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, AEP Texas and the Rules of Deregulation – Part 3

If you’ve read Part 1 and Part 2 of my examination of AEP’s application to sell deregulated electricity in Texas you are acquainted with both the basics of the situation, as well as just how much confusion exists by consumers in the Texas marketplace. In this section, I’m going to pick back up on market confusion and competition, examine why AEP is insisting on operating under the AEP brand and talk about how the rest of the Texas electricity market views AEP’s application.

Brand Awareness, Competitive Advantages, and Market Confusion

Anyone who has ever taken a marketing class or just watched a healthy amount of television understands the importance of marketing and brand awareness. When viewed under that lens, it is easy to see why AEP wants to sell electricity service under the AEP brand name. In the same survey we referenced in Part 2, which was commissioned by AEP to support their REP application, it was revealed that 52% of all customers in the AEP Texas TDU service area expressed some form of brand recognition for AEP Retail Energy. To recap, AEP Retail Energy is the brand name AEP hopes to sell retail electricity under and for all intents and purposes is a company that does not even exist to retail customers in Texas. Yet 52% of people expressed recognition. Additionally, it had the second highest recognition of any REP brand currently operating in any AEP territory behind only West Texas Utilities (37% to 36%), the former AEP retail electricity branch which was sold to Direct Energy in 2002.

That is the power of branding. When a company that doesn’t even exist yet in Texas has 56% total state market awareness and is effectively tied for first as the most known brand in a company’s native service territory, it is easy to see why AEP is so intent on doing business as AEP Retail Energy. The AEP name brand gives them a huge competitive advantage.

If you don’t believe brand awareness is that big a deal, lets further shine a light on the competitive advantages and their importance in the Texas deregulated electricity marketplace. Here are some more telling facts from the survey results turned up by AEP.

  • As we’ve established already, the AEP footprint in Texas is a mess. The highest percentage of recognition by any retail electricity provider was a meager 37%. The second highest response was for a fictional AEP company that doesn’t even exist. Reliant and TXU, the market incumbents for Houston and Dallas respectively, both had a 35% recognition with the people surveyed. No independent REP mentioned in the survey had higher than 13% recognition, and most were in the single digits.
  • In the Oncor service area, TXU had a 73% recognition amongst people surveyed. This is a perfect example of the power of brand awareness. Everyone in Dallas knows TXU. Reliant, the other big incumbent in Texas had a 30% recognition with people in the Oncor footprint. Almost no other REP mentioned in the survey had higher than 10%.
  • In Centerpoint, the results are basically the opposite if Dallas. Reliant had a 79% brand recognition while TXU had a 39% brand recognition, which is impressive considering it is outside of their historical footprint. And again, no other REP was even close to TXU and Reliant in the survey.
  • So what does all this data tell us? It tells us that brand recognition is extremely important when competing for customers. It’s no coincidence that TXU and Reliant are far and away the largest two REPs in the state of Texas. The two companies combine to serve almost 45% of all deregulated electricity customers in Texas. Is it any wonder that AEP wants to also capitalize on their own pre-existing brand awareness? They want to be one of three companies fighting for that 45%, as opposed to one of the other 50 or so REP’s slugging it out for the other 55% percent of customers.

    What Does Everyone Else Think?

    Not surprisingly, not everyone is on board with the AEP license application. CPL (Central Power & Light), sold by AEP to Direct Energy in 2002, has filed an intervention in their petition protesting the move. We can assume 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. And customers in that area will likely be even more confused, as has already been illustrated.

    Direct Energy is not 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. So basically, all of the other REPs in Texas are opposed to AEP’s application to sell deregulated electricity. They know that AEP will be have a distinct advantage because of established brand recognition. Additionally the PUC will also weigh in with their opinion in court, and my understanding is that they’re strongly against the idea of allowing AEP to do business as AEP Retail Energy. Whether that prevents them from doing business as some other name isn’t clear

    This concludes my examination of the importance of brand awareness and the market confusion that still exists in the world of Texas electricity. In the last post in this series, I’ll offer my own opinions on AEP’s actions as well as some other concerns that aren’t being addressed in the hearings.

    Texas Electricity, AEP Texas and the Rules of Deregulation – Part 2

    So if you’ve read part one of my look into AEP’s application to sell retail electricity, you have an understanding of the rules that separate TDUs and REPs, as well as AEP’s place in the Texas electricity market. Now it is time to highlight why what AEP is doing is problematic for consumers. Lets jump right in below.

