Texas Electricity, AEP Texas and the Rules of Deregulation – Part 4

Posted on Posted in Centerpoint, Deregulated Electricity, ONCOR, PUC/ERCOT, Reliant Energy, Texas Deregulated Electricity, Texas Electricity, Texas Electricity News, TXU Energy

What does AEP Stand to Gain and Who is Opposed?

It is easy to understand why AEP is so determined to sell Texas electricity under the AEP brand name. As we have already examined in part 2 and part 3 of my series on this topic, their brand awareness is off the charts. They would be foolish not to try and take advantage of a 50% brand recognition for a service they don’t even provide currently. It is the same reason TXU and Reliant have such a great built in market advantages as “incumbents” over newer REPs. AEP is smart to want to tap into that advantage.

A competitive market requires that the REP’s doing business have a level playing field, or as level a field as possible. Reliant and TXU already have huge inherent advantages but those advantages are impossible to remove. After almost a decade people are just now starting to understand that Reliant and TXU aren’t the same company that tends power lines and controls the infrastructure. Reliant and TXU were forced to adopt new brands for their TDU companies in Centerpoint and Oncor, respectively. They weren’t allowed to do business as, say, Reliant Distribution. By the same token, AEP shouldn’t be allowed to jump back into business as AEP Retail Energy.

CPL (Central Power & Light), sold by AEP to Direct Energy in 2002, has filed an intervention in their license hearing protesting the move. Obviously 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.

Direct Energy isn’t 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. Basically all of the other REPs in the marketplace are opposed to this happening because they know that AEP will be have a competitive advantage. Additionally, the PUC itself will weigh in to the presiding judge with their opinion. My understanding is that the PUC is against allowing AEP Texas to do business as AEP Retail Energy. Whether that prevents them from doing business with a different name isn’t clear.

My Closing Thoughts and Additional Concerns

As someone who sees people submit reviews about REPs on a daily basis, trust me when I say that probably half the people in Texas still don’t have a firm grasp on how the deregulated electricity market works. Allowing the use of the AEP brand name to sell electricity will be just another hurdle of confusion for customers. Texas has made great strides in awareness in the past decade but we still have a long way to go before everyone understands the market entirely. Some people still don’t even know they have electric choice, much less the difference between an REP and a TDU. Allowing AEP Texas to blur that line further would be a huge step backwards.

One thing that no one will bring up in the hearing but that makes me uncomfortable is the idea of collusion. Some people think it is fine if AEP gets into the retail electricity game as long as they don’t use the AEP brand. Personally, I don’t think they should be allowed to get into the retail business period. No one at this hearing is going to accuse AEP Texas of colluding with AEP Retail by sharing sensitive and valuable consumer information because that would potentially be libelous. No company will say “AEP shouldn’t be allowed to do business in the retail space because we don’t trust them not to cheat.” But it doesn’t meant the other REPs aren’t thinking that thought. I know I have concerns.

In Illinois, ComEd (the incumbent provider who still operates as the TDU and sells retail electricity) has been accused of some suspicious activity in regards to slamming customers when contracts are about to expire. Is it so hard to believe some people at AEP Texas might forward or send a few emails with advantageous customer information to AEP Retail? Maybe I’m being paranoid, but why even let AEP in a situation with that temptation? In 2002, the divisions of Reliant and TXU to create Oncor and Centerpoint were carefully observed with strict oversight by the PUC. The separation of the REP and TDU aspects are the lynchpin of how a deregulated market managed to function in the first place. Centerpoint and Oncor were carefully split and are divided with different shareholders, board members, management, and in the case of Reliant now operate under a completely different parent company in NRG. AEP will just be able to start up a new division and get to work. And if granted this license as is, they’ll barely even have to change their name.

Additionally, if they were granted the mass market license, you don’t think Centerpoint would be right behind them to file an REP certificate? Centerpoint is already blurring the lines between TDU and REP in other ways, and this would be the next logical step for them. They might even try to do do their retail business in the Bayou City as Houston Lighting & Power (HL&P), which they own the rights to since that was the company’s name until 1999. For those that don’t know, HL&P was the electricity company in Houston until it became Reliant Energy. And HL&P already has a ton of existing brand awareness. But I’m sure that in the mind of AEP, that wouldn’t confuse anyone else either.

Hopefully when the dust settles, AEP won’t be granted a license. I think the ramifications would be widespread and negative.

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