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Record Electricity Prices Locked in Due to Deal Between TXU and Gov. Perry

Jan. 25, 2006

Record Electricity Prices Locked in Due to Deal Between TXU and Gov. Perry

Consumer Group Questions Whether TXU’s Electric Price Increase Is Justified

AUSTIN – Even though natural gas prices have declined significantly, more than 2 million customers of TXU in North Texas are stuck paying record-high electricity rates because of a deal between the utility and Gov. Rick Perry that temporarily locked in rates based on the inflated price of natural gas immediately following Hurricane Katrina, Public Citizen said today.

Natural gas is used to produce about half of Texas’ electricity. The Public Utility Commission (PUC) on Nov. 2 granted TXU’s request to base its electricity rates on a 20-day average natural gas futures price of $11.53 per thousand cubic feet (Mcf) – an increase of 46.5 percent from the previous average of $7.87, used to set rates in March 2005. Now, the 20-day average has fallen below $10/Mcf.

The details of the deal between TXU and the governor are spelled out in an Oct. 13 letter from TXU Chairman Jim Burke to Deirdre Delisi, the governor’s chief of staff. In the letter, Burke says that if its rate adjustment request is granted, the company agrees to not seek another one until at least April 1, which is after the gubernatorial primary.

“Because of Perry’s ‘hurricane deal,’ consumers are stuck paying inflated electricity bills, while TXU rakes in millions in excess profits,” said Tom “Smitty” Smith, director of Public Citizen’s Texas office.

A household using 1,000 kilowatt hours per month, which is average usage, is paying $13 more per month because of the rate increase.  

Perry, who appointed all three PUC commissioners, received $66,875 in campaign contributions from TXU’s employees and political action committees during the 2004 election cycle. Overall, the company has contributed $753,522 to Texas politicians and PACs during that period, according to Texans for Public Justice.

Smith said Perry could protect consumers in the future by urging the adoption of new electricity pricing rules that require the PUC to set rates based on the cost of all types of fuels used in energy production, including wind and coal, which provide power at lower cost. Currently, regulators consider only the price of natural gas. Half of TXU’s energy is produced by fuel other than natural gas.

The PUC currently has a rulemaking open on this issue (PUC Docket 31416). Not surprisingly, TXU (as a member of the Retail Market Coalition), is urging the PUC to make no changes in the way electricity prices are set.

Under the current rules, only TXU is allowed to request an adjustment to its rates; the PUC cannot initiate a reduction. TXU has requested and received seven consecutive rate increases since January 2002 – increasing its rates by more than 80 percent.

“Two million TXU customers need rate relief now,” Smith said. “The governor needs to stand up to TXU and instruct the PUC to stop rubber-stamping rate increases without looking at their real fuel costs. Citizens should call Perry’s office and ask him to intervene to cut their electric bills now.”