Texas Electricity, The Texas Observer, and Yellow Journalism.

To anyone familiar with the Texas Observer, chances are that the title of this post might not surprise you. I saw this article bounce around the internet in several places before Christmas, and even though it is a week old I just can’t let it pass without pointing out some sensationalist tactics and poor research by the author, Forrest Wilder. And it is important to note that the title of this article is “Pay More Or Your Lights Will Go Out.”

The main premise of the article, which isn’t a new one to anyone reading this blog or following Texas electricity in general, is that the EPA rules looming have the potential to put Texas into a power crisis where we won’t have enough electricity generation to meet demand. And the author is saying that Texas is attempting to handle this problem by re-regulating certain aspects of the system.

First, there is reason for concern, no question. The fear is that the prices for electricity are so low (and yet people continue to complain that deregulation doesn’t work?) that new investors won’t invest in new power generation in Texas because they aren’t sure they’ll make their money back or acceptable profits to warrant building new plants. And to make things clear, when Texas electricity deregulated in 1999, the state opted for an Energy-Only system, which means only market forces set prices and not politicians, like in regulated markets.

Poor Research

Oddly enough, at first, the author doesn’t event seem to agree with the idea that there’s an energy crisis in the first place. An excerpt of the article:

They want investors to run into the ERCOT market and build some power plants to deal with the (allegedly) looming crisis.

First, they typically only count generation — wind, coal, natural gas, whatever — once the owner has secured final permission from the state to build. This excludes power plants that will eventually get built but haven’t reached the final stage of permitting.

Also, the reserve margins don’t include so-called “mothballed” power plants — old, inefficient power generation that’ve been taken off-line but could still be made available if economic conditions change.

Wait. So now the author doesn’t even believe there’s really an energy shortage? Well that puts him in the tiny minority on that front. And his solution is to count old, mothballed plants that are being shut down by the EPA? Genius. Here’s the real meat of the article:

“But on the wholesale side, we think that the power prices are going to have to recognize the scarcity of generation assets,” John Young, the CEO of Energy Future Holdings, told analysts in late October. “And that will eventually flow through to the retail business.”

Translation: Consumers must pay more.

And just in case prices don’t go up quick enough, ERCOT and the Texas Public Utility Commission are exploring several “radical changes” to jack up prices during times when power is really tight. For example, the PUC is considering doubling the cap on prices in the wholesale spot market — already the most generous in the nation — from $3,000 per megawatt to $6,000. ERCOT is also looking at allowing prices to go higher in a secondary market used to balance supply and demand. The chairman of the Public Utility Commission, Kenneth Anderson, a Perry appointee, is driving many of the changes.

That last paragraph is where the entire article completely unravels. Doubling, or even removing the cap on wholesale market prices ISN’T REGULATION. In fact, it is literally the OPPOSITE of regulation. It’s letting market forces do their work. So for the author to claim that this solution is regulation is 100% erroneous.

If the state of Texas chose to tax customers for the money to subsidize new generation plants, that would be regulation. If the state of Texas intervened to guarantee investors rates or profits as an incentive for them to build new plants, that would be a form of regulation. Removing a market cap so generators can make more money when energy is high (think every day in August where we had a threat of rolling blackouts) is the opposite of regulation.

And for the record Australia, which also operates nationally under a deregulated Energy-Only market, has set their market cap at $12,500 dollars per MWh. Texas currently sits at $3000, and the talk that has inflamed the reporter at the Texas Observer is the cap being moved to $6000.

Of course, it is somewhat silly claiming deregulation is a failure to begin with when it currently has put Texas as the 3rd cheapest state in the country for available electricity rates.

Yellow Journalism

Just a few notes here, for the sake of amusement and irony. At one point in his article, Mr. Wilder gives us some of these choice lines:

  • The political class has been infected by fear-mongering.
  • In the short term, all ERCOT can do is whip up fear.
  • Finally, like Alan Greenspan’s every utterance, these reserve margin reports have an effect on the market. They’re meant to avoid the situation — blackouts! scarcity! candlelight! — they warn about. The alarmism is intended to be the opposite of a self-fulfilling prophecy.

  • I find it ironic that these quotes accusing others of “whipping up fear” are present in an article titled “Pay More Or Your Lights Go Out.” An article that rails against deregulated electricity and suggests (incorrectly) that they’re considering adopting traditionally Regulated practices. Hey Forrest, if you dislike the deregulated system, well, your other option is a regulated system. And your article is saying the electricity prices are going to go up if regulated practices are adopted. What do you think happens if regulation would be re-adopted fully? Guess that didn’t occur to you.

