Excellent DMN Article Highlights Confusion in Texas Electricity Shopping

In a recent article in the Dallas Morning News, Mitchell Schnurman does an outstanding job of highlighting several of the existing challenges with navigating the Texas electricity market. As someone who has operated a website for electricity in Texas for five years that prioritizes consumer advocacy, I’ve long been beating the drum that the best way to maximize customer savings is through customer education. Unfortunately, it is shocking just how many people really don’t understand how our electricity market works. This is an article that really helps drive home that necessity.

The Texas electricity market can be confusing, and things like minimum usage fees or the differences between fixed and variable plans can be easily overlooked or ignored by customers shopping for different plans available in the market. That is until their bills hit their mailboxes. Schnurman is correct, many of the fees that customers will be tagged with are hidden in paragraphs of legalese and contract fine print and can be difficult to identify if someone isn’t well informed on exactly what to look for when comparing electricity plans.

For example, I work in this space. I know that when I’m shopping for an electricity plan, I need to look first at the plan’s kWh rate, as well as the length of the contract term (I don’t shop for variable plans). Then I need to check the contract cancellation penalty (just in case I decide to leave). Next on the list is the minimum usage charge, both how much that charge is and the electricity thresholds where that charge activates. Next I check the EFLs (electricity facts labels) to see if the electricity company has any other listed items for which they can charge, as well as the plan’s Terms of Service. After that, I check out company reviews from previous customers and see if anything stands out, such as poor customer service or a company with lots of complaints for not mailing out bills consistently…anything that might be a red flag. Finally, I would see if there are any benefits, such as sign-up bonuses or rewards programs that might sweeten the deal.

That’s a lot of steps for shopping for an electricity plan, and I’m certain that a majority of folks shopping for electricity do not go through as rigorous a research protocol as myself. But they should. It’s just like buying a car, the customers that come in the most informed have a better chance of walking away with a much better deal on an automobile. Which is what makes some of the comments by Kenneth Anderson frustrating in the DMN article.

We’re almost 15 years into deregulation in Texas, and many people still don’t know the difference between the TDPS (companies who are responsible for maintaining the poles and power lines) and REPs (the electricity companies who bill you each month). And while the PUC has a point in talking about not wanting to do anything (such as an apples to apples plan to allow easier electricity comparison) to deter the competition of the market, there are certainly things they can be doing to increasing the knowledge base of Texas shoppers. For example, they could change the rules for how plans are presented, highlighting and forcing companies to put the information that most directly impacts a monthly bill front and center when trying to sell their plans, instead of burying it pages into an EFL or the Terms of Service, specifically Minimum Usage charges and thresholds. Many electricity companies in the past have billed customers based on the historical usage of their addresses, as opposed to their actual usage. Having that information front and center for customers to look up to understand an address’s past usage and how it relates to computing a minimum usage charge would be helpful as well.

The point is, that there are a number of ways to make this process easier to understand for customers and better equip them for taking advantage of everything the Texas electricity market offers. And this can all be done without endangering the competition that makes this market greater. In fact, in my opinion, it is the deep pockets of electricity companies and their substantial lobbying budgets that prevent many changes, not the fear of curbing competition between providers. But regardless of the cause, the best solution is for Texas consumers to educate themselves and find the best deals.

Critical Peak Rebate Programs. What Are They?

Critical Peak Rebate programs are likely to become a new hot trend in the world of Texas electricity.  So what are critical peak rebate programs, and what do they mean to you? Lets take a look. Continue reading “Critical Peak Rebate Programs. What Are They?” »

PUC to Vote on Important “Small Fish” Texas Electricity Exemption Rule

ERCOT is set to vote on an amendment to a rule that is commonly known as the “Small Fish Swim Free” market exemption. As much as that might not sound like a big deal, this vote actually should have huge ramifications for the entire industry of electricity in Texas, from the generators all the way down to the average residential electricity customer. So what is this “Small Fish” rule, and how does it affect day to day market behavior and retail consumers? Let’s take a look.

