Reliant’s New Unlimited Electricity Plan: A Closer Look

Recently Reliant Energy announced a new electricity plan for Texans, the Reliant Predictable 12 Plan. As the Houston Chronicle outlined, the plan calls for customers to sign a one-year electricity contract at a flat, monthly rate, regardless of electricity usage. This kind of plan is normal in other industries, specifically cell phone service providers, but it is the first of its kind in the Texas electricity space. I’m no stranger to questioning some of Reliant’s past electricity plans, so I figured it was worth the time to take a closer look at this new “unlimited plan.”

The Plan

On the surface, the plan is pretty straightforward. Customers will pay a flat fee to Reliant every month to receive unlimited electricity service. So whether they use five or five thousand kWh in a month, their bill will be the same. The appeal (or the demographic Reliant claims to be appealing to) might be older folks on a fixed income, or perhaps younger college graduates who have to make very careful budgeting plans each month. Customers visit Reliant’s website, input their address, and select the Reliant Predictable 12 Plan. They will be then be given a monthly estimate, presumably based upon the historical usage of the building in question, and possibly some other factors. Easy enough, right?

The Results

I’ll caveat this portion by saying two things: 1) The price given by Reliant when I input my address is very likely just an estimate of my monthly rate 2.) It’s impossible for me to know what anyone else’s estimates would be without putting in their addresses. That being said, what I can certainly do is analyze that plan with my own address. I live in a two-thousand square foot town-home, fairly new construction, and with a 2 year old A/C unit that is on the lower end of energy efficiency. Here were my results:

Your Predictable 12 amount is $150.00 per month.

Average Monthly Use 5000 kWh 4000 kWh 3000 kWh 2000 kWh 1000 kWh 500 kWh
Average Price Per kWh 0.03 0.04 0.05 0.08 0.15 0.30

Now, lets explain what that means. The math is simple, just multiply the kWh by the Average price to get your monthly average. The first thing that should jump off the page is that the 1000 kWh plan is LITERALLY the exact same price per month as the 500 kWh user. Use 500 or 1000 kWh? Who cares, pay Reliant $150. In fact, if you stretch the math onward, you’ll see that 4 of the 6 possible rates per usage come out to…exactly $150. The other two come out at $160. So basically, Reliant is going to make sure they are making $150 a month on these customers, whether they’re living in a 1 bedroom studio the size of a broom closet or a 5,000 acre compound with a private zoo.

I suppose this should immediately disabuse anyone of the notion that this kind of plan makes sense for a budget conscious retiree or recent college graduate. The .3 rate they quote for someone using 500 kWh is more than three times the cheapest plan available on Power To Choose, and double the most expensive fixed rate plan in the 500 kWh range. In fact, it’s more than twice as expensive as all but one of the five Reliant plans listed on Power To Choose. Personally, I don’t think it’s very budget friendly to charge double or triple rates just so you know exactly what your monthly bill will be, but that’s just me.

And it gets worse. Again, I can only compare this bill to my own historic electricity usage but I pulled my bills to make a comparison. Thanks to Reliant’s easy math, my yearly bill on their plan would be $1800. But looking at my past 12 bills, I can immediately tell this is a bad proposition. Over the past 12 months, I had exactly one bill that was higher than $150. My bill for last July clocked in at $157. So one bill, in the hottest month of the year, topped the $150 Reliant would look to charge me every month. Of course, I also had 7 bills less than $100, including 5 bills under $60. The total cost of my last 12 months of electricity was $1148.45. That’s $651.55, or 36% less expensive than Reliant’s Predictable 12 Plan. That seems like a pretty expensive premium to pay just to know exactly what your electricity bill will be each month. Anyone who can afford that probably isn’t worried about budgeting their monthly bills in the first place because they are affluent, and the irony is they can still get a better deal simply by doing nothing.

 

Other Considerations

The price tag alone isn’t the only thing to consider. As we’ve demonstrated above, despite being tagged as a “budget friendly” plan, this isn’t a plan that makes sense for anyone who is financially concerned about their budget. On the lower end of the spectrum, the plan is extremely expensive.

There are also a couple energy efficiency points. First off, it appears that Reliant is estimating the monthly rate at least in part on past usage. But what happens if someone were to spend money outfitting their home with new energy efficiency appliances? Any possible energy savings or improvements would be lost on their bill simply because the plan doesn’t take into account actual usage. And in this day and age we’re making improvements on the energy efficiency of home appliances and electronics by leaps and bounds. But none of that would matter to any customer on this electricity plan.

