HOUSTON — Hurricane Beryl swept through Texas’ largest city in one day, but the fallout could change how electric utilities operate for decades.
The storm’s July 8 arrival continues to expose a host of issues at CenterPoint Energy, the main power provider in Houston, as more than 2 million customers lost power. Questions center on the local grid’s ability to withstand severe weather — even after the company embarked on a massive spending plan in recent years.
CenterPoint is now under investigation by Texas lawmakers, regulators and the state’s Republican attorney general. By the end of August, the company is on the hook to produce documents about its storm response while it rushes to meet Republican Gov. Greg Abbott’s directive that vegetation be trimmed near at-risk power lines.
Anger over CenterPoint’s failures may spark a shift in how privately owned electric utilities are allowed to make money in Texas’ main power region, potentially altering their business model to require more oversight. And just as a winter Texas grid meltdown in 2021 echoed nationally, the lessons from Houston’s latest energy crisis could be felt far beyond the Lone Star State.
“There’s no question this is a wake-up call,” said state Sen. Paul Bettencourt, a Houston Republican who sits on a committee investigating the hurricane response. “There is profound and absolute dissatisfaction with CenterPoint’s response.”
The company’s restoration process left more than 1.1 million customers without power for three days and hundreds of thousands without power for a week — during a time when heat indexes reached into the range of 100 degrees Fahrenheit. Critics said one of CenterPoint’s shortcomings was not moving crews into place soon enough as the path of Beryl changed. The storm’s winds damaged equipment and knocked over trees and power lines.
In a statement to POLITICO’S E&E News, CenterPoint defended its response to Beryl and its overall storm preparation and readiness, saying it had restored power to nearly 1 million customers within 48 hours of Beryl’s exit from the area.
“By Wednesday, July 17, CenterPoint restored power to more than 98% of impacted customers,” CenterPoint officials said. “The strong pace of the restoration is a testament to the company’s preparation, investments in the system and, most importantly, the dedicated efforts of those CenterPoint and mutual assistance crew members who worked long days in challenging conditions to get the power back on.”
But that isn’t the narrative many Houston residents or Texas political leaders remember.
The story of how CenterPoint was able to charge ratepayers billions of dollars while not maintaining a grid that could handle a Category 1 hurricane began years before Beryl arrived.
That includes the trauma from February 2021, when Texas’ main power grid almost collapsed. A massive winter storm — known as Uri — led to power generation failures across the state, especially among natural gas power plants that suffered from frozen equipment and fuel supply problems. More than 4 million customers were without electricity in the state.
Some utilities, including Houston-based CenterPoint, were unable to rotate outages efficiently, leaving many households without power in the freeze for days. More than 240 people across Texas died in the wake of Uri and the associated power outages.
Lawmakers responded with a massive package of energy reforms, including new weatherization standards for power plants.
Many of the politicians now slamming CenterPoint enabled some of its actions, including Abbott, through bill signings and appointments to the Public Utility Commission of Texas, and state Sen. Phil King (R), who authored a series of bills supported by the utility industry.
King’s chief of staff did not respond to a request for comment from E&E News, but in an open letter released after some criticism of his bills, King said that CenterPoint had deceived him as it leased generation to use in emergencies. This was a departure for wires-focused Texas utilities that are responsible for delivering electricity that other companies produce.
“I am extremely upset to learn that CenterPoint clearly ignored the legislative intent envisioned when we unanimously passed the bill to improve public safety and minimize power outages in the aftermath of a storm or other emergency,” King wrote.
One particular line item caught the attention of lawmakers and ignited the ire of ratepayers: roughly $800 million for leasing mobile generation units, mostly for big power generation units that were billed as a way for CenterPoint to provide temporary power during natural disasters.
After Beryl, the utility said none of the extra-large generators were deployed, but it used all 18 of its smaller units. It also ultimately had to borrow about a dozen smaller mobile generation units from other utility providers.
CenterPoint’s biggest leased units are so large — each capable of powering around 6,000 homes at a time — that they would require days to transport and set up. And that’s without factoring in downed trees and power lines that crews would encounter during their travels.
A law sponsored by King allowed utility companies to lease mobile generation units and collect a guaranteed 6.5 percent profit for every dollar spent.
At the time, it seemed like a good idea — a way to keep neighborhoods and some pieces of critical infrastructure online if power generation failed again, said Sandra Haverlah, president of the Texas Consumer Association, an advocacy group.
“They were hearing from constituents — everyone was saying, ‘You can’t let this happen again, people are dead,’” she said.
CEO change
About a year before Uri, CenterPoint was also in a panic.