The Small Fish Rule states, in short, that unless an energy generation company represents at least 5% of the total market generation they are deemed by the Public Utility Commission of Texas to “legally” be seen as not having any “market power.” As a result of this Small Fish exemption and legally being seen as not having “market power,” qualifying generation companies can operate according to a different rules than companies such as NRG or Luminant. Specifically, a “Small Fish” company can choose to do things differently, legally. This in turn can cause a chain reaction in elevating the per-unit cost of electricity to retail electricity companies or other firms purchasing power. If an advantageous situation arises where a Small Fish can affect the outcome of the price of wholesale power, it is possible for them to use their actual (although not legally recognized) market power on a moment’s notice. And unbeknownst to all other market participants, raising their offer curves from cost can bump up prices to the price cap of $5000. You can see how the ability to do either could be very powerful if one company had the ability to change the whole-sale electricity prices thousands of dollars at will, depending on the circumstances.

The existing law is dependent on the concept that someone with less than 5% of the total installed capacity indeed has no market power. In other words, nothing they do can affect the whole electricity market in total, particularly in resource adequacy or pricing. Of course, on the face of it, this is a somewhat absurd comment. In today’s ERCOT, 5% of the energy generation on the market comes out to just over 4,000 megawatts of capacity. That’s a very robust amount of capacity, and significantly more capacity than the difference between Texas being put at risk for rolling blackouts and operating with ample breathing room.

To put things in perspective, lets consider an analogy to a gas station after a hurricane. You can have less than 5% market share of a cities gasoline market and during normal times it’s pretty meaningless.  But then a hurricane comes in and devastates the city and suddenly demand shoots up, and then you offer your gasoline at $10 a gallon because you know people will pay for it.  Most of the time it’s meaningless but then sometimes it’s critical. The point is, the notion that something as “small” as 5% of a market has “no power” is a roundly incorrect one. Often times, the amounts of megawatts between $100 and the price cap of $5000 is often in the hundreds of megawatts so the ability to influence prices whenever a generator feels it’s opportunistic to them is a large advantage in a times where markets are supposed to becoming more fair for everyone. Of course, this is only a problem if it’s actually occurring with any kind of frequency. From an article in Platts:

In a presentation about the NPRR to the committee, Patrick de Man, speaking for Raiden Commodities, said that on 17 days from June through early September, such a “small fish” had raised the price on a substantial part of its fleet capacity near the systemwide offer cap, which has been $5,000/MWh since June 1. De Man did not name the “small fish” in question either in his presentation or in his discussion, out of concern that it might be considered in violation of federal antitrust laws. A Platts analysis showed that on nine of the days cited in de Man’s presentation, GDF Suez, which has about 3,957 MW of capacity spread across ERCOT’s Houston, North and South hubs, priced between 564 and 1,332 MW of electricity between $4,900 and $5,000/MWh. De Man said that locational marginal price spikes correlated strongly with the times that the “small fish” in his presentation raised prices on substantial portions of its capacity near the systemwide offer cap. “How can it be a competitive and efficient market if there’s one party who is pushing prices around like this?” de Man asked.

In other words, during the hottest times of the year, one electricity generator listed as a “small fish” was consistently raising their prices near the maximum offering cap allowed, in turn effecting the pricing for everyone when they deemed it was advantageous for them. When speaking with several people who work in trading, they readily admit off the record that this kind of thing happens, that it makes their job nearly impossible to value the price of electricity, and that its most certainly market abuse. Markets need to be fair to create competition and attract capital deployment. When they are in fact not fair, then that said market breaks down. This is what is occurring right now in Texas. In fact, the former Independent Market Monitor, Dan Jones, agrees with the statement about abuse. From the same Platt’s article:

Dan Jones, who heads Potomac Economics’ independent market monitor operation at ERCOT, said his staff would consider the type of activity described in de Man’s presentation “economic withholding.” “But per [PUC] rules, it’s not market power abuse, because you have to be an entity that has market power, and by the rule, entities that don’t have 5% [of total capacity] do not have marketwide market power,” Jones said.   Jones noted that his State of the Market Report for 2012, issued in June, mentioned that a “large ‘small fish’” could be “pivotal.”

So let’s recap: The traders think it’s market abuse, and the former man in charge of making sure there are no abuses believes it would be abuse if it was performed by anyone with 5% of the market. He also went on record saying that a “small fish” could absolutely be, in his own words, “pivotal.”  

So what is left to debate here, exactly? And none of this above even touches on another strategy that can be used in this situation, physical with-holding. Physical with-holding is a strategy Enron used in California to increase prices by making available units unavailable creating shortages in capacity thus driving up prices, and some traders I have talked with have actually filed complaints with the IMM and the PUCT only to be told that any behavior out of one entity in question is not up for discussion as they have immunity. But we’ll look closer at physical with-holding in another article.