    I’m not shocked that an “alternative” newspaper would lean so heavily on yellow journalism to get attention, but I still find it amusing in an eye-rolling kind of way. And sad that it was published at all.

    Texas Electricity, The Dallas Observer, and Yellow Journalism.

    To anyone familiar with the Dallas Observer, chances are that the title of this post might not surprise you. I saw this article bounce around the internet in several places before Christmas, and even though it is a week old I just can’t let it pass without pointing out some sensationalist tactics and poor research by the author, Forrest Wilder. And it is important to note that the title of this article is “Pay More Or Your Lights Will Go Out.”

    The main premise of the article, which isn’t a new one to anyone reading this blog or following Texas electricity in general, is that the EPA rules looming have the potential to put Texas into a power crisis where we won’t have enough electricity generation to meet demand. And the author is saying that Texas is attempting to handle this problem by re-regulating certain aspects of the system.

    First, there is reason for concern, no question. The fear is that the prices for electricity are so low (and yet people continue to complain that deregulation doesn’t work?) that new investors won’t invest in new power generation in Texas because they aren’t sure they’ll make their money back or acceptable profits to warrant building new plants. And to make things clear, when Texas electricity deregulated in 1999, the state opted for an Energy-Only system, which means only market forces set prices and not politicians, like in regulated markets.

    Poor Research

    Oddly enough, at first, the author doesn’t event seem to agree with the idea that there’s an energy crisis in the first place. An excerpt of the article:

    They want investors to run into the ERCOT market and build some power plants to deal with the (allegedly) looming crisis.

    First, they typically only count generation — wind, coal, natural gas, whatever — once the owner has secured final permission from the state to build. This excludes power plants that will eventually get built but haven’t reached the final stage of permitting.

    Also, the reserve margins don’t include so-called “mothballed” power plants — old, inefficient power generation that’ve been taken off-line but could still be made available if economic conditions change.

    Wait. So now the author doesn’t even believe there’s really an energy shortage? Well that puts him in the tiny minority on that front. And his solution is to count old, mothballed plants that are being shut down by the EPA? Genius. Here’s the real meat of the article:

    “But on the wholesale side, we think that the power prices are going to have to recognize the scarcity of generation assets,” John Young, the CEO of Energy Future Holdings, told analysts in late October. “And that will eventually flow through to the retail business.”

    Translation: Consumers must pay more.

    And just in case prices don’t go up quick enough, ERCOT and the Texas Public Utility Commission are exploring several “radical changes” to jack up prices during times when power is really tight. For example, the PUC is considering doubling the cap on prices in the wholesale spot market — already the most generous in the nation — from $3,000 per megawatt to $6,000. ERCOT is also looking at allowing prices to go higher in a secondary market used to balance supply and demand. The chairman of the Public Utility Commission, Kenneth Anderson, a Perry appointee, is driving many of the changes.

    That last paragraph is where the entire article completely unravels. Doubling, or even removing the cap on wholesale market prices ISN’T REGULATION. In fact, it is literally the OPPOSITE of regulation. It’s letting market forces do their work. So for the author to claim that this solution is regulation is 100% erroneous.

    If the state of Texas chose to tax customers for the money to subsidize new generation plants, that would be regulation. If the state of Texas intervened to guarantee investors rates or profits as an incentive for them to build new plants, that would be a form of regulation. Removing a market cap so generators can make more money when energy is high (think every day in August where we had a threat of rolling blackouts) is the opposite of regulation.

    And for the record Australia, which also operates nationally under a deregulated Energy-Only market, has set their market cap at $12,500 dollars per MWh. Texas currently sits at $3000, and the talk that has inflamed the reporter at the Dallas Observer is the cap being moved to $6000.

    Of course, it is somewhat silly claiming deregulation is a failure to begin with when it currently has put Texas as the 3rd cheapest state in the country for available electricity rates.

    Yellow Journalism

    Just a few notes here, for the sake of amusement and irony. At one point in his article, Mr. Wilder gives us some of these choice lines:

  • The political class has been infected by fear-mongering.
  • In the short term, all ERCOT can do is whip up fear.
  • Finally, like Alan Greenspan’s every utterance, these reserve margin reports have an effect on the market. They’re meant to avoid the situation — blackouts! scarcity! candlelight! — they warn about. The alarmism is intended to be the opposite of a self-fulfilling prophecy.

