Slim savings could deter Texas electricity shoppers

Ann de Rouffignac
OGJ Online

AUSTIN�Residential consumers might not get the savings they are expecting once the electricity market deregulates in Texas in 2002, warns a senior policy analyst for Consumers Union.

The experience of many residential consumers in deregulated markets has been few nonutility providers are willing to serve residential customers who end up saving too little off their bills for the trouble of shopping.

�Nobody wants to talk about it (deregulation) not working in Texas,� says Janee Briesemeister. �But the market might not be able to achieve the savings they (consumers) expect.�

Most speakers at the Gulf Coast Power Association�s conference �Implementation of Customer Choice� were enthusiastic about the deregulation process and the benefits it would bring to the electricity market.

But as a voice of caution, Briesemeister noted consumers want at least 10-20% savings to bother to switch. Low profit margin and volatility in the wholesale markets may discourage potential retail electric providers from offering products, she says.

Several speakers noted that only one retail provider has filed for certification so far with the Texas Public Utility Commission (PUC). (OGJ Online, October 3, 2000)

One reason many legislators voted for SB7 to deregulate in Texas was the promise, that at the least, residential bills would be reduced by 6%, Briesemeister said. The actual new rate still to be determined by the PUC is called the �price to beat.�

Competitive providers must offer cheaper prices to lure away customers from affiliates of the incumbent utilities. (Once competition begins all electricity consumers will automatically be transferred to the utility affiliate retail provider.)

Details of the �price to beat� remain to be approved by the commission. Most participants note that the price to beat is a delicate balancing act. The price must be high enough to encourage new companies to enter the market to make competition work and low enough not to make consumers worse off.

There is some talk, Briesmeister says, that the 6% reduction would be an average across all classes of customers.

Not consumer party
�Some customers might see their bills increase (after deregulation),� she warns. �This was not our party. Residential customers didn�t demand the restructuring.�

How consumers fare in the first few years of deregulation will largely depend on how the commission rules on the determination for the price to beat.

What consumers are hearing so far about deregulation is that everyone�s bills went up in San Diego.

�But those bills went up from $60,� she says. �Our bills are so high in Texas already that going up is not really option. A $60 bill in Texas is for somebody not at home.�

Ray Palmer, executive vice-president for ECOM-Energy, said at the conference that a number of retailers exited the market for residential customers.

�One large company that had been very active in restructuring legislation said the risks (serving residential consumers) don�t match up with the rewards,� he said.

Brian Hayduk, vice president AES NewEnergy, also noted that residential customers might not be overwhelmed with offers for service.

�This is primarily a commercial and industrial market. There is little incentive to serve residential customers,� Hayduk says.

Wholesale prices have increased so much for electricity that any margin for serving residential customers has been eroded in states with set tariffs to beat. The competitive market in these states (New York, New Jersey, Pennsylvania, and California) has slowed to a crawl, he says.