PUC Looking to Revise Financial Requirements for REPs

Posted on Posted in Amigo Energy, Consumer Advocacy, First Choice Power, PUC/ERCOT, StarTex Power, Tara Energy, Texas Electricity, Texas Electricity News

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 in the future until the cap reaches $9,000 (currently at $4,500). The problem here is that the volatility created by the higher cap (it’s now much more expensive to buy energy futures because of a higher cap price) forces REPs to have more cash on hand to cover their customers for a year. As a result, the PUC is looking into raising the amount of cash reserves a company must keep on hand if it wants to start doing business in Texas. Which seems logical enough, on the surface.

It is important to note that it is unclear if these changes will apply only to new REPs trying to enter the market, or if they would also apply to current REPs operating in the market as well. Of course, the PUC probably hasn’t even started to consider these things yet, but that is an important question to keep in mind.

This move actually would have some huge effects that might not be readily apparent. People might not have noticed, but the Texas electricity market has actually started to shrink substantially over the past few years. There’s a lot less providers than there used to be offering service in Texas. This is due to several reasons. For starters, it’s become more difficult for REPs to make money on electricity in Texas. Additionally, the bigger companies that are part of major energy conglomerates have been gobbling up smaller companies in a large process of consolidation over the past few years. Basically, the bigger REPs are buying up the customers they’ve lost to new providers. First Choice Power, StarTex Power, MX Energy, and Fulcrum Power (Amigo and Tara Energy) are just a few of the bigger names that have been bought in recent years by huge energy conglomerates. Another key factor has been the bigger REPs (Reliant, etc.) willing to engage in “price wars,” or offering rates to customers that represent a break-even or even a loss, to force smaller companies with less cash and resources to compete to win customers.

All of those things are combining to make the Texas market a much smaller one than it was 5 years ago in terms of options for customers. And the market will likely to continue to get smaller. And decisions like this by the PUC, while intended to protect customers by making sure companies are financially sound, will make it more difficult for new REP’s to enter the Texas electricity market. This in turn means less choices and competition which have proven to benefit consumers. This most certainly is not a good thing.

Although it is a fine line to walk, the PUC is likely well intentioned here. They want to make sure new companies don’t go out of business 6 months after acquiring customers. The problem is this is a complex issue, and each decision is creating more shades of gray, and could do long term damage to the Texas electricity market, which already has an uncertain future.

 

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