  • I find it ironic that these quotes accusing others of “whipping up fear” are present in an article titled “Pay More Or Your Lights Go Out.” An article that rails against deregulated electricity and suggests (incorrectly) that they’re considering adopting traditionally Regulated practices. Hey Forrest, if you dislike the deregulated system, well, your other option is a regulated system. And your article is saying the electricity prices are going to go up if regulated practices are adopted. What do you think happens if regulation would be re-adopted fully? Guess that didn’t occur to you.

    I’m not shocked that an “alternative” newspaper would lean so heavily on yellow journalism to get attention, but I still find it amusing in an eye-rolling kind of way. And sad that it was published at all.

    Texas Electricity: A Year In Review

    Texas electricity had a very busy year in 2011. There was a lot of different and important news stories from several unexpected angles that had an important impact on consumers and their electricity bills. And as far as years go, lots of the stories that started in 2011 could have a huge impact on 2012 and beyond. Lets take a look back at some of the biggest stories of the year for Texas electricity.

    Record Heat, Cold, and Rolling Blackouts – Easily the biggest story of the year for electricity in Texas was the weather. Texans are used to sweltering summers, but not nearly to the level of what we saw in 2011. Records indicate it was the hottest summer in Texas since the 1700′s, primarily because of the record drought and lack of rainfall that worked to cause a 40 day consecutive streak of greater than 100 degree temperatures in Dallas, many of which were closer to 110 than 100. Electricity bills soared for customers on variable and indexed plans, and the threat of rolling blackouts seemed to hang over the entire month of August because electricity supply barely met demand. And it wasn’t just the summer. A particularly violent cold spell hit Texas in the winter and caused several power plants that weren’t properly cold-weather fortified to fail…which in turned caused rolling blackouts. And again, because supply didn’t meet demand, many customers had some big bills. All in all, the weather was was almost certainly the biggest story of 2011.

    EPA Cross Pollution Rules – The Cross State Pollution rules that the EPA implemented have probably been the most talked about subject in the news that relates to Texas electricity. There have probably been at least 1-2 new stories every week on the rules and the whole situation became a complete political tug of war almost immediately. The rules are forcing many states to shut down certain coal-burning power plants that don’t meet new EPA standards. It is a concern in Texas because after the threat of rolling blackouts last summer, if the EPA changes take effect there will be even less power plants online in the summer of 2012 and the state barely skated by without rolling blackouts in 2011. Another hot 2012 summer and Texans could be in big trouble.

    Regulation Loses Some Luster – For years people have been taking cheap shots at Texas deregulated electricity by pointing out that prices in Austin, San Antonio and other regulated areas of Texas are cheaper. Some supposed consumer advocates like Recharge Texas kept hammering the point for their own political agenda. Of course, that tactic started to ring hollow when it was revealed that Austin Energy has run up a 225 million dollar debt for not raising rates with market prices, El Paso Electric became embroiled in a huge political dispute over their very high regulated rates, and it was revealed that the highest rates in Texas belong to regulated Entergy and they’re going up in 2012 even more. Some other guys even got in on the act of doing a true evaluation of deregulated electricity rates in Texas, and the results show without a doubt that people who shop, save. To the tune of more than almost any other state in the country. Hooray for deregulation. The next step is to just educate more people.

    Big Electricity Companies Buy Independent Power Companies – If there was one clear trend in the 2011 Texas deregulated electricity market, it was the sale of smaller Retail Electricity Providers to bigger conglomerates. Constellation Energy bought StarTex Power and MX Energy. Direct Energy bought First Choice Power for a huge sum. Dominion Power/Cirro purchased Simple Power. Just Energy purchased Fulcrum Power (Amigo and Tara Energy). NRG purchased Energy Plus Holdings (not centered in Texas), but that is on the heels of the huge energy giant purchasing Reliant and Green Mountain Energy in 2009 and 2010. Overall, most industry experts agree that the big guys in the market with cash and resources will continue to purchase the smaller companies that continue to prove successful in customer service and acquisition.

