ELECTRICITY:

'Dynamic' year ahead for Texas power retailers, big and small

HOUSTON -- Consumers can go with Amigo or Champion. Bounce or Reach. And don't forget Reliant or TXU, both derived from legacy utilities.

Welcome to deregulated retail power in Texas, where the guiding theme for more than a decade has been choice. This year, consumers may want to sort through current events along with the latest online offers.

The parent of TXU Energy is under pressure from a leveraged buyout that's expected to lead to a bankruptcy filing. Proton Energy, a small retailer based in Fort Worth, faces heavy fines and the possible loss of its license. NRG Energy Inc., Reliant's owner, plans to buy the Cirro brand to expand its Texas presence. And fluctuating natural gas prices threaten to raise electric rates, especially for people on variable plans.

"It should be one of the more dynamic years in that marketplace," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University. "You've certainly got consolidation. You've got obviously some enforcement actions going on. The natural gas price issue's obviously going to cause some economic changes and impact customers."

Dozens of brands are battling to sell power to residential consumers. A search last week on the state's Power to Choose retail website turned up 232 suggested plans for one Houston ZIP code. Prices ranged from 6.6 cents per kilowatt-hour for three months from Reach Energy to 14.4 cents per kWh for 12 months from Entrust Energy for what was billed as all renewable power.

This presents an opportunity for people who want to seek out the best price, superior service or a certain generation mix. To others, it creates a dizzying array of options for a product they may not want to spend time researching.

And competition still has critics, who are waiting to see benefits from retailers. In much of Texas, power generators produce electricity, which regulated transmission and distribution companies deliver to homes and businesses. Customers deal with a retailer for a payment plan.

"The only thing that it appears to do well is charge consumers more money," David Power, deputy director of Public Citizen's Texas office, said of the retail structure. "They don't appear to have any function that couldn't be re-regulated and done in a much more efficient manner."

Companies don't agree with the advocacy group, and tout products and services that they say can help consumers find the right approach for their energy needs.

"I think it is competitive, and I think it's going to continue to be," said John Fainter, president of the Association of Electric Companies of Texas, whose membership includes some retailers. "And those who are smart and nimble will succeed, and those who aren't so will probably have difficulty."

Proton attracts scrutiny

Some retailers struggled and went out of business in the past when gas prices surged and raised wholesale power prices. In all, 22 retail electric provider certificates have been revoked since deregulation began, according to the Public Utility Commission of Texas.

Wholesale power prices have spiked at times this year, including above a $5,000-per-megawatt-hour cap because of congestion on the system, the Electric Reliability Council of Texas, the state's main grid operator, has said. Such swings are why retailers look to hedge and plan carefully for any squeeze during the hottest and coldest days.

Proton Energy is one company having issues beyond the weather. It's currently in the cross hairs of Texas regulators, with proposed fines totaling more than $2 million. A filing from the staff of the Public Utility Commission in September urged revoking its license and said Proton had committed more than 1,000 violations, with many infringing "upon core customer protections."

The commission staff said Proton had disconnected some customers for not paying bills without providing proper notice, while also having cases of improperly preventing people from switching. The filing said Proton also showed "a reckless indifference" in responding to communications from the commission.

Bob Rima, an attorney for Proton and a former general counsel with the Public Utility Commission, said he initially counted about 50 alleged violations, including about 40 that were technical in nature, when factoring out repetitive charges. Some involved an employee hitting the wrong combination of buttons, he said, and other issues were related to not using the right wording as required by regulators.

"We don't agree with some of the violations," Rima said. "There are some that we will acknowledge, and there are others that we will contest" vigorously. He added that there may come a point at which the parties can have "meaningful settlement discussions."

"I would assume that one of the things that would be discussed was the level of the penalty," Rima said. He said Proton had no plans to go out of business.

The commission staff alleged other violations in a filing this year, including that Proton also had failed to retain records, and it increased the amount of penalties sought to about $2.8 million.

Even with allegations of retail wrongdoing, Public Citizen's Power said he recognizes that a return to regulated retail isn't likely in Texas because of supporters of deregulation. He said such a move would be feasible because distribution companies still handle many nuts and bolts of the system.

"They're already reading the meters, they're already calculating how much energy, they know where your address is," Power said. "All they have to do is send you a bill, and then they don't have to name stadiums, run commercials, the whole competitive electric thing when everybody's pretty much selling the same commodity."