There is plenty more we can examine about this situation. For starters, if this is a punishable offense (regardless of the “small fish” rule or not) then why aren’t any guilty parties being punished? By implementing this amendment, it removes the possibility of any of these energy generators from effecting prices in the way they have in the past. It makes the point moot. And besides, why shouldn’t smaller generators have to play by the same rules as the larger generators? What positive purpose does the exception serve anyway? All in all, it just makes sense to create a level playing for all parties, and thus create even more transparency in the Texas electricity marketplace to make sure everything is operating above board.

Direct Energy Purchases Bounce Energy

This morning Direct Energy has announced their purchase of Texas retail electricity provider Bounce Energy. Bounce Energy, who has consistently been at the top of the Texas Electricity Ratings rankings (currently #1), has easily been the most innovative electricity provider in the country in terms of their online technology/capabilities and their success in reaching out to potential and existing customers through social media outlets.

Additionally, just recently, Bounce made groundbreaking contributions to the electricity space with the launch of their new MyAccount functionality, as well as their Build Your Own Plan functionality. The Build Your Own Plan is the only one of it’s kind in the electricity space, and allows customers to select their own plan term length, the amount of renewable energy in the plan, whether they want automated and paperless billing, and more.

In contrast, Direct Energy has long been lacking in the realm of online functionality, digital customer outreach, and a customer friendly web-portal. So on the surface, this seems like a very smart purchase by Direct Energy, but only if it’s viewed as a strategic purchase of specialists and experienced personnel to bolster some trouble areas of their business. If it is just viewed as a purchase of a customer book, then I’d purport that Direct Energy is wasting a great opportunity.

Fortunately, from some of the quotes in the press release, it looks like Direct Energy is very much viewing this as a strategic purchase:

“We are always looking for new ways to enhance our customers’ experience and satisfaction,” said Steven Murray, President of Direct Energy Residential. “Bounce Energy’s digital marketing insights and e-commerce platform will bolster our capabilities as we expand our product offerings to current and potential customers.”

 

“Direct Energy is the ideal organization with which to expand our e-commerce platform and digital marketing capabilities,” said Robbie Wright, CEO of Bounce Energy.

If that is the case, and by all appearances it seems to be a strategic purchase, this is great news for both Direct Energy and Texas electricity customers alike. Bounce’s technology and marketing savvy along with Direct Energy’s resources (which allow them to go toe to toe with incumbents like TXU and Reliant), could create the kind of Texas electricity company that will push innovation in new ways that will only benefit Texans, as well as customers in all other states Direct Energy sells electricity.

All in all, it’s a very interesting day for Texas electricity customers. The #7 company on Texas Electricity Ratings is purchasing the current #1 company, but there’s a lot of hope that the union will mean great things for customers. Congratulations to both Direct Energy and Bounce Energy!

Risings Costs – Your Electricity Company Has Little Choice In the Matter

It was a known fact that electricity rates would take a substantial hike after Donna Nelson and the PUC approved an increase in the market cap last summer. And I’ve been steadily watching those rates rise since then. And this summer in particular I’ve seen more angry reviews than usual from customers complaining about the available rates when they’re renewing their electricity plans. It’s a potent cocktail of panic over the supply on the ERCOT grid, and the PUC’s inability to pull back from hitting the panic button, mixed with the all too self-serving pressures from the existing generators for more, more, and more that are driving prices up and why they’ll likely stay there with no end in sight. Let me explain.

Why Are The Rates Increasing?

When the emergency market price cap for power was voted into an ongoing, every summer increase through 2015 from the original $3000/mWh in 2011 to an absurd $9000/mWh in 2015, people familiar with the market and the market drivers knew that electricity rates would go up. And while updating the Texas Electricity Ratings recently, I took the time to compare the rates from this summer versus last summer’s electricity rates. Of the 41 electricity companies listed on Power To Choose last summer, the average rate for a 12 month plan in the Oncor service area was 8.8 cents per kWh. This summer, of the 46 electricity companies listed on Power To Choose offering a 12 month electricity plan in Oncor, the average kWh rate was 9.8. That’s an increase of almost 13%.