    Market Confusion for deregulated Texas Electricity

    While there are many concerns about AEP getting into business as an REP, the main focus of this battle will be on whether or not letting AEP into the market will be confusing to customers. In other words, people might further misunderstand the roles of REPs and TDUs or customers might mistakenly think they don’t have electric choice. Some customers might even think that could receive worse service from AEP the TDU if they don’t order their service from AEP the REP. Does this seem far fetched? Well, it shouldn’t

    Many of those fears were confirmed by a research survey AEP conducted to SUPPORT their application. In fact, the release of the survey results has created quite a stir in the electricity world, with many people writing different articles and commenting on the eye-opening results.

    Here are some startling facts from the survey*:

  • Less than 1/3 of all people surveyed understood that the company that maintains power lines isn’t the company that bills them each month.
  • In all deregulated areas, nearly 75% or more of all people surveyed couldn’t correctly name their TDU
  • 52% of all people in AEP service areas already believe AEP sells retail electricity.
  • So, in summation, less than 1/3 of people surveyed actually have an understanding about how the competitive electricity market works, less than 25% of the people in deregulated areas can correctly identify their TDU, and 52% of all customers in AEP service territories already believe that AEP sells retail electricity. I would say this is pretty definitive proof that Texans still don’t understand deregulated electricity. Additionally, I think it is strong evidence that allowing AEP to sell retail electricity would further add to market confusion.

    AEP’s suggested Compromise

    What is AEP’s response to any potential market confusion that might occur from them operating a TDU as well as an REP? It is to include this disclosure in the fine print of their advertisements, disclosures, and most importantly business cards:

    AEP Retail Energy is not the same company as AEP Texas Central Company or AEP Texas North Company, which are sometimes referred to together as AEP Texas, and AEP Retail Energy is not regulated by the Public Utility Commission of Texas, and you do not have to buy AEP Retail Energy’s products to continue to receive quality regulated services from AEP Texas Central Company, AEP Texas North Company, or AEP Texas.

    Additionally, AEP will cite the full company name in their Electricity Facts Labels (EFLs) as: AEP Texas Commercial & Industrial Retail Limited Partnership.

    Remember earlier when it was mentioned that the two TDU divisions of AEP are commonly referred to as AEP Texas? Look at the first two words of what would appear on an EFL…that’s right, they are AEP and Texas, respectively. AEP Texas. AEP’s suggestion to eliminate confusion and create separation from AEP Texas and AEP Retail Energy is to list the extremely long company name on EFL fine print…the first two words of which are AEP and Texas.

    As someone who works in this industry and is familiar with customer habits, believe me when I tell you that most people don’t even read their EFLs or fine print when they sign up for electricity plans. The notion that listing the full company name will make things perfectly clear to all customers is extremely unlikely. Add in the fact that the first two words of the long company name listed are AEP Texas and the idea that customers will completely disassociate AEP Energy Retail from AEP Texas becomes almost an impossibility. I would argue it strengthens the connection. I would also suggest that is exactly what AEP has in mind.

    Ok, now that we’ve established that the concerns over market confusion are very real and taken a look at the research and AEP’s proposed compromise, we can move forward. In the next section I will take a much closer look at the potential confusion and the implications it could have for competition in the deregulated electricity market. We will also talk about who is opposing AEP in this hearing.

    *For anyone interested in looking at the actual results of AEP’s survey, they can download a PDF of the file from this link.

    Texas Electricity, ERCOT, and Future Power Generation

    Paul Ring over at Energy Choice Matters has been on fire lately with a number of interesting and thoughtful articles. In the latest one, Paul analyzes some comments Calpine COO Thad Hill in regards to the issues that Texas is having in attracting new investments in energy generation. Calpine is a fortune 500 company with more than half a dozen major power plants all over the country.

    As always, the original article by Paul Ring is fantastic, and I encourage everyone to take the time to read it. That being said, below I’m going to spell out the issues facing Texas electricity.

    The basic issue discussed by Hill and analyzed by Ring is how Texas is currently having trouble attracting interest from investors who are willing to build new power plants in Texas. As last July and August demonstrated, Texas is right on the edge of having enough electricity generation capacity to meet the state’s needs during the hottest months of the year. And that doesn’t even take into account what pending EPA changes in 2012 will do do to older coal-fired plants that have been deemed as too “dirty” in regards to pollution. In short, it looks like Texas is going to have problems meeting their power needs, particularly if we have any more summers like the one we just experienced.

