CenterPoint in fight over $200M contract
Utility leased mobile generators, wants to raise consumer rates
Not long after the Legislature authorized Texas utilities in 2021 to acquire mobile generators to hedge against another collapse in the electric grid, CenterPoint Energy leased some 500 megawatts of mobile power at an initial cost of about $200 million.
Concerns about the deal surfaced almost as quickly. The day after the Houston utility filed with the Public Utility Commission in April to recover its costs by raising customers rates, two groups – one representing municipalities and one representing industrial energy customers – filed motions opposing the potential rate increases.
The PUC sent the case for review by an administrative hearing judge the same day. Within a week, another four groups had filed motions to reject Center-Point’s rate request, and the utility soon found itself preparing for a legal fight with nearly a dozen trade groups and municipalities.
At issue are two lease contracts for which CenterPoint has already paid nearly $200 million to mobile generation power company Life Cycle Power. Under a state law passed following the deadly February freeze of 2021, CenterPoint cannot only recover from its customers the costs of leasing and operating its units, but also a rate of return, or profit, of 6.5 percent on every dollar it spends on leasing, operating and maintaining these mobile generation units.
The State Office of Administrative Hearings will hear the case on Oct. 18 and 19, and a hearing officer will provide an opinion to the Public Utility Commission in the weeks after. The PUC will ulti-
mately decide whether CenterPoint can charge its customers for the mobile generation. It will be the first time the PUC will decide whether a Texas utility can charge ratepayers for mobile generation expenses.
In written testimony filed with PUC, CenterPoint officials said the 500 megawatts of mobile power generation will better prepare the Houston region's grid for potential disruptions stemming from hurricanes, freezes or other unforeseen circumstances. One megawatt is enough to power about 200 homes on a hot summer day.
CenterPoint said the additional costs will add just $1.07 per month to the average residential customer's bills, but that's on top of the additional $11.45 per month CenterPoint began charging its residential ratepayers on Sept. 1 for transmission and distribution costs.
Martin Narendorf Jr., CenterPoint Houston's vice president of electric engineering and asset optimization, said had the utility had 500 megawatts of mobile generation during the February 2021 freeze, along with a handful of other technologies the company is acquiring, it would have been able to rotate outages. CenterPoint had to cut so much power after nearly half the state's generation was knocked offline that it could not automatically rotate outages during the freeze, forcing utility workers to do so manually.
That left some residents without power for three or more days, while others did not lose power at all.
“By leasing and operating mobile generation facilities, CenterPoint Houston hopes to provide a faster response to restore electric power in areas affected by widespread outages and to lessen customer outage duration,” Narendorf said.
But critics say CenterPoint rushed to put out contracts -- giving vendors just two business days to respond to a request for proposals for one contract – and ultimately selected a littleknown company that did not have enough mobile generation units as recently as six months before CenterPoint signed the contract. Critics say 500 megawatts is far more than the utility would need to recover from a storm or rotate outages if ERCOT forced utilities to cut power, CenterPoint agreed to pay Life Cycle Power more than the generation was worth.
That has left customers with the overblown tab, they say.
Rushed; no analysis
Charles Griffey, an electric industry consultant hired by Texas Competitive Power Advocates and the Alliance for Retail Markets, both power industry trade groups, said CenterPoint rushed to complete the contracts by the end of 2021 so it could seek approval from the PUC to recover the costs and the rate of return from its customers.
“(CenterPoint) did not perform any numerical analysis to demonstrate the value or benefit to customers of the mobile generation facilities,” he wrote in his testimony. “(CenterPoint) made the choice of how much capacity to procure based on oral discussions in one meeting. It has provided no minutes of that meeting.”
The company to which CenterPoint awarded both the short-term contract for the remainder of the 2021 hurricane season and last winter is Life Cycle Power.
The company was registered in Texas in
2018 by John Thuma, who in 2012 was convicted of dumping wastewater from oil-and-gas operations into the Red River and wastewater system of Shreveport, La. and sentenced to eight years in federal prison on charges of conspiracy, violating the Clean Water Act and obstructing an EPA investigation.
Thuma is no longer with the Life Cycle Power, according to the company's website.
In a lawsuit suit filed in July, Thuma alleged a private equity group to which he had sold more than 75 percent of the company to in 2020 was “ousting Mr. Thuma from his positions as CEO and manager.”
The suit also claimed that Life Cycle Power expected to earn $1.2 billion in revenue from the CenterPoint contract over more than seven years.
Noelle Reed, an attorney representing Thuma, did not respond to requests for comment.
CenterPoint officials said the company received only three bids for a short-term lease to provide mobile generation for the remainder of the 2021 hurricane season. Life Cycle Power was the “only bidder that offered to meet the delivery timeline requirements to make the mobile generation facilities available for the 2021 hurricane season,” Narendorf said.
Limiting comments
Those who have asked PUC to reject the deal argue that CenterPoint's compressed timeline for getting responses limited applicants.
Kevin Mara, vice president of engineering consulting firm GDS Associates who presented testimony on behalf of Houston and dozens of other municipalities, said CenterPoint sent out its requests for proposals on a Friday for the short-term lease and stipulated that responses were due the following Monday.
“The schedule provided was not realistic and greatly reduced the number of competitive responses,” Mara wrote.
CenterPoint hurried to obtain mobile generation because similar units were being snatched up in California following a series of power outages and wildfires, said Narendorf. Other communities vulnerable to hurricanes along the Gulf Coast were starting to acquire them as well.
“CenterPoint Houston was concerned with the increasingly limited supply of available mobile generation resources and began the process of securing these facilities without further delay,” he said in his testimony.
Life Cycle Power, however, did not deliver all the units CenterPoint had leased until mid-October, with hurricane season all but ended, testimony shows.
Joydeep Mitra, who runs the Power System program at Michigan State University, said increase in natural disasters has made the mobile generation more popular, allowing utilities to plug in where power is needed while crews repair damaged transmission or distribution lines.
It can sometimes take two weeks to prepare lines after a major storm or hurricane, and having mobile generation available could save lives, Mitra said.
Not enough power
“If you think about Houston itself, 500 megawatts is nothing compared to Houston's (electricity demand) itself,” Mitra said. “If you have a bad storm, and power lines are knocked out, you could easily see them needing 200 to 300 megawatts of mobile generation at the same time. I would not say 500 megawatts is excessive.”
Still, it is much more than other utilities across Texas have leased under the new statute. Oncor, the state's largest utility provider, has procured just 11 megawatts of mobile generation for a 7year lease at a cost of $3.1 million as of the end of 2021.
In a statement, CenterPoint officials noted that municipalities previously applauded CenterPoint for procuring the generation. And despite the recent objections, they said the generation units will be available to improve the utility's response to natural disasters and outages.
“As the “poles and wires” company that delivers energy to our customers, the new temporary emergency mobile generation resources are a critical tool that allows us to temporarily serve customer needs when traditional generation cannot because of weather events or other causes,” CenterPoint officials said in a statement. “These resources will help us to support ERCOT if there is a future need for a load shed event and ultimately better serve our customers.”