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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 future, too."

Michelman says there are "profound lessons" to be learned from the Texas market. The Texas PUC's jurisdiction over ERCOT and its ability to coordinate wholesale and retail initiatives, unlike any other market to date, have been critical to Texas' success.

One of the big differences between Texas and all other states is that the ISO has retail responsibilities along with its wholesale functions. "I think that is something that potential competitors find very attractive about Texas but at the same time it has been very difficult to implement," says Briesemeister. "The systems are still not functioning properly and customers are not getting switched [and are not] getting bills."

As of mid-May, as many as 150,000 customers in TXU's service territory still had not received an electric bill since the debut of the new unbundled system, and 90,000 customers in Reliant's service territory had not received an electric bill.

"There you have over 200,000 people in the state who I'm sure don't think dereg was good from them," Briesemeister says. "They're faced with getting a very large bill that they will have to pay off."

The unique infrastructure of the Texas system has caused some to argue that, while the model may be good for Texas, it's not exportable to other regions. With no FERC oversight in Texas, industry players can expect consistent policy initiatives from the state legislature and the Texas PUC, which has sole authority over retail and wholesale markets in the state. In other states, there often are frustrating struggles between state authorities and FERC.

"Texas is a world unto itself. It's a market unto itself," says ComEd's Juracek. "It's regulated by one entity, instead of FERC and the local PUC. In Illinois, we've got a different situation. We've got a regional market. We've got dual levels of regulation and we were doing this a whole lot sooner than Texas was. So there was a whole lot of uncertainty."

Juracek says that Illinois legislators, regulators, and industry officials had the luxury of looking at California's market design and understanding that state officials in California had a predetermined picture in their minds of what the industry should look like. "And we said, 'no,' we think the market should evolve intelligently, the way it wants to evolve," she explains. "And Texas comes along a little bit further and says, well, we kind of see how markets possibly are evolving, so we'll prescribe something that causes the utilities to split themselves up differently."

When Juracek looks at how Texas forced the utilities to separate their merchant operations from the transmission and distribution functions, she doesn't see much difference: there's still the utility and its affiliate. "It's sort of the same cast of players," she says. "They've just reshuffled the deck."

The Price to Beat: Flexible, But Rigged?

The Texas rule mandates that customers who don't choose a third-party supplier automatically will be matched with their regulated utility's affiliated retail marketer. These customers are charged the "price to beat," Texas's version of the "shopping credit," a concept mapped out in deregulation