    AEP Texas and their license to sell Retail Electricity – I’m not going to spend too much time evaluating this one, as I’ve recently written several huge articles with the details and long term potential impacts (parts 1, 2, 3, and 4). However, the license hearing of AEP Texas in their efforts to get a retail electricity license and operate under the AEP name is a very big deal. Even if most Texans don’t even realize it. If could lead to Centerpoint and Oncor also selling electricity, and not just maintaining power lines and poles, and make Texas electricity even more confusing.

    That’s five of the bigger stories in the world of Texas electricity for the year of 2011. If any other big news in the market crosses my mind, I’ll add them to this list and send out an update. But overall, it’s been a pretty big year for deregulated electricity in Texas.

    Texas Electricity, AEP Texas and the Rules of Deregulation – Part 4

    What does AEP Stand to Gain and Who is Opposed?

    It is easy to understand why AEP is so determined to sell Texas electricity under the AEP brand name. As we have already examined in part 2 and part 3 of my series on this topic, their brand awareness is off the charts. They would be foolish not to try and take advantage of a 50% brand recognition for a service they don’t even provide currently. It is the same reason TXU and Reliant have such a great built in market advantages as “incumbents” over newer REPs. AEP is smart to want to tap into that advantage.

    A competitive market requires that the REP’s doing business have a level playing field, or as level a field as possible. Reliant and TXU already have huge inherent advantages but those advantages are impossible to remove. After almost a decade people are just now starting to understand that Reliant and TXU aren’t the same company that tends power lines and controls the infrastructure. Reliant and TXU were forced to adopt new brands for their TDU companies in Centerpoint and Oncor, respectively. They weren’t allowed to do business as, say, Reliant Distribution. By the same token, AEP shouldn’t be allowed to jump back into business as AEP Retail Energy.

    CPL (Central Power & Light), sold by AEP to Direct Energy in 2002, has filed an intervention in their license hearing protesting the move. Obviously Direct Energy is frustrated by the idea that AEP could resume business in the REP space. Much of the value they got when they purchased CPL and and WTU (West Texas Utilities) from AEP was in the familiar brand names to the people in those service areas. The same way Reliant and TXU have the name recognition and history of brand awareness that comes with being an incumbent. If AEP suddenly comes into those areas and sells electricity as anything with AEP in their name, it drastically devalues Direct Energy’s purchase.

    Direct Energy isn’t alone in their protests. The Alliance for Retail Markets (ARM) and The Texas Energy Association of Marketers (TEAM) have also filed motions to intervene in protest of AEP’s application. ARM is a coalition of REPs that act together in some matters, including Gexa, Champion Energy, Green Mountain and more. TEAM is a similar group of deregulated market participants made up or other REPs with members that include Bounce Energy, Amigo and Tara Energy, StarTex Power, Cirro Energy and more. Basically all of the other REPs in the marketplace are opposed to this happening because they know that AEP will be have a competitive advantage. Additionally, the PUC itself will weigh in to the presiding judge with their opinion. My understanding is that the PUC is against allowing AEP Texas to do business as AEP Retail Energy. Whether that prevents them from doing business with a different name isn’t clear.

    My Closing Thoughts and Additional Concerns

    As someone who sees people submit reviews about REPs on a daily basis, trust me when I say that probably half the people in Texas still don’t have a firm grasp on how the deregulated electricity market works. Allowing the use of the AEP brand name to sell electricity will be just another hurdle of confusion for customers. Texas has made great strides in awareness in the past decade but we still have a long way to go before everyone understands the market entirely. Some people still don’t even know they have electric choice, much less the difference between an REP and a TDU. Allowing AEP Texas to blur that line further would be a huge step backwards.

    One thing that no one will bring up in the hearing but that makes me uncomfortable is the idea of collusion. Some people think it is fine if AEP gets into the retail electricity game as long as they don’t use the AEP brand. Personally, I don’t think they should be allowed to get into the retail business period. No one at this hearing is going to accuse AEP Texas of colluding with AEP Retail by sharing sensitive and valuable consumer information because that would potentially be libelous. No company will say “AEP shouldn’t be allowed to do business in the retail space because we don’t trust them not to cheat.” But it doesn’t meant the other REPs aren’t thinking that thought. I know I have concerns.