    So what is the problem? Just build more plants, right? Well, that’s where things get tricky. Under deregulation, the model is that investors shoulder the burden of new plant construction, when before the state could simply tax or charge Texas electricity customers directly through their bills to subsidize new plant construction. But this is out of the question in the deregulated market (as it should be). Meanwhile, investors like Calpine, are saying that building plants in Texas is too risky and might not be profitable enough to warrant them taking the risk. In a regulated market, investors could be guaranteed a certain amount of energy to be purchased over a long time period by the state or regulated entity, but in the Texas electricity market the only driver is demand, there aren’t any built in guarantees or incentives. Basically, most Texas customers don’t like to sign up for electricity more than a year at a time with one company, so most REP’s are only buying energy in year metrics. Investors need to take their chances just like customers when they’d prefer to have 7 year guarantees. Since they can’t predict their profits and losses, and they’re unwilling to invest. Meanwhile, Texas desperately needs more energy generation plants. So we are at an impasse.

    Whatever the solution, and I have no idea what it will be, guarantees are out of the question as are subsidies from Texas citizens to build new plants. Both of those solutions would be large steps towards removing deregulated electricity completely because they would be flying in the face of electric choice in Texas. One thing is certain, this issue will only continue to get more visibility as time moves on, because it is a huge problem that will have to be solved somehow.

    Texas Electricity Provider Map

    Last week’s purchase of First Choice Power by Direct Energy was yet another major acquisition of a Retail Electricity Provider by a major energy conglomerate. There’s been around a half a dozen of these deals in the past year, and in my opinion things have gotten a bit muddled and confusing. So I wanted to write a post to chart exactly who owns who in the deregulated electricity space in Texas.

    Dominion Resources: Dominion Energy probably isn’t a name that is very recognized by Texas electricity customers. However, they are a huge energy company that deals in both energy generation and distribution in multiple states. Headquartered in Richmond, Virginia, they own the incumbent and regulated electricity providers in Virginia and North Carolina. In Texas, they own Cirro Energy, which they purchased in 2008. Earlier this year, Cirro Energy purchased Simple Power and absorbed their customers.

    NRG: NRG, a new Jersey based company, is another huge energy company with massive power generation resources. On top of energy generation plants, NRG also owns Green Mountain Energy, which they purchased in 2010 for 350 million dollars. In 2009, they purchased former incumbent Texas electricity provider Reliant Energy for 287 million and change when Reliant was under heavy financial distress. This was a steal considering Reliant was the second largest REP in the state at the time and has huge brand recognition. In turn, Reliant Energy owns (and I believe operates) Pennywise Power, which is a new brand they’ve put into the deregulated Texas electricity market to try and capture different customers without effecting their core brand. So NRG owns Green Mountain and Reliant, and Reliant in turn owns Pennywise Power.

    Just Energy – Just Energy is yet another big energy company, with resources all over North America. They had been a fairly smaller player in the retail electricity market in Texas until recently. Just Energy itself was mostly a niche provider, offering 5 year long term contracts to customers. However, they recently purchased the entire retail arm of Fulcrum Power. That includes Amigo Energy, Tara Energy, and Smart Prepaid. So now all of those brands are part of the Just Energy portfolio. They’ll likely keep the branding and still do business under the names Tara and Amigo, but it’s all Just Energy. Just Energy also owns another smaller REP, Commerce Energy.

    Direct Energy: Direct Energy is actually a subsidiary of a British company called Centrica, but they’re known almost exclusively in North America as Direct Energy, so that’s the name we’re going with. Direct Energy is yet another huge energy generation company with huge and varied resources. In the retail electricity space they do business as Direct Energy and they are one of the biggest REP’s in Texas. They also operate in Texas as WTU Energy and CPL Energy in two respective TDSPs. In the Spring, Direct Energy also purchased Gateway Energy Resources for 90 millions dollars. Since then, Direct has removed Gateway as a brand from doing business in Texas. Just last week, Direct Energy made another huge purchase, this time of First Choice Power for 270 million dollars. Which is a huge price tag. So, as of now, every company I mentioned above is really a subsidiary of Direct Energy.