The company had spent $6 billion in 2019 to acquire Vectren, an Indiana-based utility, to help expand its holding outside of Texas. The deal gave CenterPoint a foothold in parts of Indiana and Ohio. But, for the first quarter of 2020, CenterPoint posted a loss of more than $1 billion.
Activist investors were circling the electric and natural gas company, including Elliott Management. CenterPoint’s board ousted its CEO after efforts to increase rates in Texas met stiff pushback. And after Elliott and other investors injected $1.4 billion in equity into CenterPoint, the company hired former Halliburton CEO David Lesar in July 2020.
Lesar was known for prioritizing growth at the oil field services company, although that came at a price for Halliburton: He spearheaded the ill-fated, $34 billion acquisition of Baker Hughes, which the Justice Department sued to block in 2016. Halliburton ultimately had to pay Baker Hughes a $3.5 billion breakup fee when the deal fell through.
He stepped down as Halliburton’s CEO in 2017 and as the company’s executive chair at the end of 2018, setting up his future move to CenterPoint.
“With respect to current — and potential — investors, my number one near-term goal is to achieve greater shareholder confidence by setting, communicating and working tirelessly to achieve our financial and business goals,” Lesar said in a statement when his hiring was announced by CenterPoint. “Throughout my career, I have worked to maximize sustainable shareholder value and build strong relationships with the constituencies that are central to the success and sustainability of the companies I have led.”
Multiple attempts to contact Lesar were unsuccessful, including through Superior Energy Services. He took over as chair and CEO of that Houston-based oil field services company Monday.
At CenterPoint, efforts to maximize profits became clear soon after Lesar was hired.
All electric utility companies in Texas are, essentially, regulated monopolies, said Doug Lewin, founder of Stoic Energy Consulting. Customers in areas like Houston cannot choose another electric utility, though they can pick their own retail energy providers like NRG Energy’s Reliant and Vistra’s TXU Energy.
Regulated wires companies such as CenterPoint are able to earn guaranteed rates of return on some of its spending.
Those utilities don’t earn profits on their operations and maintenance spending — things like making sure tree limbs near power plants are trimmed or managing emergency call centers. But they earn a guaranteed 9.4 percent return on capital expenditures like replacing power poles and hanging new power lines.
That can lead to a conundrum, said Thomas Brocato, an attorney representing the Gulf Coast Coalition of Cities. On one hand, it behooves CenterPoint’s customers — and pleases regulators — when utilities spend money maintaining and hardening their infrastructure.
Companies also have a fiduciary duty to their shareholders to deliver returns, which Texas utilities do by boosting capital expenditures.
Without regulatory or state financial incentives to deliver a certain level of reliability, and with incentives only in place to spend money, there lies potential for companies to do what’s known as gold plating. That is capital that costs a lot of money but doesn’t necessarily make the system more reliable.
“That’s the classic regulatory dilemma, regulators and customers want utility to maintain their system but there’s also the potential to gold plate,” Brocato said.
Lesar left CenterPoint in January of this year. Jason Wells, the company’s former chief financial officer, became CEO and has not announced plans to resign or leave the company in the wake of Beryl.
“I think if I resign today, we lose momentum on the things that are going to have the best possible impact for the Greater Houston region,” Wells said during testimony before a Texas Senate committee in late July.
In response to questions from E&E News, CenterPoint said it has consistently invested in both long-term resiliency and reliability projects across the Houston region, including a 30 percent increase in vegetation management spending from 2022 through 2023. It also has continued to reshape its portfolio.
“We continue to prioritize work to improve the system that serves the Greater Houston area, which is reflected in our recent sales of the natural gas businesses in Louisiana and Mississippi,” the company said in a statement. “As a result, this will bring about an opportunity over coming years to invest well over $1 billion back into the greater Houston area.”
Spending surge
In filings sent to the Texas PUC in April, CenterPoint officials outlined how much the company had increased capital expenditures over the past several years.
From 2002 to 2009, the company’s Houston electric subsidiary spent less than $500 million annually on capital expenditures. That doubled over the span of 10 years to a little over $1 billion annually by 2019 and into 2020, which the company chalked up to population growth, recovery from 2017’s Hurricane Harvey and the deployment of smart meters across the region.
Houston has experienced a population boom during that period and in the years since. CenterPoint said from 2009 to 2019, its customer base grew by 20 percent.
Securities and Exchange Commission filings from 2018 showed planned capital expenditures in 2022 would come out to an estimated $900 million. But capital expenditures more than doubled again soon after Lesar took control of the company in 2020, rising to more than $2.4 billion in 2022.