    In Illinois, ComEd (the incumbent provider who still operates as the TDU and sells retail electricity) has been accused of some suspicious activity in regards to slamming customers when contracts are about to expire. Is it so hard to believe some people at AEP Texas might forward or send a few emails with advantageous customer information to AEP Retail? Maybe I’m being paranoid, but why even let AEP in a situation with that temptation? In 2002, the divisions of Reliant and TXU to create Oncor and Centerpoint were carefully observed with strict oversight by the PUC. The separation of the REP and TDU aspects are the lynchpin of how a deregulated market managed to function in the first place. Centerpoint and Oncor were carefully split and are divided with different shareholders, board members, management, and in the case of Reliant now operate under a completely different parent company in NRG. AEP will just be able to start up a new division and get to work. And if granted this license as is, they’ll barely even have to change their name.

    Additionally, if they were granted the mass market license, you don’t think Centerpoint would be right behind them to file an REP certificate? Centerpoint is already blurring the lines between TDU and REP in other ways, and this would be the next logical step for them. They might even try to do do their retail business in the Bayou City as Houston Lighting & Power (HL&P), which they own the rights to since that was the company’s name until 1999. For those that don’t know, HL&P was the electricity company in Houston until it became Reliant Energy. And HL&P already has a ton of existing brand awareness. But I’m sure that in the mind of AEP, that wouldn’t confuse anyone else either.

    Hopefully when the dust settles, AEP won’t be granted a license. I think the ramifications would be widespread and negative.

    Deregulated Texas Electricity Bills are Cheaper than Entergy Texas Bills

    Recharge Texas is back to their usual tricks and painting deregulated electricity in Texas in a negative light. Even worse is they have managed to wrangle a position blogging for the Houston Chronicle’s Fuel Fix blog, which I’m concerned will give them further false credibility.

    Anyway, Recharge Texas is once again claiming that Texans are paying more in deregulated areas than they in regulated areas. The problem with this argument is that the numbers they use to support their theory are supplied by the United States Energy Information Administration (EIA).

    Now, don’t misunderstand me, there’s nothing incorrect about the EIA’s numbers, other than they’re typically 2 years old at any given the time. The problem is that the EIA can only compare average regulated electricity rates to average deregulated electricity rates wholesale. What that means is that deregulated averages must include all of the people who don’t shop for electricity, don’t leverage the market choices to their financial advantage, and the people who still don’t know or understand they have electric choice.

    Believe it or not, almost half of Texans in deregulated areas are paying as much as 50% more than the competitive market rates for electricity. Because of this the EIA information is a poor source for comparison because it skews deregulated rates high. Recharge Texas then uses these inflated numbers to make a blanket statement that deregulated electricity is more expensive than in regulated areas. When the fact of the matter is that deregulated electricity rates are substantially cheaper in deregulated areas for people who actually shop and compare.

    Basically Recharge Texas is painting all of deregulation in a bad light simply because some people choose to pay a premium or don’t take advantage of the deals available. It is the equivalent of saying the price of food is more expensive in Texas than elsewhere because everyone chooses to shop exclusively at Whole Foods or Central Market, or that purchasing cars in Texas is more expensive because everyone purposefully chooses to pay sticker price without haggling.

    Why am I bringing this up when the title of this post is discussing Entergy bills? Well, I stumbled across this article, and it is yet another example of a regulated utility about to raise rates. In this instance, the rates to be raised are already substantially higher than deregulated rates. In the month of October, the average bill for a customer with Entergy that used 1,000 kWh of electricity was $114.69.

    For comparison, and you will have to take my word for it because it required me to do a lot of math, the average electricity bill in October for all the deregulated areas of Texas was $103.89 cents. And this includes all of the inflated bills from people who pay 50% over market prices. Entergy is ALREADY almost $11 more expensive compared to deregulated areas. If you add $14 to Entergy’s bill, it would be more than $24 higher than the monthly average in deregulated areas of Texas. If Entergy only gets half of what they’re asking for, it is still more expensive than all of deregulated Texas by about $18.

    Other regulated areas more expensive than the average cost of the deregulated areas of Texas include El Paso and Victoria. And I’ll also include Austin considering Austin Energy is 250 million dollars in debt because they have refused to raise rates in well over a decade. They’ll be more expensive than deregulated areas very shortly while still be sporting a quarter billion dollar debt.

    So chalk up Entergy, which services a massive chunk of East Texas customers, as another regulated area with massively higher bills than areas with deregulated Texas electricity. And that is even with all the high bills from indifferent shoppers that inflate the picture of deregulation. What would those numbers look like if everyone exercised electric choice?