Monthly Archives: October 2011

Power To Choose 2.0 to Hopefully Simplify Texas Electricity

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It looks like a new and improved Power To Choose (www.powertochoose.org) has finally been released, and hopefully the changes will help to remove some confusion from the deregulated Texas Electricity market. As I have written before, promotional electricity rates have been a huge source of confusion and angst for Texas consumers for years.

To explain, in brief, the problem is that customers shopping for Texas electricity don’t understand the market very well and are often oblivious to the difference between Fixed Rate Plans or Variable and Indexed plans, much less the nuance of a Variable Plan with a Promotional Rate. Basically, people (particularly ones from other states or regulated areas) pick the first plan they see, with the lowest price. In all fairness, this is a pretty standard shopping strategy used by loads of people whether they’re shopping for electricity or non-perishable foodstuffs. But in Texas it can get people into trouble.

The most common complaint I get at Texas Electricity Ratings is customers complaining about their variable rates increasing exponentially after their first bill. They feel cheated (somewhat understandably) even though it’s written right there in the fine print. Fortunately, the new changes to the Power To Choose website should help remove some of that confusion and rank anger.

The picture above is the new header section of Power To Choose. The specific additions are the new red tabs at the top, labelled All, Fixed, Variable, Indexed, Promotional Offers and Prepaid. The new tabs should allow for much easier navigation and reduced confusion for the types of plans for which customers are shopping. But the big tab is the Promotional Offers Tab.

My understanding is that all variable electricity plans which are advertised at the promotional rate (the promotional/introductory price that typically lasts only 1 or 2 billing cycles) will have to be placed under this tab. The plans that exist under the variable or indexed tabs will have to be listed at the current price of the plan by the REP when it isn’t priced at the introductory rate, or potentially some kind of average or historical rate. The important part is that all of the plans under the Variable Tab will be listed at a rate that is MUCH closer to the one a customer will be paying when their promotional term expires. They won’t (hopefully) be blindsided by a rate that doubles after their first bill. And the very act of having to click over to a Promotional Offer tab should, by the act itself, be informing shoppers that the plans listed there are special or non-standard in some fashion.

To help clarify plans that are promotional/introductory rates, there is also a new link that when hovered over with a mouse, expounds on the promotional plan:

That should go a long way in helping people understand what to expect when their promotional rate expires. Of course, right now, the plans aren’t properly organized and the rates aren’t correct in regards to promotional rates versus estimated regular rate. In fact, right now the only plans listed under the Promotional offers table seem to be pre-paid plans. So clearly there are some growing pains, but this is a net positive.

I believe this is one of the best things that the PUC has done in years in terms of helping reduce confusion in the deregulated electricity market. I honestly think this will have a tangible effect on people no longer getting burned by promotional rates for variable plans. After speaking with the PUC, the deadline for REPs getting their plans correctly input on Power to Choose is this Friday. I’m sure some electricity providers will drag their feet or make some mistakes, but I imagine those will all get straightened out quickly. All in all, this is great news for consumers.


Some Facts about Pennywise Power & Reliant Energy: Part 2

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In Part One of my article discussing the relationship between Pennywise Power and Reliant Energy, I took a look at how the two separate brands are actually tied together as one company. I also identified why their relationship is different than other REPs in the Texas electricity that have the same energy conglomerates as a parent company. In Part Two, below, I’m going to speculate as to why Reliant might benefit from having a separate brand in Pennywise Power, as well as what it means to consumers in Texas.

Flexibility in Marketing

One guess I might make to the advantage of creating a new REP is marketing. Which on the surface seems silly because Reliant already has every marketing advantage. But take a closer look at Pennywise Power and their message, and maybe there’s another reason. I’ve been critical of Reliant in the past about some of their highly marketed plans that are extremely over-priced compared to the going market rates. Well, one of the reasons I think Reliant can get away with this kind of thing, besides the fact that people don’t read the fine print, is because Reliant can charge higher prices and people will pay because of the perception of their stability and brand recognition. Any company that can charge more for the same product and still get customers would be foolish to not take advantage of that, right?