Another energy efficiency point to consider is responsible conservation. This plan doesn’t exactly encourage customers to be on their best behavior. It doesn’t really matter if they would leave their electricity on all hours or run their A/C at 65 degrees in the middle of August…because no matter what the bill is going to be the same. So in that regard if someone is looking to raise a dozen penguins in their home year round, well, this is the electricity choice for you! That’s hardly a positive considering the state of Texas is facing an uphill battle to build new electricity generation plants even as our population continues to boom. Of course, Reliant likely doesn’t care about that since their parent company, NRG, currently owns a huge percentage of Texas’s electricity generation and can only make more money from any electricity shortages.

Conclusions

I think it’s safe to say that Reliant Energy’s Predictable 12 Plan probably isn’t the best option for anyone even remotely concerned with their monthly electricity bills. For all but the largest users of electricity, the rates are extremely high. Anyone who can afford $1800 a year on electricity service probably doesn’t have to concern themselves much with their monthly utilities budget. However, for a small niche of customers wealthy enough to want to build snowmen in their living room year round this plan might make good sense. But an average customer like myself can save more than $600 a year just by paying for the electricity I actually use.

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.

Champion Energy’s Scholarship Program

Champion Energy, the four time consecutive winner of the J.D. Power Award for excellence in customer service in the Texas electricity space, has announced their new Champion Scholars Program. The program, which continues Champion Energy’s commitment to community service and philanthropy, will award scholarships to one winner ($5,000) and two runners up ($1,000), respectively.

The scholarship application centers on community involvement, including the following essay topic:

“Being a champion is about more than winning or being number one. Sometimes being a champion is about giving back to the community, standing up for your beliefs, or supporting a cause you believe in. What makes you a champion in your school or in your community?

Applications are due by April 1st, and winners will be announced by May 1st. It’s also important to note that the scholarships are applicable not just to college, but also High School scholarships. Anyone interested in applying for the scholarship can get the application at the following link:

Champion Scholars Application Link

Capacity Market Criticism: A Texas Electricity Link Dump 12/3/13

There’s been so much in the way of Texas electricity news the past few weeks that it’s difficult to summarize and document it all in a single post. Additionally, there is so much overlap that it doesn’t make much sense for me to write a blog post on each individual article. So instead I’m going to provide a list of some of the best articles I’ve come across recently, along with a summary or thought about why I think the article is a worthwhile read. Lets begin:

Lawmakers Spar Over Market Redesign – This Dallas Morning News article discusses the recent turmoil between the PUC and the Texas legislature. The short of it is that the PUC seems gearing up to back a capacity market, and several key Texas congressmen are questioning whether the PUC has the legal mandate/power to force such a change on Texans.

The 4 Billion Dollar Electric Bill – This article expounds on how a capacity market would usher in an additional 4 billion dollars in money paid by consumers each year. That money generally is an incentive for plants to build more capacity.

Texas Electricity Demands Slowing – Key to the push for the capacity market is the fallacy that Texas’s electricity needs are increasing. In fact, by all accounts, the demand for electricity is growing much slower than expected. The PUC is also looking at implementing a “mandatory reserve” amount that would further the agenda for those pursuing a capacity market. This article discusses all of that, as well as how we have measured electricity demand has changed.

Rants Against Socialized Electricity – Rep. Troy Fraser likened the ushering in of a capacity market to “corporate welfare” and “socializing” the electricity market. But not only that, Paul Ring chimed in with further analysis and breakdown. It’s actually a funny read if it wasn’t so potentially depressing.

Businesses Oppose a Capacity Market – Of course, large companies such as Valero and Wal-Mart (Texas’s biggest single employer) are convinced that a capacity market would be a huge blow to their companies. And considering how Texas has framed themselves as business friendly, one has to wonder how a capacity market would effect businesses currently in Texas, as well as ones considering relocating to Texas. Paul Ring expounds on that by pointing out that no state sporting a capacity market nears the top in any lists of business friendly states.

Paul Ring Exposes Fiction of a Unique Texas Capacity Market – And if anyone was questioning what Paul Ring thinks of a capacity market before now, this article should set them straight once and for all. The story is a breakdown about how the idea of a capacity market that would be “unique to Texas” is a farce and can’t be achieved.

So there is your rundown of the recent happenings in the Texas electricity as it pertains to a capacity market. Hopefully it was a helpful primer.

