The always informative Energy Choice Matters had an interesting article about a possible program for consumers in the Centerpoint and Oncor footprints to save money. Simple Energy (not to be mistaken with the recently purchased Simple Power), is a company that is trying to offer potential rewards for customers to save energy.
The only catch is that customers have to have provisioned Smart Meters.
Any customer with electricity in Houston or electricity in Dallas and a Facebook account can visit the Simple Energy web platform, enroll in with their Facebook username, and get started.
I don’t have a Smart meter, so I didn’t enroll, and as a result I can’t give you any more information about the application process. However, according to press release, customers can compete with friends and family members to see who can save the most electricity, making the process a potentially fun and competitive game. The potential rewards for customers include things like iTunes gift cards and iPads. It is a pretty interesting concept to promote green energy behavior.
Also, at least for the time being, it appears this program is truly philanthropic:
Simple Energy told Matters that it is not working with a REP or TDU in offering the program in Texas at this time. Nor is it monetizing the efficiency in any way.
The Texas offering is about product development, and testing and demonstrating the program’s potential, said Yoav Lurie, Founder and CEO of Simple Energy.
Might be something TER readers and fans of our Facebook page might want to check out.
PUC Hammers Texas Electricity Company
January 10, 2012
The PUC (Public Utilities Commission) receives a lot of heat from Texans, oftentimes undeserved. One of the many responsibilities of the PUC is to act on behalf of Texans when it comes to making sure they aren’t being exploited by electricity companies.
Now, when electric rates go up because people don’t read their terms of service, people often get upset, cry foul, and blame the PUC. I see reviews like this submitted through Texas Electricity Ratings all the time. This is an example the kind of thing the PUC doesn’t oversee.
Over the weekend, there was a case of the kind of oversight and action which IS the responsibility of the PUC. Glacial Energy is an electricity and natural gas provider licensed in 15 states (plus Washington D.C.), and the PUC slapped them with a $235,000 fine over the weekend. Glacial seems to specialize in commercial electricity as opposed to residential electricity, per what I dug up on their website, but their violations involved residential customers. Specifically:
Glacial Energy, now based in the U.S. Virgin Islands but founded in Dallas, collected sales tax from residential customers even though rules exempt them from paying sales tax for electricity, according to the Texas Public Utility Commission.
“Glacial violated rules regarding customer pricing disclosures and overbilled its customers,” the PUC wrote in a notice of violation.
But that is not the only rule the PUC has accused Glacial of breaking. They also claim that Glacial supplied false and misleading information to the PUC when they first applied for their REP license in 2006. The PUC claims that Glacial CEO, Gary Mole, was the former owner of a failed REP called Franklin Power. The PUC has some serious restrictions on the principal parties of failed REP’s being able to start new ones, and by having Gary Mole as their CEO, much less failing to disclose it, the PUC believes Glacial Energy provided them with false and misleading information in 2006.
Additionally, just to add a touch of the truly bizarre to this story, Glacial Energy is the same company that was named as a money-laundering front for Blood Diamonds. It’s actually worth reading the entire article I linked just because it sounds like a plot from a movie.
Glacial claims to have made refunds to customers for the over-billing. However, the PUC will actively take a hand in helping customers recover funds from over-billing through an informal complaint process, and after working with the electric companies, refunds are given back either through a customer credit or a direct payment.
From September 1st through December 31st of 2011, the PUC has obtained refunds/credits for customers to the tune of $117,600 through their informal complaint process. And in the two years of 2009 and 2010, the PUC leveled more than 9.8 million in penalties to electric companies. Considering the PUC takes a lot of flack from customers, I though it would be important to point out an instance where they are excelling in protecting customers in matters of deregulated Texas electricity.
Tres Amigas Superstation Gets an Investor
January 4, 2012
As I’ve written before, the Tres Amigas Superstation which is being to constructed to connect America’s 3 major electricity grids is a great project. Well, the project recently received a 12 million dollar investment by Matsui, a Japanese company. Matsui will take an equity stake in the Tres Amigas.
This is great news because anything to stabilize and further the completion of the Tres Amigas plant is fantastic, in my opinion. To recap, the Tres Amigas plant will interconnect the 3 major electricity grids in the U.S.: the Texas electricity grid, the Eastern grid, and the Western grid. Right now Texas is almost completely cut off from the rest of the country. This makes it difficult to get additional power resources during times where there is an energy shortage. Perfect examples of this were last February’s cold snap, last summer’s record temperatures, and potentially this summer as well. In fact, during last summer’s record high temperatures, Texas had to purchase electricity from Mexico to get some relief because they have better connections there than with any of our bordering states.
The Tres Amigas plant would allow for excess energy from other grids to flow into Texas during times of crisis, which would be a huge stabilization factor for what is considered to be inadequate reserves in Texas. Additionally, during times of the year when Texas has excess energy, particularly wind or other green energy, the new development would allow for this to flow into the rest of the country. Right now some people question the cost of transporting wind energy from where it’s collected in the panhandle to places like Houston. Shipping it to New Mexico would be cheaper and allow for excess Texas green energy to flow into the rest of the country. In my opinion, everybody wins.