An increase of 13% might not seem like much, but it came after the market cap increased from $3000 to $4500. The staggered increases are scheduled to keep increasing until they stop at $9000. If the numbers continue upon that projection, it would mean prices could settle after an increase of 52%. That would be an average 12 month contract rate of 13.3. That’s approximately 15% higher than the highest 12 month plan on the market today, and even that is a 12 month green energy plan which are even more expensive than regular 12 month plans. And that will be the AVERAGE plan rate.

Another thing to consider is that the price per kWh isn’t the only thing that will cause your bill to increase. Electricity companies, trying to keep up with soaring energy generation costs, are getting more and more clever at disguising and passing on their costs to customers. One method is the increasingly noticed Minimum Usage charges. I’m seeing more and more customers complaining about them in reviews and emailing me asking questions. If customers are citing them more, it’s because their effect on bills is increasing enough for people to take notice. Minimum Usage fees are how electricity companies cover costs for servicing customers such as billing, call centers, etc. on customers if they aren’t using a given threshold of electricity, but there is no oversight or regulations on how an REP can implement their minimum usage rates. They can have a high rate from the start, or increasingly they can pick an arbitrary usage threshold and jack the electricity rate up astoundingly if a customer doesn’t meet that threshold. This way REPs can recover their expenses while still seeming to be offering competitive rates. So read your fine print, customers.

If Not The Electricity Companies, Then Who?

The natural assumption when a company raises their prices is that it’s entirely by their own choice. But in this instance, a better comparison would be the cost of gasoline. The cost of gas at the pump is tied to many things, first and foremost the cost of oil per barrel. Another is the cost of transportation (there’s a reason gasoline is cheaper the closer you get to refineries as opposed to places where it has to be transported by truck across several states). The cost of electricity is heavily dependent on the cost to buy the energy from the electricity generators (such as Luminent, NRG, etc). As when the cost for barrels of oil increases the price of gas at the pump, when the generators set higher rates for the sale of their energy, REP’s have no choice but to raise the electric rates they offer their customers.

So the real question is, why is the cost of generation increasing so substantially? Well, as I’ve written about before, the beginning of the problem is the perception of growing scarcity of energy to meet the increasing needs of the state of Texas. With the rapid population increase the past few years, and the growing industries moving to Texas because of a favorable business environment, the electricity needs of Texas are potentially outpacing the growth of generation. And because the Texas electricity market is deregulated, the private sector has to decide to invest in generation and build more power plants. The problem is, the generators are saying that they aren’t certain they’ll make the profits they’d need to justify the investment.

The power generators aren’t building many new plants. It appears they’ve decided to play chicken with the state of Texas’s electricity needs because, well, they can and with the PUC giving into their every request to date, they’re incented to do so.  PUC is proving itself to be more or less beholden to the electricity generators, and as a result every single decision they’ve made to try and spur generation has unsurprisingly seen in favor of the claimed needs of prospective electricity generation investors. The market cap was a move to entice generators to build more plants, but right now all it has done is increase prices for residents and REPs alike. As well, changes have been made to effect the longevity of emergency pricing events. Ancillary energy charge pricing has been moved up as well. Each of these moves feeds into the claimed needs of generation. And the generators are also hugely in favor of switching to a capacity market, which is another move that would also favor their interests as well, as opposed to consumers.

While the population increase of Texas can’t be controlled, one thing that certainly could change would be Donna Nelson and the PUCs willingness to lay prostrate for the energy generators and rubber stamp any initiative in hopes that they’ll eventually invest in new generation. The problem is, why would the power generators start building anything until they’re positive they’ve squeezed every last possible drop of profits and concessions from the PUC and Texans? It isn’t as if they’re meeting any resistance, or like the PUC is saying “No” to anything. If I were an energy generator, I’d also probably say nothing and let the PUC keep throwing consumer dollars at me as well. It’s almost like one of the ridiculous movie scenes where someone keeps bidding more money at an auction against themselves without anyone else putting out any bids.

A key to this whole bataan death march towards higher prices since the August of 2011 scare is that the pricing for residential electricity has been at an all-time low. Frankly, it was artificially low last summer heading into this spring, given the enormous jump in wholesale pricing from pre-summer 2011 to the pre-summer 2012 period. It’s as if REPs were waiting, hoping even, to see if there wouldn’t be a pull off from the wholesale pricing before they took the step of driving the prices in the market upward. This spring’s climb in natural gas prices appears to have been the final straw. Numerous reputable REPs ultimately moved prices upward significantly and the other names more or less followed. The luxury in the pricing lull for the PUC during all of the recent changes that will hammer residential bills is that they were able to claim, and often have repeatedly, that pricing on the residential side remained at all-time lows. Of course this was a house built on sand and now it’s being washed away. As the heat from residential advocacy groups rises again, it’s going to be interesting to see how the commission endeavors to handle further negative moves that favor no one but the bemoaning generators. It’s one thing to make moves when no one is looking, but something altogether different when everyone impacted begins paying attention.