Texas Electricity Complaints Continue to Decline

Customer complaints in the Texas electricity market have declined for the fourth straight year, as reported by multiple news outlets including the Ft. Worth Star-Telegram. Complaints are once again the lowest since deregulation began in 2002. Naturally, Recharge Texas (TCAP) once again continued to further their agenda by pointing out there were less complaints during the regulated days of Texas electricity.  I’ve discussed this lazy, Continue reading “Texas Electricity Complaints Continue to Decline” »

Excellent Op-Ed Against a Capacity Electricity Market in Texas

The debate for Capacity Markets in the Texas electricity space is fixing to heat up. I stumbled across this excellent article about the fallacies driving the debate for introducing a capacity market in the state of Texas. It’s rare that I just cut and paste an entire article in this blog space, but I thought that this was worth the exception. The article was originally published in the Austin American Statesman on September 16th, 2013: Continue reading “Excellent Op-Ed Against a Capacity Electricity Market in Texas” »

Proton Energy Should Be Set Ablaze

The PUC is petitioning the commissioners of the PUC to revoke the license of Proton Energy. Why you ask? Oh, well, about 1,000 violations of the PURA/Commission rules since 2011.

No, that is not an exaggeration. Continue reading “Proton Energy Should Be Set Ablaze” »

More on Texas Electricity & Capacity Markets

The debate over capacity markets and whether or not they will become a model for Texas electricity continues to rage. I’ve already given you my thoughts on a Capacity market in my primer on the subject. But more information from all sides continues to blast out from all interested parties. First was the release of an NRG study that admitted that a capacity market would cost Texans an additional 4.7 billion dollars per year. Of course, NRG who would love a capacity market, indicated much of that money would be recouped. Fortunately, Paul Ring of Energy Choice Matters quickly debunked that notion in his article last week.

Of course, the biggest claim of the power generators is that they simply aren’t making enough money to warrant investment as long as natural gas prices continue to remain low. And this is despite raising the market cap last year (with more raises in the pipeline) precisely to encourage investment in new generation plants.

Of course, despite claiming not enough profits, large generation companies sure seem eager to PLAN new plants, according to this article in Rueters

Power companies in fast-growing Texas are drawing plans for 20 new generation plants, even though most projects cannot be financed because of a standoff between state regulators over how to reform the state’s $29 billion electricity market.

Of course, to me, “cannot be financed” reads more like “waiting to see if they can squeeze more money out of taxpayers.” But I might be cynical. What I really did enjoy was later in the article, this little snippet:

Panda Power Funds of Dallas, considered a maverick among developers, overcame significant financing hurdles this year to begin construction of two natural gas-fired plants totaling 2,200 MW.

In the world on power generation, Panda Power is a small guy. And yet this little guy managed to find financing to build two new plants in Texas despite the current “stalemate.” One would think mega companies such as NRG or Just Energy wouldn’t have any difficulty securing financing for new plants. In fact, they wouldn’t. They just want more profits. It’s funny how Panda is “considered a maverick” when the only thing they’re doing is creating supply where there is need for demand.

Anyway, the debate over a capacity market will continue to rage. Hopefully Rick Perry’s newest appointment to the PUC, former Chief of Staff Brandy Marty, will bring common sense to the discussion and eventually get capacity markets tossed out. Fingers crossed.

Champion Energy Wins Staggering 4th Straight J.D. Power Award

In what is increasingly looking like a foregone conclusion, Champion Energy has ranked in the top spot of the 2013 J.D. Power & Associates survey for Texas electricity customer satisfaction. This marks the fourth straight year that Champion Energy has won the coveted award. Last summer marked them as the first three-time winner of the award.

From the press release:

Champion Energy Services ranks highest among retail electric utility providers in Texas for a fourth consecutive year, with a score of 764. Champion Energy Services performs particularly well in price; billing and payment; enrollment/renewal; customer service; and communications.

 

Champion posted a cumulative score of 764. Congratulations to Champion Energy!

Also of note was Green Mountain Energy, which managed to come away with the 2nd spot in the survey with a cumulative score of 737. That is a huge improvement over their 2012 score of 691, and was enough to vault them 9 spots into 2nd place, edging out Bounce Energy who had a cumulative score of 736.

Rounding out the top 5 were StarTex Power and Brilliant Energy, with scores of 730 and 720 respectively. The entire chart is listed below:

2013 J.D Power Survey Results

I’ll be back tomorrow with a post examining the findings in a bit more detail, as well as an update to the Texas Electricity Ratings rankings.