ERCOT proposed budget for 2002 increases debt

Ann de Rouffignac
OGJ Online
HOUSTON, Jan. 11, 2002 — The Electric Reliability Council of Texas won’t raise the fee it assesses electricity consumers this year but plans a 9% increase to 24 cents/Mw-hr in 2003 and another 4% increase to 25 cents/Mw-hr in 2004.

The system administration fee, set at 22 cents /Mw-hr for 2002, is ultimately paid by all power consumers in the state and provides 85% of ERCOT’s revenue, according to documents filed Friday. The balance of the grid operator’s revenue is generated by testing fees from the market participants, membership dues, and other fees. The mandatory fee and the budget must be approved by the Public Utility Commission.

ERCOT expects to collect $65.9 million in revenue for fiscal year 2002, roughly flat compared to 2001. But starting in 2003, projected revenue jumps to $70.7 million and to $74.3 million in 2004. Between 2002 and 2004, ERCOT’s projected revenue will rise 15% through a combination of increased fees and increased load.

Debt is also rising driven by the need to finance improvements in computer systems and software necessary to introduce competition. ERCOT said its debt service is projected to be $6.7 million for 2002, $11.3 million for 2003, $11.9 million for 2004, and $12.5 million in 2005.

This increasing level of debt service will only cover capital improvements necessary to sustain the system as it operates today without any system or PUC rule changes, said Maxine Buckles, chief financial officer of ERCOT.

ERCOT has incurred debt of about $95 million so far, Buckles said. Funding comes from short-term commercial paper that ERCOT is trying to convert to long-term debt. ERCOT expects to borrow another $28.5 million in 2002 rounding out ERCOT’s borrowings at $123.5 million. By fiscal year 2005 debt will stand at about $159 million, she said.

ERCOT’s assets — property, plant, and equipment — are valued at $121.5 million. The bulk of the assets are systems hardware and software valued at $92.7 million.

Because ERCOT is not a state agency but a nonprofit corporation, it can’t get the lower interest rates available to agencies backed by the state’s credit rating. The best interest rate ERCOT is being offered is 7% on long-term debt and 4% on the commercial paper program, Buckles said.

The 30-year Treasury bond is trading at about 5.36% and 180-day commercial paper for investment grade companies is at about 1.77%.

“We are in the process of converting the short-term debt and have several offers before us,” she said. “We expect to have a facility in place before the first quarter ends.”

Consumer advocates questioned why ERCOT went to the short-term commercial paper market to fund long-term capital improvements, especially since it probably costs more, said Janee Briesemeister, senior policy analyst with Consumers Union.

Capital expenditures for 2002 are expected to be $35.7 million and decline to $15.5 million annually through 2005, according to documents filed at the PUC. Total ERCOT labor expenses for 2002 are estimated at $29.8 million with total employees increasing to 300 from 238 in 2001.

Contact Ann de Rouffignac at annd@ogjonline.com

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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