For example, a brand new REP not affiliated with Reliant could potentially compete at lower prices with the rest of the market without raising questions about how some plans can be offered at much cheaper rates from one place to the other. In other words, why say Reliant can offer a 12 month fixed rate for 9.9 cents kWh, while the same plan at Pennywise is advertised at 9.0 cents kWh (as of the rates listed by both companies on 10/19/2011). And this is despite the fact that Pennywise and Reliant are the same company, with the same officers, and the same addresses. But operating as separate entities allows them to sell the same plans at different prices despite the fact the costs are the same for both companies.

Customer Complaints and Statistics

There’s a common perception in the deregulated electricity space that there is an inherent risk in chasing high-risk customers with low credit ratings. For starters, there is the obvious concern that they might not pay their bills. Some people would also suggest that high-risk customers are also the ones that are most likely to file complaints with the PUC. I don’t know how accurate this perception is, but I do know that many REPs have tried to market to at-risk customers and most usually end up walking away. Some REP’s have moved into the Pre-Paid electricity market thinking it will become an effective way to take the risk out of catering to at-risk customers.

Additionally, PUC complaints and public perception are starting to play a larger and larger roll in how customers shop for their electricity provider. And in my opinion, that is a great thing, not only that more people are taking an active part in the deregulated electricity market but also that REPs are paying attention and being held accountable.

But the thing is, because Pennywise Power is operating under a separate PUC certificate, none of the complaints customers are making are being attributed to Reliant Energy. They all get attributed to Pennywise Power. Which would normally make perfect sense, except for the fact that the complaint contact for both companies is the same person, right down to their identical addresses and telephone numbers listed on each PUC certificate. Other companies that operate with multiple names such as Texpo (a.k.a. Southwest Power & Light, YEP) all share the same certificate, so all the complaints get pooled to the same place. Not so with Pennywise despite, again, having the same officers listed for both companies.

As a result, Reliant could utilize Pennywise Power to specifically market to a riskier customer base that might be more prone to file PUC complaints. And if a high amount of complaints do come across as a result, well, the Reliant brand remains untarnished.

I think this is all pretty interesting. At the very least, the existence of Pennywise certainly lessens the amount of PUC complaints that are filed directly against Reliant, which makes their complaint record look better. Additionally, it might also come into play in regards to their Better Business Bureau rating. Whether or not Reliant is deliberately chasing riskier customers and mitigating the risk of customer fallout in the form of complaints, I cannot say with any certainty. But if that is what they are doing, well, I definitely think it is extremely clever.

Final Thoughts

While definitely a cunning move, perhaps a better question might be whether it is an ethical practice. Reliant/Pennywise certainly aren’t doing anything illegal here. But should it be legal? Why should an existing electricity company be able to start another REP to do the exact same thing, namely sell retail electricity? It’s one thing for a company like NRG, with massive and diverse assets and energy resources, to buy Reliant and Green Mountain independently and let them continue to operate separately. But I think it’s quite another for a specific REP to create another brand out of thin air which does the exact same thing as the parent company (Reliant). And just to be clear, Pennywise was licensed in 2008, a year before NRG purchased Reliant in 2009. So this was a deliberate action started by Reliant, not something put in motion by NRG.

Personally, I think customers should be asking why a company like Reliant would do something like this with Pennywise. What benefit (if any) does it create for the consumers? I personally can’t see any benefits to Texans. But I can definitely see how it can create more confusion, something this market hardly needs. And I definitely question whether a company should be allowed to create shell entities using the same infrastructure without being attached to any of the liability in regards to public perception or PUC complaints.

Again, this is all speculation on my part, but I would like to understand why a company that specifically sells retail electricity to consumers would need to start another company to do the EXACT same thing, using the same infrastructure, the same company officers, but simply a different name. Consumers should be asking themselves what a company like Reliant has to gain using this strategy. What they can’t accomplish as Reliant that they can as Pennywise? And what are the odds that this move is in the best interest of consumers?

And if I am the PUC, who has the responsibility of looking out for the best interests of the customers in Texas, I might want to ask why this kind of separation of accountability is even legal.


Some Facts about Pennywise Power & Reliant Energy: Part 1

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Last month I published an article which attempted to illustrate the deregulated Texas electricity market. The point was to connect many of the REPs with their parent companies to give consumers a clearer picture of who all the players were in the Texas market.

