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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 Texas price to beat rule allows the rate to increase or decrease based on natural gas prices."

Because so much of Texas' power load runs on natural gas, retail suppliers will want to see if gas price volatility continues. "I think first off a natural gas price spike has the potential to impact all suppliers," Cenedella says. "If an REP is not hedged properly, it could put them out of business. We don't operate that way. I think most of the REPs in Texas understand that and they're going to keep themselves protected."

Allowing only two changes per year to the price to beat system may not have been everyone's first choice. Michelman says the "adjustment mechanism is the second-best solution. I'm sure it was a compromise between what the reality is and those people who didn't want the prices to change at all. They just wanted it fixed all the way through. But this happened after California and it became pretty clear that there had to be a release valve."

Ideally, the Texas PUC could have forced ERCOT into a different structure "so that there would be a day-ahead market and then suppliers would be able to do adjustments according to that," Michelman contends. Others are a slightly more skeptical of the price to beat mechanism. According to Consumers Union's Briesemeister, "We didn't open this market to guarantee a profit for New Power or anybody else. It's supposed to be about savings for consumers."

She suggests that if the PUC sets the price fairly under the rules established by the legislature and REPs can't enter the market profitably, "that means that opening the market to competition was a mistake because it cannot result in savings. They want to artificially inflate prices to make dereg look like a success."

Cap Gemini's Behrens says creating headroom for alternative suppliers to enter a restructured electric market could be construed as creating a windfall for affiliated retail suppliers. "If you increase the price to beat, over the short term those companies could get a windfall," Behrens says. "What you're doing is you may be setting things a little bit higher than they could be."

The Residential Conundrum

Some of the participants in Texas admit that residential customers aren't racing to switch suppliers. "Generally speaking, customers are reluctant to make the change, absent dissatisfaction with their current provider and significant differences in prices," says Jack Chambers, president and CEO of Texas-New Mexico Power, the Fort Worth, Texas-based utility that serves more than 200,000 electric customers in the state. "Our strategy was that if we can keep our current customers satisfied that they would tend to be more sticky, and therefore we would retain a lot more."

Chambers says that Texas-New Mexico has been able to get a feel during the past few years of what kind of price differentials it took for all customers types to respond to his company's service offerings. In some of Texas-New Mexico's areas of operation, the utility has been forced to compete with other utility companies for customers' business. Texas