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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

plans in many other states.

In Texas, the price to beat includes the electric commodity charge, transmission and distribution costs, and non-bypassable items such as system benefit charges and stranded cost recovery. A customer thinking about switching suppliers will compare competitive offers for generation supply against a standard-offer price quoted by the regulated utility as supplier of last resort.

But the question remains whether regulators stacked the deck by setting the price to beat unreasonably high to encourage switching and to make the results look better, at least in the residential market.

Prior to restructuring's launch this past January, the Texas PUC set each affiliated retail supplier's initial price to beat based on utilities' filing of the forward prices of natural gas in each month of 2002. Affiliated retail suppliers can adjust the price to beat twice a year as long as they can demonstrate to the PUC that there have been significant changes in the market price of gas and other purchased energy.

"I think the price to beat is clearly the linchpin for establishing a competitive model," contends Commissioner Perlman. "It has to be a balance between protecting the interest of customers in the traditional sense and providing customers with options. In order to provide customers with options, there has to be sufficient amount of margin in the market for new players to come in and compete."

Although it doesn't serve customers in its regulated affiliates Texas service territory, Xcel Energy Retail Services is aiming to sign up commercial and industrial customers elsewhere in the state, primarily in the service territories of TXU and Reliant Energy HL&P. "One of the attractive things was that the price to beat was set at a level that would allow people to come in and offer additional savings," the company's Cenedella says.

Allowing power prices to take into account fuel prices was a concern for the affiliated REPs in Texas when the Texas legislature was designing the state's system. "That's why they put in the flexible price to beat," says TXU's Rose. "If you kept the retail rate fixed-as obviously they did in California-you would do away with any retail competition."

Massachusetts and Pennsylvania had features in their systems that would permit some change to the commodity price. "It just wasn't recognized up front in the legislation that that needed to happen and the regulators haven't been as responsive," Rose says. "It's the mechanism we put in that makes the difference."

TXU and other affiliated REPs this past spring filed for a price to beat increase in the fuel factor. "It's a mechanical process based on the index of fuel, not on some rate case," Rose says.

Most retailers view Texas' price to beat system as the determining factor in deciding to enter the state. "I think it's the most fair system that we have in any deregulated state," Green Mountain's Taddune says. "The major problem with a lot of markets is setting a price to beat that is below commodity prices of energy. It makes it uneconomic to do business in a state.