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Retail Choice Rides Again: A Mixed Market in The Lone Star State

Texas wins raves from the big players for its rules and systems, but the small consumer, as in other states, sees little reason to switch.
Fortnightly Magazine - July 15 2002


As suppliers work out their transaction cost issues and as the market matures, Juracek foresees profit opportunities for ARES willing to test the Illinois market. "But it takes time for markets to work their way down," she explains. "When you look at how long we've been at telephone and gas deregulation, it just takes a long time, and 10 years is not unheard of based on the experience we've had in these other industries."

ComEd sells about 80 billion kWh, Juracek says. So far some 21 billion kWh of that total load (C&I and residential) has taken delivery-only service and jumped into the market (see Figure 1).

By contrast, more than 40 companies have filed as REPs in Texas and about 20 are actively engaged in attracting customers in the market. That number includes the unregulated marketing affiliates of the distribution companies in the state, as well as big independent retail marketers such as Centrica's Energy America and Green Mountain Energy.

Overall, the Texas restructuring law provided stronger incentives up front for suppliers wishing to serve residential customers, but it's still a real tough business, says Michelman.

"Reliant and TXU spent $100 million to get all their systems in place to deal with the chance of getting all these customers. That is clearly not an option for almost any retailer out there."

Fear of California

The failed restructuring scheme in California is obviously the one that most Texas restructuring boosters hold up as the poster child for the wrong way to organize a new electricity system.

"We learned a lot from California," says Brett Perlman, a commissioner of the Public Utility Commission of Texas, who was appointed to the post in 1999 by then-Governor George W. Bush.

"The key legislators who wrote the bill actually went out to California and they said, 'If this is what choice is about, [we don't] want it.' The learning experience from California has been something they brought back and was a foundation of S.B. 7. We've continued to monitor the market for some of the activities that have gone on in California."

Unique features, such as a self-contained transmission system-only two small interconnections tie Texas to outside electric grids-and its 20 percent power reserve, are two key factors identified as reasons why the state has succeeded in attracting suppliers to the market and maintaining a reliable power supply. Bill Hunter, utilities restructuring leader at Cap Gemini Ernst & Young, has been unable to find anything in the Texas system that signals a repeat of California.

"I don't foresee anything happening in the Texas market that would create the kinds of problems locally in terms of spiking prices, blackouts, and that sort of thing that would drive a retail retrenchment in Texas," Hunter says. "Texas has more margin than certainly California did. But obviously, if for the next three or four years nothing gets built in Texas and demand continues to increase and you get some weather, all of the uncontrollables turn against you, then I would suppose there could be a problem. But I think