And as part of Lesar’s vision for capital spending, the company anticipated that number to rise to more than $2.8 billion annually by 2028. CenterPoint’s long-term plan was to spend just short of $12.8 billion from 2024 through 2028, according to filings — more than 2.8 times as much as the company spent from 2001 to 2009.
Those figures do not include the capital expenditures CenterPoint sought after two storms ravaged the Houston area this year, including Beryl and a major wind event in May.
“If you pay based on how much [utilities] spend, the incentive is to gold plate,” Lewin said. “Not to say they do every time, but if their infrastructure is not plated in gold, they’re giving up revenue.”
Lesar had extra incentive to boost the company’s stock price as well.
In July 2021, just after the 2021 legislative session, CenterPoint gave him an additional 400,000 shares of stock, according to SEC filings. He had already acquired another 50,000 shares in May of that year, filings show. Wells, CenterPoint’s current CEO, acquired nearly 19,000 shares between May and September 2021 while he was chief financial officer.
At the same time, CenterPoint gave former executive board Chair Milton Carroll a lump sum of $28 million to leave his post two years early, eliminating his position and implementing new independent board leadership and governance. Carroll had been a director on CenterPoint’s board since 1992.
Efforts by E&E News to reach Carroll for comment were unsuccessful.
CenterPoint’s share price closed at $18.67 on June 30, 2020 — the last day before Lesar began his tenure as CEO. The stock surged more than 77 percent in the two-plus years that followed, closing at $33.10 on Sep. 12, 2022.
In response to E&E News questions, CenterPoint said its spending has helped it keep up with Houston’s growing population and electricity demand.
“We are consistently focused on improving outcomes for customers, and that will always mean a mix of installing new facilities to serve our communities and businesses, as well as near-term maintenance work to enhance the safety and resiliency of the system,” CenterPoint officials wrote.
Brocato said the rise in capital expenditures isn’t unique to CenterPoint and has been seen among most of Texas’ private-sector utility companies.
“They tout the level of expenditures and the capital spending increases to their investors,” Brocato said.
Mobile generation
Filings with the PUC show that CenterPoint officials began planning to bring mobile generation on board “immediately” after the 2021 mobile generation law was signed.
Requests for proposals for a short-term contract to lease generators were sent to four bidders on Tuesday, Aug. 3, 2021, with the requirement that they respond by Aug. 6, 2021. Two did, including Life Cycle Power, which was ultimately selected as the bid winner a week later.
Life Cycle also won a longer-term contract to supply CenterPoint with generators later that year. Life Cycle did not respond to a request for comment from E&E News.
In testimony filed with the PUC, CenterPoint Vice President of Electric Engineering and Asset Optimization Martin Narendorf said bidding was streamlined because officials worried that demand for these types of generators would soar after catastrophic wildfires in California and Hurricane Ida’s landfall in Louisiana that summer.
“CenterPoint Houston also heard from the vendors during discussions with them that they were expecting shorter supply due to higher demand,” Narendorf said in the testimony.
But consumer groups, coalitions of local governments and industrial trade groups lined up to protest passing the cost of the generators onto ratepayers within days of CenterPoint asking the PUC for permission to do so. The case was referred to the State Office of Administrative Hearings.
Critics argued that the bidding process was rushed, that the generators would provide little benefit to ratepayers and that CenterPoint was acquiring far more mobile generation resources than other utilities in the state. CenterPoint officials said that Life Cycle was the only bidder that already had units available to fill the order — and that the bidding process was reviewed by regulators across multiple hearings.
One filing from Texas Competitive Power Advocates also alleged that Lesar had a professional relationship with a Life Cycle sales representative. CenterPoint officials said in a statement that relationship was investigated when those allegations were first raised.
CenterPoint told E&E News in August that it has reopened the investigation, adding that any wrongdoing would be inconsistent with CenterPoint’s values.
In a filing, CenterPoint provided more details about the mobile generation units, including how difficult the largest of the units would be to move.
In testimony filed in October 2022, Narendorf said it would take Life Cycle 48 hours to disassemble and 48 hours to assemble the leased 30-megawatt generators, and that the generators would need a superload permit to be transported — the processing time for which is typically five business days.
Administrative law judges balked at CenterPoint’s proposal and recommended the PUC reject passing the costs of the mobile generation to ratepayers, saying in their ruling that CenterPoint failed to show that it “exercised the judgement and selected an option that a reasonable utility manager would exercise or choose.”
Still, the PUC voted 4-1 to allow CenterPoint to pass on that $800 million tab to ratepayers.
‘The customer pays’
The decision to endorse CenterPoint's generation plan wasn’t huge news at the time. During the 2023 Texas legislative session, more laws were passed that helped utilities raise rates quicker and earn more money.
