’s last natural gas rate case entitled it to a 10 percent rate of return, Feldman said, adding that the data collected by the city suggest the utility has been exceeding that.
“CenterPoint Energy has been working closely with the city of Houston for the last several months to address their inquiry about our current natural gas rates,” company spokeswoman Alicia Dixon said. “We look forward to continuing to work with them to resolve their concerns without a lengthy, costly rate case.”
The utility explained its position in a Dec. 18 memo to city officials. A formal rate case, the memo states, would show CenterPoint has been undercharging customers and would lead to an increase in residential rates, not a decrease.
The memo also stated that a rate case would force CenterPoint to incur costs that would be passed on to customers, regardless of the case’s outcome.
“It’s about the numbers, and the more certainty there can be as to the numbers, the better the understanding, the better we can agree as to whether or not they’re over-earning,” Feldman said. “For us to go forward we need to be confident that they’re overearning and that they’re over-earning by a sufficient amount that it makes it worth our while and worth the cost to customers to pursue this in a formal proceeding before the Railroad Commission. We are trying hard to see if we can resolve this.”
No money back
There are many possible outcomes to the negotiations, which Feldman said likely would need to conclude in the next few weeks to be successful. He said the sides could agree to a reduction, for instance, or could agree to keep rates constant for a set period of time.
If CenterPoint’s rates are reduced, via a settlement or through a rate case, customers would not get money back, Newport said, but would get a reduction in future rates.