    Constellation Energy: Constellation Energy is the largest energy supplier in America. Their 2007 revenues were 21 billion dollars. So yes, they’re another big energy guy. They own the regulated electricity entity Baltimore Gas and Electric. In 2 month period last spring and summer, Constellation announced purchases of both StarTex Power as well as MX Energy, two retail electricity providers that operate in the Texas deregulated markets.

    Gexa Energy: NextEra Energy is the parent company of Florida Power and Light, the regulated electricity provider for much of Florida. They’re another big energy company, having generation resources in over 20 states. In 2005, Florida Power & Light purchased Gexa Energy. They still do business in Texas under the name Gexa.

    Dynowatt: Dynowatt is a subsidiary of Accent Energy, which is a large company with natural gas ties in Ohio. Accent also serves deregulated New York, but they do business in Texas as Dynowatt.

    TXU Energy: TXU is actually a subsidiary of Energy Future Holdings, which also owns Luminant, the power generation portion of the old TXU company that was forced to split because of deregulation laws. Now Luminant and TXU operate separately. TXU is the largest individual REP in Texas and one of the two former incumbent providers.

    The following Retail Electricity Providers are stand-alone entities:

    Texpo Energy: Texpo Energy is a smaller company operating in Texas. What makes them interesting is that they actually operate under 3 different brand names while all sharing the same PUC Certificate. The other two brands are Southwest Power & Light and YEP. So to sum things up, Texpo, Southwest Power & Light, and YEP are all the same company operating in Texas under different names.

    Hopefully this helps to give people a clearer picture about who some of the players are in Texas electricity. It is important that people know exactly who the company is that is supplying their electricity. For example, if someone had a bad experience with one company, they might not want to get service from another one of their subsidiaries. And since there’s been so many purchases and mergings of REP’s in the last 6 months, I thought it might be a good idea to chronicle which companies have ended where after the dust has settled. I’ll try to update this page moving forward as well. I doubt we’ve seen the last of big REP acquisitions, so this family tree might change.


    Loren Steffy of the Houston Chronicle Wrongly Bashes Deregulated Electricity

    I ran across an article on the Houston Chronicle’s Fuel Fix Blog this morning. Normally, this is a great blog with lots of interesting articles that I read on a very regular basis. Today’s entry, however, by Loren Steffy, is one of the more backwards and lazy efforts I’ve seen on the Texas deregulated electricity market and the new EPA changes that I’ve seen to date. It’s so odd, I’m wondering if Steffy is being contrarian to get attention. Lets break down my thoughts below.

    First, I’ll give a quick summary of the article for those that chose not to read it for themselves. The article claims that the 500 jobs being lost by Luminent employees because of the new EPA changes aren’t the fault of any new federal rules being enforced. Instead, Steffy says the real culprit for the job losses is electricity deregulation. His reasoning, which is specious as best, is that deregulation has left the power generators weakened.

    It’s unlikely Luminant has the cash to make the sort of investments it needs to reduce its coal-fired pollution. Its parent company, Energy Future Holdings, is struggling with mountains of high-priced debt from its ill-timed $43 billion buyout by two private equity firms in 2007.

    “They couldn’t afford to switch,” said Ed Hirs, a professor of energy economics at the University of Houston. “A coal plant is a sunk cost.”

    Meanwhile, NRG, the second-biggest generator in the state, said it expects to comply with the EPA regulations without any jobs cuts, plants closing or material financial impact.

    So if I’m understanding correctly, Steffy is claiming that the problem here is that since deregulation tied electricity prices to natural gas, and coal became a cheaper option, it’s Luminent’s fault for investing heavily in coal plants to make money? First off, businesses and companies are, by their definition, in existence to make money. It has nothing to do with a regulated or deregulated market. Otherwise, how can anyone explain why many of the REGULATED energy companies in other states are publicly traded on the stock market? And Steffy is choosing to blame Luminent for working within the accepted state guidelines at the time? I find that kind of silly. But we’ll go ahead and ignore that glaring omission. Instead, lets focus on what Steffy writes in his very own article: Luminent stuck with coal plants because they are riddled with debt because of bad business decisions by their parent company, Energy Future Holdings. So the REAL problem is that Luminent and their parent company made some horrible business decisions, are riddled with debt, and can’t afford to upgrade their coal plants? This sounds like a business issue, not an issue with the deregulated electricity market to me, and it sounds like Luminent is being punished for those decisions which is exactly how a free market economy is SUPPOSED to work. Steffy’s claims that deregulated electricity is the culprit look EVEN MORE ridiculous when he praises NRG Energy for having the flexibility to adopt the EPA changes without having to shut down any plants or layoff workers. And this is DESPITE the fact that NRG has been operating IN THE EXACT SAME DEREGULATED ELECTRICITY MARKET as Luminent! Yet this is somehow the fault of the deregulated electricity market? That makes zero sense. You can’t praise NRG for being ahead of the game and being able to adopt the changes while giving Luminent a pass and blaming the marketplace. They is Hypocrisy 101.