Building off of that post, I’d like to take a closer look at Pennywise Power. My main reason for this is similar to my post last month, which is to give customers a greater understanding of some of the ownership affiliations for these REPs. With so many REPs being purchased by other companies, I think it’s important that customers who have negative experiences with one company don’t inadvertently sign up with service from another REP who might have the same parent company. By the same token, a customer who might find a better rate from a partner company where they’ve had a positive experience might feel more comfortable switching.

Which brings us to the focus of this article, Pennywise Power. Why am I singling out them out, as opposed to other companies that have multiple REP’s operating in the market? Well, I do think there’s a difference.

Why is Pennywise Power Different?

First, lets take a quick look at their website. It’s a very straightforward and functional website. It’s not cluttered or confusing, and there are really only a few pages to view, a homepage, a page to view available plans, a customer support page with some phone numbers, and an About Us page. The About Us Page doesn’t give much information about the company, it just reinforces their message on the homepage, which is that Pennywise’s purpose is to be a low cost provider with the mission of getting customers the lowest prices. Their no frills website supports this message. Nowhere is there any mention of Pennywise having any kind of corporate affiliation, which is typical if an REP has a parent company, like what you see on Reliant Energy’s website, among others.

But again, I reiterate, what makes Pennywise Power different? Well, for starters, their parent company IS Reliant Energy, who is in turn owned by NRG. I find it strange than an REP with such large parent companies would make no mention of their corporate affiliations anywhere on their website, particularly since the ownership chain includes one of the largest retail electricity providers and one of the largest energy generation companies operating in the United States. With that lineage, why would Pennywise Power’s website make no mention of their ownership and instead present themselves as just a small operation trying to appeal to cost-conscious shoppers?

Considering that Reliant is one of the two incumbent electricity providers operating in Texas and by that token one of the two largest REPs operating in Texas, I figure this garners a bit more attention. Particularly since they’ve been a lightning rod for controversy recently and they’re one of the worst reviewed providers on my website.

Breaking Down the Reliant/Pennywise Connection

Big companies operating multiple REPs isn’t a new thing. Fulcum Power previously owned Amigo and Tara Energy. They purchased Tara after buying Amigo because Tara is a niche REP that marketed to a specific demographic, much like Amigo itself. Under those circumstances, it makes perfect sense to keep operating the Tara brand, since it has specific market recognition. That’s probably half the reason Fulcrum purchased them in the first place. Ditto the recent purchase of StarTex Power by Constellation Energy. Or when Florida Power & Light purchased Gexa years back. Same principle.

The chief difference I see with Pennywise Power is that they weren’t an entity with a brand that was purchased by Reliant. They were created entirely out of thin air by Reliant Energy. They weren’t a company with brand recognition or an existing book of customers that was acquired at a good price. They were started from scratch by Reliant Energy employees in 2008. Their PUC license was initially granted to a company called Reliant Energy Services Texas, LLC. This is separate from the original PUC license that was granted for Reliant Energy, which was filed in 2001 under the company name of Reliant Energy Retail Services, LLC. Pretty similar names right? In 2010, the company formally filed to change the name of the the company tied to their PUC Certificate from Reliant Energy Services Texas, LLC to Pennywise Power, LLC. I guess they thought maybe they didn’t want to have their new and fresh brand attached to a parent company named Reliant. Here are links to the respective PUC Licenses, which include a record of their changes over the years: Pennywise Power; Original Reliant Energy.

Also, for the record, if Reliant was looking to separate Pennywise from their parent brand, they might have also considered modifying the information under both Mailing Addresses so all of the company officers weren’t the same people with the same positions and same contact information.

So Why Bother?

So the question is, why would Reliant Energy do this? Particularly since as one of the incumbent providers in Texas, Reliant Energy is already positioned with every possible advantage in the marketplace. They have brand recognition. People who don’t understand the nuances of the system naturally “trust” them because they’re the name they know. They’re bigger than the other guys, they have more money than the other guys, and they’re seen as a stable company that can be trusted. So what is the benefit of creating a new REP with a separate license out of thin air? I obviously can’t answer that definitively, as I have never worked at Reliant and wasn’t involved in whatever meetings took place that led to the creation of Pennywise Power. All I can do is speculate.

