Nov 04 - Houston Chronicle

As electric customers open their monthly bills, CenterPoint Energy is grappling with a $750 million bill of its own for the costs of repairing Hurricane Ike's damage to the area's power grid.

Company officials, who initially estimated it would cost $350 million to $500 million to get Houston's lights back on, bumped up the estimate when they learned the full extent of devastation to poles and wires around town and started getting the bills from thousands of out-of-state utility workers who helped make the repairs.

Part of the revised $750 million estimate is an additional $180 million for making permanent repairs to equipment fixed temporarily to expedite power restoration in the immediate aftermath of the Sept. 13 storm.

"We have people still working on that all over town," CenterPoint spokesman Floyd LeBlanc said.

Under deregulation in Texas, customers can buy their electricity from dozens of retailers like Reliant, TXU and Stream Energy. But no matter who sells the power, most of it in the Houston area goes through CenterPoint's transmission and distribution system, giving the regulated monopoly a guaranteed, robust revenue stream.

During ordinary times, that kind of stability would let CenterPoint tap the credit markets with ease to cover the cost of repairs.

These are not ordinary times.

Today, with the world economy spiraling into recession and many banks hoarding what cash they have, Wall Street has little appetite for debt with anything but top ratings. Standard & Poor's rates CenterPoint at BBB+.

Phil Adams, an analyst with Gimme Credit, said the credit market has thawed a bit since mid-September, but debt is still expensive for BBB-rated utilities.

CenterPoint is using its existing lines of credit to pay hurricane-related bills today but eventually will seek reimbursement from electricity ratepayers, said Tom Standish, CenterPoint Energy's group president of regional operations.

It also will seek permission from the state Legislature and the Public Utility Commission of Texas to sell bonds backed by the state, which would give it an AAA credit rating and let it borrow at the lowest interest rates available in the market. Due to the credit crunch, even those rates look high these days, though.

Many utilities in disaster-prone areas, including Duke Energy, Southern Co. and Florida Power & Light, have storm insurance, a reserve fund set aside for hurricanes or both. CenterPoint has neither.

Disaster insurance for the poles and wires that carry power to consumers is expensive for coastal utilities, said Howard Mills, chief adviser on the insurance industry for consulting firm Deloitte. It got more expensive in 2004 when four hurricanes whipped Florida in just six weeks.

Standish said such insurance is too expensive to be an option for CenterPoint.

Some states' regulators promote the idea of storm reserves for utilities in hurricane-prone areas, but in a 2006 rate case the Public Utility Commission of Texas rejected CenterPoint's request for a hurricane fund.

Standish says storm reserves give utilities financial flexibility and keep them from having to pay interest to cover hurricane damage.

"The counter-argument is that customers are prepaying for something they may never use," Standish says. "You could have a hurricane in five years, or you might not have one for 50."

That's why Branko Terzic, a former commissioner with the Federal Energy Regulatory Commission, doesn't see a problem with funding storm repairs after the fact.

"Either way, rateholders end up paying it," Terzic said.

Standish said the utility responded well, hitting or beating the restoration time projections it set forth soon after Ike knocked out power to more than 2 million area customers.

"Our correspondence has been 15-to-1 favorable responses over complaints," he said.

But Standish acknowledges he underestimated customers' desire for detailed neighborhood-by-neighborhood reports of CenterPoint's restoration progress.

"If we fell down anywhere it was communication," he said, adding accurate details were hard to come by because power grid problems were so extensive.

Greg Lucero, the business manager for the International Brotherhood of Electrical Workers Local Union 66, praised the restoration effort given the strength and range of the storm, but he said that since deregulation took effect in Texas in 2002 utilities have cut back on personnel and some maintenance budgets.

According to regulatory filings, CenterPoint spent about $35 million last year on maintenance of its overhead power distribution lines, which were hard-hit by Ike. That's 17 percent less than the $42â??million it spent in 2000. But during the same period CenterPoint's expenditures on its transmission system -- the metal towers and wires that carry massive amounts of electricity from power plants into the city -- more than doubled, according to documents filed with the Federal Energy Regulatory Commission.

Part of the recent uptick was because the North American Electricity Reliability Corp., which develops standards for the bulk power system, put in new rules requiring transmission system upgrades, said Stan Johnson, NERC's manager of infrastructure security.

CenterPoint's work force on the electric side of its operations -- it also provides natural gas in the area -- has dropped 16 percent since 2002 to 2,746 in 2007. Employees represented by the union are down 23 percent, according to documents filed with regulators.

"I think these guys did a great job getting it all back on, but they did have to shift and reorganize. Some were scrounging for material," Lucero said. "Every utility has downsized. Now it's harder to get stuff approved. Before deregulation, utilities were always preparing for the future. Now they wait until it's needed and then scramble to get it done."

lynn.cook@chron.com

-----

To see more of the Houston Chronicle, or to subscribe to the newspaper, go to http://www.HoustonChronicle.com.

Copyright (c) 2008, Houston Chronicle

Distributed by McClatchy-Tribune Information Services.

Copyright © 2008The McClatchy Company