NRG expands in retail

Charles Griffey, an adjunct professor of management at Rice University, disagreed. He said a regulated model might not offer plans such as three-year fixed-rate options.

"It's not an appropriate criticism to say that, you know, if you just went back to the old model that you could get the same products but lower price," Griffey said. "I think that's a pipe dream."

Griffey, who formerly worked at a company that controlled Reliant, said brands such as TXU and Reliant appear to be positioning themselves as premium service providers. Reliant's website, for example, talks about plans that align with a customer's energy use and mentions tools and tips to save energy.

In Houston, the Reliant name had been synonymous for years with Reliant Stadium, home of the Texans professional football team and a large annual rodeo. But, just this month, NRG said it planned to seek a name change for the stadium and surrounding complex.

If approved, Reliant Stadium will become NRG Stadium. The company said it wants to highlight the range of options NRG offers in various places, such as solar technology and electric-vehicle charging stations.

"We are currently developing a proposal for sustainable solutions for Reliant Park in Houston and this seemed like the right time to move to the family name on these facilities as NRG builds its national brand," Pat Hammond, a company spokeswoman, said in an email. She said Reliant will remain "a trusted electricity provider in the state."

NRG said last week that it plans to buy a retail electric business from Dominion Resources Inc. that includes more than 600,000 customer accounts in Texas and Eastern states. The Texas business is Cirro Energy, giving NRG another brand for interaction with consumers.

In addition to Reliant, NRG has the Green Mountain, Everything and Pennywise brands in Texas. The Power to Choose site listed a three-month plan last week for 7.4 cents a kWh from Pennywise and 8.9 cents a kWh from Reliant

On its website, Pennywise says: "We know there are fellow Texans looking for essential electricity service who don't want to pay more for unnecessary extras."

David Hindman, a vice president and general manager of U.S. residential at Direct Energy, which operates under several brands in Texas, said allowing choices for customers helps create a healthy market. In addition to retail electric offerings, the company has services in related areas such as heating and air conditioning, he said.

"We very much believe that there's no solution that's a one-size-fits-all," Hindman said. "And we want our customers to be able to make those choices."

Shop and 'be careful'

Often, smaller companies show up as cheaper retail electric options on the state's Power to Choose website. It's important to look around, Griffey said, as rates from companies after a contract expires can get somewhat expensive, at 10 or 11 cents a kWh or higher.

"Those are not particularly attractive rates, and the suppliers take advantage of customer inertia at that point," he said.

Griffey said the market has worked well, though one disappointment he cited was that more is not being done with smart meters and different pricing and third-party load controls. He said volatile natural gas prices might affect how long a retailer will fix a plan's term.

TXU Energy seeks to differentiate itself through a range of plans, such as so-called right-time pricing, cash-back options and no-deposit plans, Michael Patterson, a company spokesman, said in an email.

"We add to that by delivering market-leading solutions to help customers control their consumption, providing top-rated customer service and offering non-commodity solutions that make us a trusted provider for home services," Patterson said.

TXU Energy said its latest residential customer count was about 1.5 million at the end of last year. Energy Future Holdings Corp., TXU Energy's parent, is expected to file for bankruptcy as soon as this month, which may grab the attention of some consumers. But Patterson said balance sheet issues won't affect customer commitments for the retailer.

"Under any proposal to address our balance sheet, we will continue to serve customers as usual and fulfill the terms and conditions of our customer contracts, and we expect our customers to continue to do the same," Patterson said.

The Texas Coalition for Affordable Power, whose membership includes cities, has said Texas residents in deregulated areas would have saved more than $22 billion in lower residential power bills since 2002 had they paid average prices seen by those in regulated parts of the state. The group calls for the deregulated market to be as efficient as possible and said last month that more complaint information should be on the Power to Choose website.

Bill Peacock, a vice president at the Texas Public Policy Foundation, said prices today are lower than before retail competition, when adjusted for inflation. He noted that full retail competition was phased in over several years. And he credited the market structure for helping to change how some people use power, which has affected planning for peak times.

"The Texas effort to introduce competition in the electricity market is one of the great deregulatory stories in the country today," he said.

Peacock said companies succeed and fail in any market, so Texas power isn't unusual in that sense. If customers need to look elsewhere because of trouble at one company, they have plenty of options, he said.

"We've always urged people to shop and to be careful and to look at the Power to Choose website," said Fainter of the Association of Electric Companies of Texas. "When you buy any product, you need to be comfortable with whom you're dealing."

Twitter: @edward_klump | Email: eklump@eenews.net

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