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Take advantage of energy deregulation by switching your home electric service or by starting your own home-based business today. |
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March 10th, 2007
Friday, November 17, 2006 By William Lutz/LSR / East Texas Review
It’s not every day that Rep. Sylvester Turner (D-Houston) is left speechless on utility issues.
Sen. Troy Fraser (R-Horseshoe Bay) directed such a blistering set of questions toward TXU CEO John Wilder that Turner, a frequent utility critic, found he had nothing to add.
“Very seldom am I caught speechless,” Turner said after Fraser’s remarks. “I shall invite you to my district, Mr. Chairman.”
The Senate Business and Commerce Committee and the House Regulated Industries Committee held a joint hearing Nov. 9 to discuss implementation of SB 7 – the law partially deregulating the Texas electric industry.
But what was really on their minds was Texas electric rates and some articles in both The New York Times and The Wall Street Journal questioning whether Texas homeowners have benefited from the law.
The message from lawmakers to utilities was clear: make competition result in better rates for Texas homeowners.
Under SB 7, formerly regulated utilities in many parts of the state had to split in two parts - a regulated “wires” company and a retail electric provider selling power through the wires. The retail electric side of the business is competitive.
To encourage customers to choose a power provider, lawmakers required the retail electric provider affiliated with the formerly regulated utility to charge a price kept artificially above the market price – the price-to-beat. That way, customers would save when they selected a competing power provider.
Affiliated retail electric providers could charge only the price-to-beat for three years after competition began; then they had to offer that price for five, unless 40 percent of the market switched to another provider.
The price-to-beat is set to expire Jan. 1, 2007.
To make sure utilities were not forced to price below cost, SB 7 allowed utilities to request an increase, up to twice a year, in the price-to-beat to account for increased fuel costs.
The state cannot, however, request that the price-to-beat go down when fuel prices drop. In a deal with the Governor’s office, TXU received an increase in the price-to-beat in October 2005. Since then, natural gas prices have gone down, but TXU has not requested a cut in the price-to-beat. TXU did agree to phase in the increase in the price to beat.
House Regulated Industries Chairman Phil King (R-Weatherford) told committee members several House members have reported constituent phone calls asking why electric rates have not fallen as fast as gas prices.
The fact that the price-to-beat has not fallen is the cause of Fraser’s displeasure with TXU.
“I have to understand this. This is good,” Fraser said. “You’re saying, if you lock your price in at the highest price ever that we’ve offered, we’ll give you $100 back. That’s the way you’re treating your loyal customers. I think that’s an insult to the 2 million people who have been with you forever and trusted you to do what’s right.”
Wilder responded that price-to-beat customers are not locked in – that upon request, they can switch to another plan without penalty. He noted that the three-year price protection is a cap, and not a locked-in price. Wilder noted that TXU is giving a $100 appreciation bonus (a credit on the electric bill) to all customers - $25 per quarter spread over four quarters. It also gives a $25 bonus to customers who switch to one of its other plans.
“What happened to the concept of dropping your base price to everyone,” Fraser asked of Wilder’s response. Fraser mentioned news reports showing that TXU announced a $1 billion profit for the third quarter of 2006.
Wilder said that industry analysts were disappointed and thought the profit should have been higher. Wilder told lawmakers that investors have a right to expect a reasonable return on their investment.
The policy question before the committee is simple – is electric competition working? Does Texas have a competitive market?
With business customers, it does. More than two-thirds of business customers have switched electric providers, representatives of the Public Utility Commission told lawmakers. However, only 30 percent of residential customers have done so.
PUC members at the hearing said that of Texas’ approximately 6 million residential customers, approximately 600,000 have gone to a competing retail electric provider, 2.6 million have stayed under the price-to-beat, and 2.59 million have selected a plan other than the price-to-beat from an affiliate retail provider.
The vast majority of the residential Texas customers are with the “big four” – retail affiliates of formerly regulated utilities, lawmakers were told. PUC commissioners could not tell lawmakers the exact market shares of individual companies, because that information is considered proprietary, and there is no statutory requirement for companies to provide that information.
Both King and Fraser expressed support for the concept of markets but are concerned that there’s not more vigorous competition for retail electric customers.
PUC commissioner Julie Parsley called for better funding for public education about electric choice. The System Benefit Fund – a charge on electric bills – formerly paid to educate consumers about electric choice. But the most recent budget did not appropriate that money and instead used it to balance the state budget.
Members of both parties and in both chambers have expressed support for restoring the fund, as has Gov. Rick Perry.
When contacted after the hearing, TXU spokeswoman Sophia Stoler emphasized that the company was created 11 different electric products its customers can use, including several that are month-to-month (meaning no cancellation fees for switching).
During testimony, PUC commissioner Barry Smitherman emphasized the importance of bringing new electric capacity (i.e., new power plants) onto the market. By 2008, it is estimated that Texas will drop below its margin for reserve power –- a sign of potential reliability problems.
TXU and several other retail electric providers have proposed building new coal-fueled power plants in the state. Stoler said the TXU proposal would save customers $1.7 billion annually in lower power costs. The environmental permits for the plants are pending before the Texas Commission on Environmental Quality.
For the first time since the passage of SB 7, lawmakers chairing key committees overseeing the industry expressed concerns about electric rates and asked what action the Legislature needs to take.
Lawmakers went so far as to suggest that prices will remain reasonable while the Legislature is in session but will be raised the day the session ends. This level of cynicism is usually reserved for the Capitol press corps, not committee chairmen in public hearings.
All this concern doesn’t necessarily mean the Legislature will change SB 7. But it was clear that the committee chairmen wanted to send a message to the industry and that they expect action to address their concerns.
© 2006 Ambit Energy, LP. All rights reserved.
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