    Lets take a look at some other choice quotes:

    In Texas, though, it means more of the same. Having created a system of misplaced incentives, deregulation has left us with higher prices, lower reliability and, now, more expensive and dirtier coal generation.

    1.) To what system of misplaced incentives is Steffy referring? Companies attempting to make a profit or pay their debts by using coal? As I’ve mentioned before, this is America and this would be happening regardless of regulation or deregulation. It’s called the free market. There’s a reason that plenty of regulated utilities in other states are publicly traded companies – they exist to make a profit. Faulting any company for attempting to do that and blaming it on deregulation is not only wrong, it’s willfully naive.

    2.) Deregulation has not left Texas with higher prices. Prices in Houston and Dallas are the same or cheaper than they are in Austin, currently, as quoted by a member of Austin’s very own city council. And they’ll be MORE expensive in Austin when the subsidies are removed next year and the estimated 20% rate hike goes into effect for customers of Austin Energy, which I’m sure you know, is a regulated entity. So prices are not higher. And if you really want to talk about higher prices, compare Texas with the rest of the country. It’s hard to make an apples to apples comparison, but when you crunch the numbers, Texas electricity is as cheap as it comes. If you don’t believe me, I’ve written about it extensively in the past, which you can read Here.

    3.) Steffy claims in the beginning of his article that “consumers worrying about blackouts” is a result of deregulated electricity. What does deregulation have to do with Low Reliability? I’m not even sure what Low Reliability he is referring to, quite frankly. Does he mean the grid operation this summer and energy shortages because of the heat? Because the generation of electricity is the same as it always was during regulated or deregulated eras. And by the same token, any lack of reliability of the grid would be consistent regardless of deregulation. Steffy has failed to support his claim with any kind of fact. Instead he has just thrown out a baseless accusations. And I find it laughable that he has chosen to cite the fear of rolling blackouts as a problem of deregulation but completely IGNORES the fact that the EPA changes being forced upon Texas have removed at least 1,200 megawatts from the grid, will admittedly RAISE our electricity prices, and generally make our grid even LESS reliable. In short, the EPA changes will directly be doing every single thing he has erroneously blamed on deregulation.

    It’s easy – and politically feasible – to blame the EPA, but the 500 jobs Luminant is cutting aren’t being lost to higher air quality standards. They’re simply the latest victims of deregulation’s failed legacy.

    Actually, deregulation has not a failed at anything. For starters, deregulation works, and there’s a reason other states are adopting it and using Texas for a model. Ask residents of New York and Chicago how much they’ve enjoyed their drastically lower bills. As for the other part of Steffy’s claim, it’s pretty simple cause and effect. Those jobs were safe until the EPA changes, which MANY people think are unrealistic, questionable, and have impossible timeline expectations. Then the EPA made changes, and the jobs were lost. That is simple cause and effect. In fact, you can take it a step further and say that those 500 jobs might not have existed in the first place except FOR deregulation. If he wants to make unfounded claims about how energy generation works in Texas, I see no reason why I cannot do the same. Steffy seem to think it’s Luminent’s fault for not being able to predict the future and timing of these unexpected changes (Texas was a last minute addition and a borderline admission to the EPA rules in terms of qualifying) and them not being able to predict the future is their own fault. I didn’t realize that it has come to a point now where acceptable excuses being made for some of the decisions by our government and their rules, policies, and decisions now include claiming that everyone should have been able to accurately look into their crystal ball and divine the future. How sad.

    2011 JD Power & Associates Poll Released: Champion Energy #1 Again

    The JD Power & Associates group has released their most recent survey of the deregulated electricity providers operating in Texas. In their own words:

    The study, now in its fourth year, measures customer satisfaction with retail electric utility providers in Texas by examining four key factors (listed in order of importance): price; billing and payment; communications; and customer service.