Anyway, as I’ve said, this is great news for Texans. Anything that encourages this plant to completion and operation is good for the whole country. Additionally, Matsui, the company investing in the superstation, has a vested interest in smart grid technology, Carbon Dioxide Emissions, and renewable energy. It stands to reason this means that the Tres Amigas will also implement many environmentally friendly technologies that should make Green Advocates happy.
Texas Electricity, The Dallas Observer, and Yellow Journalism.
December 28, 2011
To anyone familiar with the Dallas Observer, chances are that the title of this post might not surprise you. I saw this article bounce around the internet in several places before Christmas, and even though it is a week old I just can’t let it pass without pointing out some sensationalist tactics and poor research by the author, Forrest Wilder. And it is important to note that the title of this article is “Pay More Or Your Lights Will Go Out.”
The main premise of the article, which isn’t a new one to anyone reading this blog or following Texas electricity in general, is that the EPA rules looming have the potential to put Texas into a power crisis where we won’t have enough electricity generation to meet demand. And the author is saying that Texas is attempting to handle this problem by re-regulating certain aspects of the system.
First, there is reason for concern, no question. The fear is that the prices for electricity are so low (and yet people continue to complain that deregulation doesn’t work?) that new investors won’t invest in new power generation in Texas because they aren’t sure they’ll make their money back or acceptable profits to warrant building new plants. And to make things clear, when Texas electricity deregulated in 1999, the state opted for an Energy-Only system, which means only market forces set prices and not politicians, like in regulated markets.
Poor Research
Oddly enough, at first, the author doesn’t event seem to agree with the idea that there’s an energy crisis in the first place. An excerpt of the article:
They want investors to run into the ERCOT market and build some power plants to deal with the (allegedly) looming crisis.
First, they typically only count generation — wind, coal, natural gas, whatever — once the owner has secured final permission from the state to build. This excludes power plants that will eventually get built but haven’t reached the final stage of permitting.
Also, the reserve margins don’t include so-called “mothballed” power plants — old, inefficient power generation that’ve been taken off-line but could still be made available if economic conditions change.
Wait. So now the author doesn’t even believe there’s really an energy shortage? Well that puts him in the tiny minority on that front. And his solution is to count old, mothballed plants that are being shut down by the EPA? Genius. Here’s the real meat of the article:
“But on the wholesale side, we think that the power prices are going to have to recognize the scarcity of generation assets,” John Young, the CEO of Energy Future Holdings, told analysts in late October. “And that will eventually flow through to the retail business.”
Translation: Consumers must pay more.
And just in case prices don’t go up quick enough, ERCOT and the Texas Public Utility Commission are exploring several “radical changes” to jack up prices during times when power is really tight. For example, the PUC is considering doubling the cap on prices in the wholesale spot market — already the most generous in the nation — from $3,000 per megawatt to $6,000. ERCOT is also looking at allowing prices to go higher in a secondary market used to balance supply and demand. The chairman of the Public Utility Commission, Kenneth Anderson, a Perry appointee, is driving many of the changes.
That last paragraph is where the entire article completely unravels. Doubling, or even removing the cap on wholesale market prices ISN’T REGULATION. In fact, it is literally the OPPOSITE of regulation. It’s letting market forces do their work. So for the author to claim that this solution is regulation is 100% erroneous.
If the state of Texas chose to tax customers for the money to subsidize new generation plants, that would be regulation. If the state of Texas intervened to guarantee investors rates or profits as an incentive for them to build new plants, that would be a form of regulation. Removing a market cap so generators can make more money when energy is high (think every day in August where we had a threat of rolling blackouts) is the opposite of regulation.
And for the record Australia, which also operates nationally under a deregulated Energy-Only market, has set their market cap at $12,500 dollars per MWh. Texas currently sits at $3000, and the talk that has inflamed the reporter at the Dallas Observer is the cap being moved to $6000.
Of course, it is somewhat silly claiming deregulation is a failure to begin with when it currently has put Texas as the 3rd cheapest state in the country for available electricity rates.
Yellow Journalism
Just a few notes here, for the sake of amusement and irony. At one point in his article, Mr. Wilder gives us some of these choice lines:
The political class has been infected by fear-mongering. In the short term, all ERCOT can do is whip up fear. Finally, like Alan Greenspan’s every utterance, these reserve margin reports have an effect on the market. They’re meant to avoid the situation — blackouts! scarcity! candlelight! — they warn about. The alarmism is intended to be the opposite of a self-fulfilling prophecy.
I find it ironic that these quotes accusing others of “whipping up fear” are present in an article titled “Pay More Or Your Lights Go Out.” An article that rails against deregulated electricity and suggests (incorrectly) that they’re considering adopting traditionally Regulated practices. Hey Forrest, if you dislike the deregulated system, well, your other option is a regulated system. And your article is saying the electricity prices are going to go up if regulated practices are adopted. What do you think happens if regulation would be re-adopted fully? Guess that didn’t occur to you.
I’m not shocked that an “alternative” newspaper would lean so heavily on yellow journalism to get attention, but I still find it amusing in an eye-rolling kind of way. And sad that it was published at all.
