Chronicle Examines Difficulties of Being an REP

Posted on Posted in Bounce Energy, Champion Energy, Green Mountain Energy, Reliant Energy, StarTex Power, TXU Energy

Here’s an article by Loren Steffy that was recently in the Houston Chronicle.. It’s a fantastic article, and one of the few articles I’ve ever come across that does a great job of illustrating the difficulties of being an REP (retail electricity provider) in the Texas deregulated electricity arena. Even though electric resale has been an open marketplace for almost a decade, many people still don’t really understand the differences and nuances that exist in who sells the electricity to customers and who provides service and infrastructure for electricity. Many people, even those who understand that the market is deregulated, still abstractly think of anything electricity related as handled by “their electric company.”

What makes this article so unique is that it actually seems to paint a picture of the difficulties many of the REPs have to deal with to keep their doors open and run a successful business, whether you’re a former incumbent like TXU or Reliant, a specialized provider like Green Mountain Energy, or Mid Majors like Champion Energy, StarTex Power, or Bounce Energy. One of the often cited advantages to a deregulated market is that it forces the REPs to be more efficient, more cost effective, and to promote creative thinking that benefits the customers. But this article points out some interesting difficulties that might arise in doing that.

First, lets set the stage. The article points out that the natural gas market has finally righted itself since the huge increases that caused to much dismay and casualties in 2008. Prices are now reasonable, and after several REPs were bankrupted by the high prices, this summer finally looks like the perfect stage is set for proving the advantages of a deregulated electricity market and the benefits to customers. Things have stabilized, and most of of the REPs are in good enough shape to concentrate on their business and their customers, which was the ideal setup that people were looking for in a deregulated market. So what’s the problem? Well, new PUC rules might be making it difficult for smart and savvy businesses to really separate themselves.

Case in point, StarTex power came up with a great idea to differentiate themselves as a company by notifying customers when their contracts are about to expire. They felt this was a great idea, unique to them, that would really set them apart from a customer service perspective in the Texas electricity market. Especially since now the only real way that REP’s have to differentiate themselves from their competition is customer service, creative marketing and promotions, and the plans they offer to customers. And the margins are so thin in many cases on the cost of some plans, that it’s difficult for the REP to make any money. So what was the result of StarTex’s great idea? It was so good that the PUC took it and made it mandatory for all electricity providers.

Now there are two ways to look at this, and both of them are fair. After several REPs went out of business in 2008 and the end result being that the people hurt most by the inflated prices were the customers, it’s good to see the PUC taking an active roll in trying to look out for the consumer. But at the same time, StarTex lost any kind of benefit from having a great idea and consumer friendly policy they came up with benefit them as a company, and that is the kind of innovation that this electric market was supposed to be all about in the first place. Tough luck, StarTex, it hardly seems fair.

The article also discusses the impossible situation that many REPs are placed in regarding customers who don’t pay their electric bills and then switch to other providers (which currently can’t deny someone service except with the worst kind of credit). REP’s are stuck holding the bag, and this happens much more frequently than anyone would think. Currently there’s a law on the table that would not allow customers to switch REP’s until they have paid their outstanding bills, but there hasn’t been a vote on that yet. There’s also some talk about Smart Meters, but to be perfectly honest, I’m kind of sick of talking about that

It’s a great article, everyone should check it out and give it a read, although I’ve covered most of the highlights here, there’s more information worth checking out.

One thought on “Chronicle Examines Difficulties of Being an REP

  1. The experiment of electricity deregulation(E-D) in Texas has proven to be a failure. E-D needs to be re-invented or scrapped. In current practice, E-D is not working as planned and is only serving to pad the pockets of some opportunistic businesses according to reviews that I’ve read of some Retail Electric Providers(REP).

    E-D in the Houston area has produced no tangible benefits to the consumer. On the contrary, the only effects of deregulation I have seen is higher electric rates along with my annual anxiety and frustration as the contract expires with my current REP and I must again chose an REP and a plan for the following year. While making this decision, I must be very mindful of the 14 day window permitted to make a REP change, or else, I could fall into the trap set by my current provider called the “early termination fee” and be forced to pay some exhorbitant, undeserved fee.

    Unfortunately, the consumer is purposefully placed at the disadvantage in this process. The consumer is presented choices, but exact and understandable contract terms are not fully disclosed, intentionally misleading, omittted or worse. It is impossible for the consumer to make a wise and informed choice for an REP and a plan, without all fees, charges, conditions and other terms being fully disclosed, understandable and comparable for the consumer.

    The PUCT publishes a well know website Power To Choose, touted to help the consumer make a wise and informed choice for a Retail Electric Provider. The website shows REP offers conveniently sorted from lowest to highest price (cents/1,000Kwh), but the lower price offers may be quite misleading for the consumer and are not truly comparable:

    For example:
    a)the low rates for (1)one-month terms (i.e. month-month) will generally jump 30-50% on subsequent months.
    b) the low fixed-rates for some longer terms ( 6, 12, 24 months) may be “unbundled” and NOT include significant, variable electric utility charges (ex: fees for transmission & distribution (i.e. TDU), fuel, monthly fees) which ARE included in other’s rate plans.
    c) PUCT’s Consumer Complaint Score for comparison not prominently displayed.

    Even though E-D was fathered by the Texas legislature, the PUCT is the nanny but has been remiss and inattentive to its responsibilities. The members of the Public Utility Commission of Texas need to review and recommit to the first tenet of their mission statement “to protect customers”, since I sure don’t feel protected.

    Some fine first steps would be to revise and fully standardize the FACTS Label and portions of the Terms of Service document to permit straight forward comparision of REP plans by the consumer and avoid all billing suprises and many other complaints as well. Additional steps could be made to make the Power To Choose website more helpful for consumers by standardized forms, full disclosure and true comparisons. Perhaps, web-links to independant REP reviews could be considered. Also, strongly suggesting that the REP’s amortize their “termination-fee” over the contract term. To fully appreciate and grasp the effects which E-D has had for the average rate-payor, the PUCT should earnestly seek the comments, experiences and opinions of deregulated electricity consumers.

    I naively presume that the legislature’s motives were pure when instituting E-D, but something has gone terribly wrong (for the electric consumer) as painfully demonstrated by the following facts: Our neighbors to the west in Austin and San Antonio (with municipally-owned electrical companies) who elected NOT to adopt E-D, are enjoying some of the lowest electric rates in the country, while Houstonians endure rates that are as much as 150% times theirs and among the highest in the country.

    I believe the politicians and their appointed bureaucrats owe us an explanation.

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