In the second half of my article, which I’ll post this afternoon, I’ll take a look at some of the reasons why I think Reliant might be benefiting from Pennywise Power.


Energy Choice Matters Interviews NRG Executive

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I’ve linked dozens of articles over the years from the always excellent Paul Ring, over at Energy Choice Matters. Earlier this week, he published another great article where he spoke with several executives at NRG Energy, the company that owns Reliant Energy, Green Mountain Energy, Pennywise Power, and Energy Plus.

What was most interesting about the article to me was not necessarily what the executives said, but the fact that they admitted it at all on the record. That being said, the interview is pretty interesting. You might recall that a month or two back, I wrote an article where I took a look at the dangers of the summer electricity crisis and predicted that several Retail Electricity Providers might go out of business. In that time, not a single provider has gone out of business, which certainly hasn’t helped my batting average. However, what is interesting, is that according to the NRG executives, THEY are just as surprised that no REP’s have gone out of business as me. Apparently, that’s also what they were predicting.

“To be frank we have been surprised that we haven’t seen more visible fallout from that in terms of other participants in the market,” Crane said. Though REPs which exit the market can do so quietly if no default is involved, Crane confirmed that NRG has seen “very little” fallout from the August wholesale pricing to date.

“We don’t have a good explanation for that,” Crane added, agreeing with an analyst that more fallout was expected, particularly for small REPs and those not owning generation.

Given that more than 30 days have passed since the end of August (and 45 days since the middle of the month), the lack of fallout is not simply due to a lag in the ERCOT settlement process, Crane added.

The Crane who was quoted in the article above is NRG CEO David Crane, by the way. And while there’s plenty to discuss in that quote, I would like to draw attention to his last statement regarding generation. I found it interesting that Crane admitted that companies like NRG and Energy Future Holdings (who owns TXU) and other companies like Direct Energy have advantages for also having ties to the actual energy generation part of this process. Crane’s statement that he expected REPs not tied to any generation resources to struggle directly counters the blog post by a Stream Energy (the largest REP in the country without any ties to generation resources) employee who stated in a blog post that the intense heat and drought in Texas this summer didn’t stress their ability to procure wholesale energy.

The blog post in question was direct response to the original piece I wrote about market dangers which I have already linked above. And of course, what else could the Stream Energy representative say? He was assuring his customers and his multi-level marketing associates that Stream wasn’t in any kind of financial trouble and were in good shape. And by all accounts, he was right, as Stream seems to be doing fine as well as many other REPs in the market, as supported by Crane’s statements. And by fine I mean still in business. But still, it would definitely seem from both statements that there’s some inconsistency on whether or not having ties to energy generation is an advantage for a retail electricity provider, if not in procuring energy than certainly in profitability. Interesting.

The article then goes onto discuss the presence of “lockbox providers” that basically act as financial stop-gaps for smaller or mid-sized REPs. Something like a co-signer on a loan, although that is an EXTREME over-simplification. The point is that Lockbox providers/partners only work with businesses they find sound financially and operate with good business practices, since these partners don’t actually want to run and operate an REP themselves. The short of it is that NRG’s CEO is suggesting that many of these lockbox providers were likely willing to step in and cover the summer losses with the thought of long term interests instead of letting their partner REPs default and leave the market. It is my understanding that because of the current environment of the Texas Energy market, almost all providers operating have some kind of lockbox agreement in place just do business. That, or they’re big enough that they don’t need one.

Anyway, back to the initial article. How nasty might the summer crisis have effected the REP’s operating in the Texas deregulated electricity market? We’ll never know, since no one seems to be going out of business (although many companies have sold to huge energy conglomerates recently). But, we might be able to speculate based on some info at the end of Paul Ring’s article:

As a result of August, NRG lowered its forecast of adjusted EBITDA for 2011 to a range of $1.775 billion to $1.85 billion, down from the August 4 guidance of $1.9 billion to $2.0 billion.

At Reliant, adjusted EBITDA guidance is now $550-$575 million versus the earlier $610-$660 million. At Green Mountain, the adjusted EBITDA guidance is now $60-$70 million versus the earlier $70-$80 million.

