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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

the problems from this point forward are going to be created politically."

Reliant's Ajello hasn't noticed any fallout from Enron's bankruptcy or disclosures of round-trip trading by large energy merchants, including accusations against the wholesale marketing arm of Reliant Energy, on Reliant Energy Solutions' ability to sign up C&I customers.

"The customers that we work with are very sophisticated, very large customers, and they have the wherewithal to evaluate the fundamentals of our business as we evaluate the fundamentals of theirs," Ajello says. "I think they are able to dissociate some of the noise from the substance of our business, which is very solid."

Still, some aren't convinced the Texas system is mature enough to warrant any weakening of the guard. Xenergy's Michelman says any significant gaming of the wholesale market in ERCOT, although unlikely to happen given the structure of the market, could have a knock-on effect on the newly restructured retail market in the state. "There could be a big political backlash," Michelman says. "It wouldn't necessarily be the retail market's fault for what happened, but it's easy to think, 'We changed this big thing and maybe we shouldn't have.' "

Briesemeister contends there are similarities between the alleged manipulation of markets during the California power crisis and what occurred in Texas during its pilot phase last summer.

"My point has always been that now we all say that California had a flawed market design," she explains. "Californians didn't sit down and say, 'Hmm, how can we really screw up this market design? How can we do a market design that will maximize the opportunities for gaming and price gouging?' They didn't do that."

Any market system, however intelligently designed, can be gamed if someone has enough incentive and enough cleverness, Briesemeister argues. "So what you really need, I think, more than the market design, is to ensure that the market has the transparency and the oversight to ensure that any monkey business is detected quickly and that there are harsh penalties. That's what creates the big disincentive to game the system."

Regarding allegations of gaming of Texas' wholesale transmission market last summer, Hunter says he's not sensing that the Texas PUC's investigation into the claims is discouraging activity in the market. "I think you've always got different people spinning what happens for their own agenda," Hunter contends, adding that one of the PUC's priorities in Texas should be to add more market surveillance, no matter if operations appear to stay above board.

A lot of the skepticism with California's restructured system, Hunter says, was hindsight. "I didn't hear anybody-and I was very involved in California at the time-predicting the kinds of issues that came up two years in, and I don't think anybody really predicted that, although in hindsight everybody can see where it came from."

Software and Systems

There's certainly little skepticism, at least from industry participants, that Texas has crafted the most effective set of rules, systems, and software of all the state programs for retail electric choice.

"We can go in there and we can do