    You can view the full results here, but I’d like to run down some of my thoughts about the winners and other participants below.

    First, congratulations to Champion Energy, who has now won the award for a 2nd straight year. Their presence and reputation in the market continues to be excellent, and this survey supports that. Their score was a 745/1000. Landing in the 2nd spot was Spark Energy, which is their highest showing yet in this survey, with a score of 740/1000. Rounding out the top 3 was StarTex Power, a mainstay in this yearly poll, with a score of 739/100. As an interesting factoid, all 3 of these retail electricity providers are headquartered in Houston, Texas. And I’m personally proud to say that all of the top 3 REPs are also partners with Texas Electricity Ratings.

    Other Texas Electricity Ratings partners fared well on the survey. Amigo Energy, Direct Energy, and Dynowatt all scored 4 out of 5 in overall customer satisfaction, as did Green Mountain Energy and Gexa Energy. Bounce Energy also scored a 4 out of 5 in overall satisfaction, which is extremely impressive considering this is their first year on the survey.

    The incumbent electricity providers, TXU and Reliant, did not fare well at all on the survey. TXU Energy was rated last of all providers surveyed, with 2 out of 5 for overall customer satisfaction. Reliant Energy scored 3 out of 5.

    I would encourage everyone to read the full press release, and it’s certainly worth reading, but I’m pasting almost the entire thing in this post anyway. Some more interesting facts from the PR below, with my thoughts:

    Overall satisfaction among residential customers of electric retailers in Texas has increased to 659 on a 1,000-point scale in 2011—up by 25 points from 2010 and 30 points from 2009. While satisfaction has improved in 2011 in all four factors examined in the study, satisfaction with price improves most notably to an average of 644, increasing by 34 points from 2010. During the past several years, customer-reported bill amounts have declined steadily from a median of $167 in 2009 to $156 in 2010 and $150 in 2011. These price decreases are primarily due to declining natural gas prices.

    Well, this seems to contradict Recharge Texas’s hilariously off-base statements about Texans being dissatisfied with deregulated electricity, which I already broke down: here.

    Satisfaction with the billing and payment factor has also improved considerably, up 31 points from 2010. Contributing to this increase is a shift in payment methods, with a higher proportion of customers choosing to pay their utility bill electronically rather than by mail. Approximately 46 percent of customers indicate paying their bill either through a financial institution or utility website, while 23 percent of customers mail their payments. Satisfaction among customers who use online and electronic payment methods (recurring bank or credit card debits) is considerably higher than among customers using traditional methods (mail, phone or in-person payment).

    I personally think this is a huge deal. It illustrates perfectly the kind of innovation that has been forced onto the market by competition. Not only for online bill pay, but mobile applications and any other kind of innovation that has taken place in the past 9 years. Competition forces companies to stay at or ahead of the curve, if possible. Some regulated electricity providers in other states don’t even have online bill pay yet.

    And some final snippets:

  • It pays to shop around before deciding on an electric retailer. Customers who consider more than one electric retailer are substantially more satisfied than those who only consider one retailer.
  • It may be tempting to choose a retailer based solely on low prices, but this could result in being less satisfied. Customers who choose their retailer based on good customer service are notably more satisfied than those who make their decisions based on low price, reputation, past experience with a retailer or recommendations from family or friends.
  • Select your payment plan carefully. Customers who opt for a fixed rate plan—which guarantees a set rate during the entire length of the contract—are much more satisfied than customers who choose a variable price plan.
  • If you’re dissatisfied with your current electric retailer, consider switching. Among customers who rated their previous provider as “unacceptable” (one point on a 10-point scale) and switched to a new provider, satisfaction soars to an average of 747—nearly 90 points higher than the industry average.
  • Recharge Texas’s Analysis of Complaints is a Complete Farce and Embarrassment

    So I recently saw an article that a group called Recharge Texas released through Business Wire discussing some truly wrongheaded ideas. Recharge Texas claims to be the state’s “premier website for energy consumers.” I wonder if just maybe that title was something they gave to themselves. Without further ado, let’s jump right in and examine this foolishness.

    Electricity complaints have skyrocketed under the Texas electric deregulation law — from fewer than 2,100 received each year by the state’s Public Utility Commission to an average of more than 12,000 under deregulation, according to an analysis by RechargeTexas.com.

    Texans have lodged more than 800 percent more electricity complaints on an annual basis after retail deregulation than they did before deregulation, the analysis shows.

