[BETA] Fortnightly

The Texas method for assigning provider of last resort draws criticism from market players and consumer advocates.

Texas, like every other jurisdiction that has instituted choice, has had to confront the methods, obligations, and responsibility associated with the assignment of a provider of last resort (POLR). In other words, what do regulators and market participants do about customers who choose not to choose, customers whose competitive provider goes out of business, and customers who are not paying their bills?

Texas chose a different path to the POLR assignment, but is currently revisiting some of those choices because of various degrees of dissatisfaction with the original decisions. For example, when queried about what she liked about the current POLR rules, Barbara Alexander, a consumers affairs expert who provided testimony on behalf of Texas Legal Services, replied, "Nothing." But we get ahead of the story. To understand Texas POLR, one must understand the basics of the Texas market structure.

The Texas retail electric market opened to choice on January 1, 2002 to much industry fanfare. The wires functions of the business were split from the generation and retail portions. All customers who did not make a choice were assigned to the affiliated retail energy provider (AREP) of their local transmission and distribution utility (TDU). The rates charged for the smaller customers (<1 MW) by the AREP were and are administratively determined and are known as the price to beat (PTB). The AREP can offer only the PTB for the first three years of market choice or until 40 percent of customers have switched to someone else. The PTB includes all transmission and distribution (T&D) charges passed on from the TDU. This means an REP (affiliated or not) is the single retail contact of customers (i.e., the TDU charges are just a line item on the REPs bill to their customers). Unlike the AREP, other REPs are not hamstrung and may charge whatever they determine is optimum. The market for larger customers (>1 MW) is more freewheeling. The initial price charged by the AREP for non-switching customers is not determined administratively, and the AREP may sign up customers to custom deals just like any other REP.

The Texas POLR Today

POLR is a fixed, non-discountable service under the Public Utility Regulatory Act. The Public Utility Commission of Texas (PUCT) went through a POLR rulemaking in preparation for the market opening. In this process it was determined that the POLR obligation was to be bid out for a one-year term in different segments, defined by all or part of a utility service territory and three customer classes (residential, small commercial, and large non-residential). AREPs were precluded on bidding for POLR in their own TDU territory for the residential and small non-residential classes.

Currently, POLR obligation is a mixture in Texas. Customers may be placed on POLR: 1) if they request such service; 2) if their REP defaults (without having sold their contracts to another REP); and 3) for non-payment. As of May 2002 only one customer has requested POLR assignment; none have been "dropped to POLR"