Shell files to sell power in Texas

Filings with state regulators suggest Shell Energy Services plans to sell electricity to residential and small business customers once the market is deregulated in Texas. Shell is the only big oil company to throw its hat in the US retail electricity ring so far.


Ann de Rouffignac
OGJ Online

Filings with state regulators suggest Shell Energy Services plans to sell electricity to residential and small business customers once the market is deregulated in Texas. Shell is the only big oil company to throw its hat in the US retail electricity ring so far.

The unit of the huge multinational oil company filed quietly with the Public Utility Commission of Texas in June of this year to participate as a potential �retail electric provider� in the ongoing PUC hearings on implementing electricity deregulation.

The filing in late June stated that Shell is �aligned� with other retail electric providers or retailers of electricity considering entering the Texas market, including Power Direct, an AES Corp. unit. At this point neither Shell nor Power Direct has committed to actually selling electricity when competition for customers begins in 2002.

Shell Energy has been participating actively in the PUC hearings and meetings, where the rules and regulation for competition are still being finalized. Shell has filed several briefs on issues that would affect the competitive landscape, especially prices the incumbent utility will charge consumers who don�t switch to another supplier.

�The commission is currently considering defining issues such as electric utility �wires rates� and customer protection rules. We believe the commission should recognize the impact of its decisions on new market entrants and not just the utilities,� Shell said in a statement.

Industry observers have speculated for years that big oil companies with their huge retail customer base, brand name equity, and sophisticated back office structure will be able to minimize customer acquisition costs and the overhead associated with a retail electricity business.

Shell has proved it has the know how to attract retail customers in deregulating natural gas markets and could use its success as a template in electricity markets. It captured almost a quarter of the retail natural gas market in Atlanta last year when that market deregulated.

Shell experience
Shell also won the bidding for customers of a bankrupt retail gas provider in Georgia that couldn�t weather the intense change and uncertainty of a newly deregulated market. Shell used its customer base to capture even more of the Georgia market.

Enron Energy Services, a unit of Enron Corp, is also participating in the Texas PUC discussions. The Houston energy company has been out front in terms of electricity sales, especially to large industrial and commercial customers, but it has largely withdrawn from direct retail sales until the markets improves nationwide.

Just a few companies have said they will take on the expense and lower margins associated with marketing to residential and small business customers. None has a bigger brand name than Shell. AES, which owns Power Direct, is a huge independent power producer and developer but neither Power Direct or AES is a household name. The online dot.coms are doggedly trying to pursue the retail markets in states where competition is already permitted, plus there are a few niche marketers for �green� energy. But by and large, the retail realm is still the domain of the incumbent utility affiliates.

Industry experts say that so far deregulation in the state of Texas is not shaping up to provide much choice in electricity providers to consumers other than the utility affiliates selling into each other�s territory or in their home territory.

�I don�t see wide participation for two reasons. The law is set up to be very favorable for stranded cost recovery and there is not much �headroom�,� says Scott Norwood, principal at GDS Associates.

Norwood says stranded costs that will be recovered by the utilities through wires charges that all consumers must pay diminishes the profit that other retail providers will make. Competitors must charge a price that is well below the incumbent utilities or consumers just won�t switch, he says.

Shell is particularly concerned that the wire rates (that will contain the stranded costs) be low enough to enable competitors to enter the new market.

What happened in Pennsylvania, among the first states to deregulate, illustrates what might also happen in Texas. Most competitive providers have pulled out of Pennsylvania leaving only a few nonutility retailers like the dot.coms and the utility affiliates, according to the office of Consumer Advocate of Pennsylvania.

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