H.B. 3043 allowed utilities to ask to increase rates twice a year instead of once a year, and it changed the amount of time the PUC had to decide on those cases from 120 days to 60.
S.B. 1016, filed by King, allowed utilities to increase rates to pay for utility companies’ employee compensation and benefits, creating a legal presumption that the incentives are reasonable and necessary.
Another bill filed by King, S.B. 1075, expanded the uses for which mobile generators could be used.
Previously, they could only be used in instances when utilities were asked by Texas' main grid operator to cut the amount of power they were providing to customers in order to keep the grid from collapsing. This bill allowed them to be used after natural disasters like hurricanes or floods.
All three became law, and the rate increase and compensation rules were among the first bills signed by Abbott, Texas' governor, at the end of the legislative session. Stoic Energy’s Lewin said that speaks to the power of the utility lobby in Austin.
“When [the utilities] tag a bill, it becomes a priority,” Lewin said. “It moves. They’re really good at what they do.”
CenterPoint filed for a rate case in March of this year — its third in 18 months — to recover $6 billion the company had spent on infrastructure since 2019. The company proposed another rate hike for a $2.7 billion resiliency plan. It requested to make a 10.4 percent profit on its capital investments, up from the current 9.4 percent.
Then came Beryl, and with it, a series of failures.
The company’s online outage tracker was mostly offline in the aftermath of the storm. When it did return, it gave unreliable information as millions of people lacked electricity.
“The opinion [of CenterPoint] dropped from what people thought was best practices, now to ‘Houston, we have a problem, and it’s CenterPoint,'” Bettencourt said.
Changes ahead?
In a news conference less than a week after Beryl, Abbott questioned CenterPoint’s business practices.
“We must know — was CenterPoint protecting Texans, or was it protecting its own pocketbook?” he asked.
CenterPoint's stock price has fallen from $30.32 the day Hurricane Beryl hit Houston to less than $27 as legislative, legal and regulatory investigations have been launched.
The company has sought to withdraw its proposed resiliency plan rate hike, and it remains to be seen if CenterPoint will be able to withdraw from a base rate case filed in April.
The Association of Electric Companies of Texas, which represents a number of utilities and power providers, declined to comment on the current business model for utilities and potential changes.
But Sarah Durdaller, a spokesperson for the Edison Electric Institute utility trade group, said it's important to recognize that investor-owned electric companies’ workers live in the communities they serve, meaning access to reliable, safe and affordable energy is top of mind. She said the group's members are among the most regulated companies in the U.S.
"They work through an open and transparent rate review process with state regulatory commissions that offers other stakeholders the opportunity to weigh in and give feedback," Durdaller said in a statement.
Haverlah with the Texas Consumer Association and Brocato with the Gulf Coast Coalition of Cities cautioned that CenterPoint could still pass on costs associated with its base capital expenditures — including spending on infrastructure that did not stand up to a relatively weak hurricane.
“Every time a storm happens, the customer pays the tab for the equipment. The customer is going to, unless the law changes, have to pay the tab for Beryl,” Haverlah said. “At some point, if they’re just putting same type of equipment in and same type of infrastructure in, and it hasn’t been upgraded, customers are just paying for the same poles over and over again.”
Other states have directed utilities to do more to harden the grid against potential storms.
In 2019, Florida lawmakers passed a law that requires the state’s main investor-owned utilities to file annual storm plans that focus on areas where the grid is least reliable. But the state also gave companies assurances that they could recoup cost recovery on grid-hardening measures like replacing wooden power poles with ones made of concrete, vegetation management and burying some power lines.
Bettencourt said there is momentum to make changes to how utilities are regulated and how they can profit at the Capitol.
Since Beryl, CenterPoint spokesperson John Sousa said in a statement, the company has "demonstrated our absolute commitment to transparency and cooperation through our participation in three separate hearings at the [PUC], the Senate, and the House."
"We look forward to cooperating with the Texas Attorney General or any other agency and have made clear our commitment to upholding the values of our company," Sousa added. "We urge any party that has information concerning these issues to come forward and provide such information to us, our regulator, or the Texas Attorney General immediately."
Lewin, with Stoic Energy, said there are some relatively easy fixes.
Lawmakers could incentivize utilities to meet reliability metrics, rather than just spending metrics, in order to make more profits. They could put guardrails on the mobile generation statute, limiting the size of units and capital that could be spent on them. Legislators could focus on the main issue utilities faced during Uri — being unable to rotate power outages.
Lewin said there’s reason to be hopeful that changes could come after Beryl.
“The issues were so widespread that the legislators and their friends and families were affected as well — that’s when things change,” Lewin said.