For those of you that don’t speak Math or Accounting (like me), EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. “EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.” So what do the numbers mean? All of NRG, which includes nuclear power plants, many natural gas and coal power plants across the country, as well as Reliant, Green Mountain Energy and more, is down 225 million dollars from their initial projections before the summer started. That’s almost 13%. For all of NRG. Reliant’s projections are down almost 20%. Green Mountain is down approximately 12.5%. From one month. Keep in mind, those numbers represent the ENTIRE YEAR of 2011. Because of approximately 6 or 8 weeks of horrendous weather.

That is taking a beating in the marketplace, in my opinion.

El Paso Regulated Electricity Isn’t Fantastic

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I always seem to get a lot of people who question the Texas deregulated electricity market and categorically dismiss it as inferior to regulated utilities. There is no shortage of people who say the entire system is graft, or some form of organized price gouging to take advantage of consumers. If you haven’t noticed, I’ve written about this kind of thing before:

  • A Dissection of Deregulated Electricity to Regulated Austin Energy
  • Deregulated Electricity is Working
  • A Comparison of Regulated vs. Deregulated Electricity Rates

    • And that doesn’t include mentions by the JD Power & Associates in support of deregulation here, taking the time to correct people who don’t think market activity is a sign of success, and my efforts to respond to people who erroneously blame deregulated electricity for every energy problem under the sun such as Loren Steffy of the Houston Chronicle.

    I think it’s safe to say that people who lazily paint deregulated electricity in a negative light without any support irritate me. Which is why this article by the ABC affiliate in El Paso was a refreshing change of pace for me.

    The whole article is interesting, and as always I encourage everyone to read the entire thing. However, I’ll highlight some points as well. For starters, lets set the stage that El Paso is currently a regulated area of Texas, so customers have only one choice of electricity providers. San Antonio and Austin are always (incorrectly) pointed to as proof that regulation means cheaper electricity prices. How about El Paso?

    The City Council asked El Paso Electric officials on Tuesday to show why electric rates — which are some the highest in the state — should not be lowered, and the city approved establishing a temporary rate at its Oct. 25 meeting.

    So, some of the highest in the state of Texas? So high the City Council is demanding an explanation as to why they’re so high? Check.

    City Rep. Courtney Niland, who said she has been studying the issue, said the utility has not been able to justify the high electric rates. She said the city’s utility consultant, Norman Gordon, had been trying to negotiate with the utility for about three weeks and had a meeting with the company on September 13, in which the utility was asked to ‘show cause’ of their rates. Niland said the city had made every effort to get an explanation from the company, but electric officials had been unwilling

    Ok. In fairness, the CEO of of El Paso Electric says that the city never sent him any formal request and that his efforts to explain his reasoning to Niland were ignored so he stopped trying. Ok, fair enough.

    Actually, to be perfectly honest, the whole article degenerates into a relatively large spat between City Council Representative Courtney Niland and the CEO of El Paso Electric, David Stevens. And to be honest, Neiland seems to be a bit out of control and some of the points Stevens makes might be perfectly valid. Now, that being said, I do find this quote to be very telling:

    Niland contends that the electric company has averted the issue. “What are you not doing in your business that can’t make you competitive, because you and I both know that if you had competition and you had to get competitive, you’d do it,” she told Stevens.
    Stevens said the utility’s rates are high because there’s less consumption in the area, while the cost of producing electricity remains high.

    I’m not sure exactly what the current electric rates are in kWh for El Paso Electric. That information isn’t available online (regulated utilities don’t have to post rates, they don’t have to be accountable to customers). If representative Niland is correct and the El Paso Electric rates are much higher than competitive areas of Texas, that is a big problem. Because, in my opinion. Steven’s reply in the quote above about less consumption doesn’t hold water. And it’s not that less consumption doesn’t result in higher cost, that can be debated. My issue with that statement is that there’s a HUGE chunk of the Texas New Mexico Power Footprint that operates in West Texas, not far from El Paso. This is an area of low population density, and much lower consumption (as are most of the TNMP service pockets). And yet I see electricity rates for different electricity plans fairly close to the rates in Houston on a regular basis. So if that area of West Texas can remain competitive, why can’t El Paso electric?