    Jay Doegey, TCAP president, said the colossal jump in complaints reflects continued frustration with the deregulated electricity market in Texas.

    Ok, two of the statements I’ve listed above are (arguably) facts. One of them is entirely an opinion based on a conclusion drawn by someone with no real background for consideration as either a statistician or expert. Can you guess which one is the opinion? That’s right, it’s the statement made by Jay Doegey of the TCAP (Texas Coalition for Affordable Power, which runs Recharge Texas). I’d be curious to know if Mr. Doegey took into account that before deregulation, the ability for customers to lodge complaints online didn’t exist, as well as the fact that the internet was not nearly as robust and ever-present as it is today. Do you think that perhaps the fact that people do everything online, and can find phone numbers in a few seconds instead of thumbing through a phone book to find a number to complain to makes a difference in how many people actively participate in the marketplace? Additionally, I wonder if he considered whether or not sites like Angie’s List, Yelp, Facebook, Twitter and even my own Texas Electricity Ratings have helped reinforce to people more than ever that one voice does make a difference in a marketplace? Lets face it, the shift in culture in the past 10 years in how people behave can be measured in light years, not just leaps or bounds. In fact, 10 years ago I didn’t have a cell phone with internet access. Now they all do. And within 5 minutes I can go from checking my electricity bill online, to google searching the phone number to the PUC, to calling their complaint line if I so choose — all from my cell phone. Does anyone think this hasn’t played a huge part in the increase in complaints for electricity companies?

    Something else that absolutely should be considered is that in the past 10 years the state of Texas has been part of what can only be called explosive population growth. In 2002, the population of Texas was 21 million and change. In 2011 it’s projected to be around 26 million people. That’s a population growth of almost 20% in under 10 years. Am I the only person that thinks our state increasing its population between 15-20% might also play a part in a massive increase in electricity complaints? I hardly think it’s inconceivable that mistakes could have been made and those people are much more likely to have to get on the phone to lodge complaints just during the process of figuring out how a deregulated market works. Doegey overlooks the possibility of this situation again in the article when he references how high the spikes in complaints were initially following deregulation. Of course the number of complaints spiked. All of a sudden people were immersed in a new system that was confusing. What a shock the the road was a bit bumpy.

    However, what gets absolutely no consideration in this article is that now people honestly had a REASON to complain. In a regulated market, what exactly is the incentive of calling in and complaining? It changes literally nothing. One certainly can’t complain and then move to another provider. And what motivation do they have to provide any better service to someone who lodges a complaint when that person LITERALLY has no other option except to continue to get their service from the provider with whom they’re currently displeased? Absolutely Nothing! In fact, an excellent case can be made that people would avoid complaining because of the fear they might receive WORSE service. Does it make sense for an employee to yell and scream at their boss and tell them how terrible they are at their job and expect no negative consequences? Absolutely not. That’s why people who are frustrated wait to tell their bosses that on their way out the door after finding a new job. Well, when Texas was regulated, there were no new “jobs”, and there were no doors to escape to when you were unsatisfied with your electricity service. It doesn’t appear that Recharge Texas considered that when they were looking at the numbers. If so, I’d love to see them show their work and quantify how this factored into their equations.

    The greatest irony of this article is that the same thing that Doegey and Recharge Texas are claiming, that the increase in complaints is a sign of dissatisfaction, is completely backwards. The increase in complaints is a sign that the free market for electricity is WORKING! Complaints now have meaning because there IS electric choice, so now people are actually taking the time to rate their electricity providers while working the market to their advantage! This is exactly what the deregulated market was intended to do, and it’s actually happening. And by the same token, the electricity providers with the greatest number of complaints are far and away the former incumbents, Reliant and TXU, the electricity companies that we’d be saddled with if we were still regulated. It’s extremely easy to make an argument that the companies who have been the slowest to figure things out in terms of customer service and satisfaction are the large incumbent monopolies we had before deregulation. It should only be shocking to groups like Recharge Texas that more than 40% of all complaints on record at the PUC for 2011 come from 3 companies that used to be former incumbent electricity providers: Reliant Energy, TXU Energy, and Direct Energy. The presence of new companies actually gives customers an alternative to the biggest offenders in the marketplace. I wonder if Recharge Texas would consider alternatives to bad customer service to be detrimental to electricity service for Texans? It certainly seems that would be a strange stance for the “premier website for energy consumers” to take, however, they seem to have adopted it nonetheless.

