Texas lawmaker's bill could delay deregulation

With gas and power bills rising, a Texas lawmaker has introduced a measure allowing the Public Utilities Commission to delay the scheduled 2002 start of electric competition, if state regulators determine the necessary elements for 'fair competition' are not in place. Texas State Rep. Sylvester Turner, a Democrat, said the measure is insurance against a California-style debacle erupting in Texas after deregulation goes into effect.


Kate Thomas
OGJ Online

With gas and power bills rising, a Texas lawmaker has introduced a measure allowing the Public Utilities Commission to delay the scheduled 2002 start of electric competition, if state regulators determine the necessary elements for "fair competition" are not in place.

Texas State Rep. Sylvester Turner, a Democrat, said the measure is insurance against a California-style debacle erupting in Texas after deregulation goes into effect. "No one in California predicted their legislation would result in skyrocketing electric bills and utilities on the brink of bankruptcy," he said.

HB918 would amend SB7, the bill passed in 1999 to introduce competition in the state. Under the proposed legislation, the PUC would use as its yardstick the difference between the "price to beat"�or rate charged by the incumbent utility, including transmission charges�and a list of new provisions in making its decision on whether or move forward or not.

Turner said the legislation is intended to clarify the PUC's authority, allowing regulators "to take action to correct market failures that might occur sometime in the future. Should the electric utility market in Texas proceed as expected these provisions will not kick in."

The bill directs the PUC to take into consideration whether sufficient oversight is available to detect and remedy market design flaws and market power abuses, the number of retail electric providers serving each customer class, and the extent to which workable competition for generating services is expected to produce reliable electric service at reliable prices, among others.

If the commission determines there is a problem, the legislation allows regulators to extend the "price-to-beat" beyond 2005, establish new retail rates, impose price caps on wholesale prices, suspend or reverse collection of competition transition charges and other stranded cost recovery charges.

The bill also prohibits an affiliated retail electricity supplier from retroactively recovering losses that might result from providing electricity at the price-to-beat. And it calls for a task force to monitor the markets and report to the commission "any aberrant market behavior or evidence of market manipulation."

In its progress report to the Texas Legislature, the PUC said new generating capacity under construction in the state should prevent a market meltdown similar to what happened in California.

Margins of 25-30%
"It is our expectation that supply will be more than adequate to meet customers� needs, the PUC said. The grid operator for Electric Reliability Council of Texas (ERCOT) is projecting reserve margins for 2001-2003 will in the 25-30% range, well above the 15% margin that utilities have traditionally relied on.

Between September 1995 and August 2000, 4,700 Mw of new generation capacity has been added. Plants under construction and expected to be completed by summer 2002 would add 14,000 Mw in generating capacity for the period 1995-2002.

Unlike California, Texas nonutility generation does not require a state license, other than environmental permits, and new generation facilities are not required to pay for transmission facilities to deliver their power to market, the PUC said.

In California utilities bought most power on the open market subjecting them to volatility and high prices, but the PUC said Texas will rely on longer-term and future trades that are available in a bilateral market. They acknowledge in the report some companies that expect to participate in the market when retail competition begins have expressed concern about the lack of liquidity and price discovery.

Regulators concede bilateral markets limit price discovery and liquidity and the volume of wholesale trading has been low in the ERCOT market. But they point from the second quarter of 1999 to the second quarter of 2000, short-term energy trading increased to 6% from 3%.

In the latter part of 2000, the level of trading increased, the PUC said, and several factors are likely to result in further increases in short-term trading. Regulators predicted private exchanges will begin trading standard power products in ERCOT, boosting liquidity.

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