What’s disturbing in all of this is of course that the whole point of an electricity-only market is to maximize the efficiencies of the market’s ability to produce the last necessary MW of power. It’s not a design intended to have excessive length in the ability to generate power.  Nonetheless, every decision made in the last two years has basically planned for the worst possible scenario, a market seize-up due to running out of power – something that has never occurred and has a likelihood of occurring even in current situations of scarcity at an infinitesimal percentage. It’s as if almost having to institute rolling blackouts for a few hours on a few days in a once-in-115-years-of-weather-history weather event in August 2011 has now been established as the accepted norm for planning with all market actions into the future. That that would create a market with excessive length to the detriment of every participant for 718 out of every 720 days seems to be moot. Here we are, 2 years later with more reserve margin than 2011, normal weather, and virtually zero pressure on the grid regarding scarcity, yet pricing for consumers is soaring and will continue upward.

So What Happens Next?

Unfortunately the only certain answer to that question is that electricity rates will continue to rise. For consumers, I’d suggest locking in long term rates for as long as possible. As for the PUC, who knows what will change in that regard. It’s hard to see their behavior towards energy generation changing any time soon, at least not until a 3rd member is added to replace the existing vacancy for the 3 person panel of commissioners. And while Kenneth Anderson has been a more consumer oriented voice on the commission, the truth is that little will probably change in the near future for the PUC. The best customers can do is understand what and who is causing their rising electricity rates and to be diligent in shopping for the best deals they can find. And then duck for cover

Donna Nelson On Residential Customer Demand Response

I’ve been fairly critical of the PUC in recent posts, but recently Donna Nelson did speak out on something that I do actually agree with…or at the very least, it seems fair. As the generation capacity of Texas continues to shrink, and as the PUC’s efforts to lure new generation to date have failed,  Continue reading “Donna Nelson On Residential Customer Demand Response” »

Texas Electricity Ratings: Rankings Update 2/19/13

We’re well into the new year, and it is time for a new update of our rankings here at Texas Electricity Ratings. We’ve had rate changes now that companies are preparing to move back into summer rates, and there’s also been another round of customer reviews that I’ve entered into my system. So with that in mind, here’s our latest round of rankings:

Bounce Energy                        4.04
Champion Energy Services     3.91
StarTex Power                         3.81
TriEagle Energy                       3.69
Gexa Energy                            3.58
Direct Energy                           3.17
Amigo Energy                          3.09
Tara Energy                             3.02
Green Mountain Energy           2.79
TXU Energy                              2.53
Texas Power                            2.46
Reliant Energy                          2.13

Congratulations to Bounce Energy, who is back in the top spot! Bounce is followed by Champion Energy, who slipped a little but during this rankings system. StarTex Power has slipped back into the 3rd spot, even after their purchase by Constellation Energy. That speaks well to how they’ve been transitioned into Constellation.

During my rankings update, I’ve also noticed some more things about the Power To Choose website rankings, but that will be another post I’ll put up later today or tomorrow.

PUC Looking to Revise Financial Requirements for REPs

This news is a bit old, but it is worth a quick mention. Per Paul Ring, at Energy Choice Matters, the PUC is looking to reexamine and likely revise the financial qualifications it takes for REPs to be certified to sell electricity in the state of Texas. This is a direct result of the PUC raising the market cap in August, with more raises Continue reading “PUC Looking to Revise Financial Requirements for REPs” »

What Is Proton Energy Thinking?

Since I’ve been writing this blog and running this website, I’ve seen a lot of new Retail Electricity Providers (REPs) enter and exit the market. At this point, it takes more than just low rates to set yourself apart in a crowded Texas electricity market, companies have to interface well with their customers. And in my personal opinion, in the age of the Internet, any company that doesn’t have a decent web interface/presence is beyond help. Which is why this video below from Proton Energy just completely blows my mind:  Continue reading “What Is Proton Energy Thinking?” »