    Additionally, I question this report’s Math. According to this statement in the article:

    During the entire period of deregulation, complaints against electric companies filed with the PUC have never dipped to below 7,700 per fiscal year.

    If that’s true, then I suppose 2011 is special. Because through 6 months of this year, there are currently 2,210 customer complaints on record at the PUC’s website complaint summary. That means we’re on pace for about 4500 complaints this year, which certainly is less than 7700. It also makes their earlier statement that there are 800 percent more complaints on average seem more than a bit sensationalist. By their own math, Recharge Texas claims that there were 2062 complaints filed in 2001, the year before deregulation. If there are 4500 complaints this year, that comes to just more than twice as many complaints filed. I can easily chalk up to an active market which offers incentive for people sharing their experiences. A 150% increase is nowhere near an 800% increase in my book. Even if there were 12k reviews a year, that’s a 600% increase. Which is ALSO not an 800% increase. I wonder if the rest of their numbers are as sound as this math.

    Are there any more absurdities in this article? Well, I’m glad you asked:

    The plurality of complaints submitted to the PUC over the last two fiscal years relate to electricity bills. The relatively high number of billing complaints is unsurprising given that electric prices have increased in Texas by more than 40 percent since the adoption of the deregulation law. That’s a greater percentage increase than that registered nationwide. Likewise, average electricity prices in Texas are higher than prices in adjoining states.

    I’d absolutely love to see the research they’re drawing from to put out this statement. Because I’m tempted to say it’s a flat out fabrication. According to research I did in an article many months back comparing Texas Electricity prices to the rest of the country, Texas flat out has the lowest rates of everyone. Certainly much cheaper than New Orleans, which I believe is located in a neighboring state. As for Oklahoma, Arkansas, and New Mexico, well none of those states are home to 4 of the 10 largest metropolitan areas in the entire country. In fact, if memory serves, none of those states are even home to 1 of the 10 largest metropolitan areas in the entire country, compared to Texas’s 4. I wonder if that has anything to do with the electricity rates, and that’s IF they’re cheaper, which I doubt. The fact of the matter is, the deregulated electricity rates at this point for Dallas and Houston are on par with San Antonio and Austin, the two major metropolitan areas that remained regulated. So if the rates all over Texas are all the same, both regulated and deregulated, then why is Recharge Texas so keen on painting deregulation as a problem in regards to billing in the quote above? Or customer service earlier in the article? Maybe the people in Austin and San Antonio aren’t filing that many complaints because they realize the futility of wasting their time complaining about billing and service with the only electricity provider in town.

    One thing is certain, and that seems to be that Recharge Texas has an agenda against a deregulated electricity market. And digging around their website gave me some indications as to why that might be, but more on that in another article.

    Deregulated Electricity Expansion: Sharyland Utilities

    In what looks to be the first major regulated area opening up since the initial deregulation in 2002(that I can remember, there may have been others), Sharyland Utilities is set to transition to a deregulated electricity market. Starting in January 2014, Sharyland Utilities and their 44,000 residential and commercial customers in 28 different counties of Texas, will be open to electric competition. Some of the bigger territories include Brady, Celeste, Colorado City, Stanton, Mission and McAellen.

    What makes this process interesting is that Sharyland doesn’t have an incumbent electricity provider for customers to default to when the regions open up to electric competition. So they’re actually going to have to pick someone to be the “default” provider, and then let customers know that if they don’t select someone from the competitive market, then they’ll be moved to the “default provider.” It should be a pretty interesting process for customers. No word on whether these people will be folded into an existing TDSP or remain their own entity with different rates.

    From a business perspective for the electricity providers, 44,000 potential customers is no small amount at which to sneeze. Some of the smaller providers operating in Texas don’t even have 44,000 customers on their books. I would be extremely surprised if most of the electricity providers in Texas wouldn’t start making their presence felt in the Sharyland footprint with advertising and other materials in an effort to sway future customers.

    Sure, none of this happens until 2014, which is still more than two years away. And while that might seem like plenty of time, I’d be willing to wager that won’t stop most of the electricity companies in Texas from trying to get a head start on shopping their brand.

    If you currently are serviced by Sharyland Utilities and are curious to learn more about this process, there’s a great article with a ton of details written by Paul Ring at the always information Energy Choice Matters. You can link to that article here.