Texas Electricity: A Year In Review
December 19, 2011
Texas electricity had a very busy year in 2011. There was a lot of different and important news stories from several unexpected angles that had an important impact on consumers and their electricity bills. And as far as years go, lots of the stories that started in 2011 could have a huge impact on 2012 and beyond. Lets take a look back at some of the biggest stories of the year for Texas electricity.
Record Heat, Cold, and Rolling Blackouts – Easily the biggest story of the year for electricity in Texas was the weather. Texans are used to sweltering summers, but not nearly to the level of what we saw in 2011. Records indicate it was the hottest summer in Texas since the 1700′s, primarily because of the record drought and lack of rainfall that worked to cause a 40 day consecutive streak of greater than 100 degree temperatures in Dallas, many of which were closer to 110 than 100. Electricity bills soared for customers on variable and indexed plans, and the threat of rolling blackouts seemed to hang over the entire month of August because electricity supply barely met demand. And it wasn’t just the summer. A particularly violent cold spell hit Texas in the winter and caused several power plants that weren’t properly cold-weather fortified to fail…which in turned caused rolling blackouts. And again, because supply didn’t meet demand, many customers had some big bills. All in all, the weather was was almost certainly the biggest story of 2011.
EPA Cross Pollution Rules – The Cross State Pollution rules that the EPA implemented have probably been the most talked about subject in the news that relates to Texas electricity. There have probably been at least 1-2 new stories every week on the rules and the whole situation became a complete political tug of war almost immediately. The rules are forcing many states to shut down certain coal-burning power plants that don’t meet new EPA standards. It is a concern in Texas because after the threat of rolling blackouts last summer, if the EPA changes take effect there will be even less power plants online in the summer of 2012 and the state barely skated by without rolling blackouts in 2011. Another hot 2012 summer and Texans could be in big trouble.
Regulation Loses Some Luster – For years people have been taking cheap shots at Texas deregulated electricity by pointing out that prices in Austin, San Antonio and other regulated areas of Texas are cheaper. Some supposed consumer advocates like Recharge Texas kept hammering the point for their own political agenda. Of course, that tactic started to ring hollow when it was revealed that Austin Energy has run up a 225 million dollar debt for not raising rates with market prices, El Paso Electric became embroiled in a huge political dispute over their very high regulated rates, and it was revealed that the highest rates in Texas belong to regulated Entergy and they’re going up in 2012 even more. Some other guys even got in on the act of doing a true evaluation of deregulated electricity rates in Texas, and the results show without a doubt that people who shop, save. To the tune of more than almost any other state in the country. Hooray for deregulation. The next step is to just educate more people.
Big Electricity Companies Buy Independent Power Companies – If there was one clear trend in the 2011 Texas deregulated electricity market, it was the sale of smaller Retail Electricity Providers to bigger conglomerates. Constellation Energy bought StarTex Power and MX Energy. Direct Energy bought First Choice Power for a huge sum. Dominion Power/Cirro purchased Simple Power. Just Energy purchased Fulcrum Power (Amigo and Tara Energy). NRG purchased Energy Plus Holdings (not centered in Texas), but that is on the heels of the huge energy giant purchasing Reliant and Green Mountain Energy in 2009 and 2010. Overall, most industry experts agree that the big guys in the market with cash and resources will continue to purchase the smaller companies that continue to prove successful in customer service and acquisition.
AEP Texas and their license to sell Retail Electricity – I’m not going to spend too much time evaluating this one, as I’ve recently written several huge articles with the details and long term potential impacts (parts 1, 2, 3, and 4). However, the license hearing of AEP Texas in their efforts to get a retail electricity license and operate under the AEP name is a very big deal. Even if most Texans don’t even realize it. If could lead to Centerpoint and Oncor also selling electricity, and not just maintaining power lines and poles, and make Texas electricity even more confusing.
That’s five of the bigger stories in the world of Texas electricity for the year of 2011. If any other big news in the market crosses my mind, I’ll add them to this list and send out an update. But overall, it’s been a pretty big year for deregulated electricity in Texas.
Texas Electricity, AEP Texas and the Rules of Deregulation – Part 4
December 5, 2011
What does AEP Stand to Gain and Who is Opposed?
It is easy to understand why AEP is so determined to sell Texas electricity under the AEP brand name. As we have already examined in part 2 and part 3 of my series on this topic, their brand awareness is off the charts. They would be foolish not to try and take advantage of a 50% brand recognition for a service they don’t even provide currently. It is the same reason TXU and Reliant have such a great built in market advantages as “incumbents” over newer REPs. AEP is smart to want to tap into that advantage.
A competitive market requires that the REP’s doing business have a level playing field, or as level a field as possible. Reliant and TXU already have huge inherent advantages but those advantages are impossible to remove. After almost a decade people are just now starting to understand that Reliant and TXU aren’t the same company that tends power lines and controls the infrastructure. Reliant and TXU were forced to adopt new brands for their TDU companies in Centerpoint and Oncor, respectively. They weren’t allowed to do business as, say, Reliant Distribution. By the same token, AEP shouldn’t be allowed to jump back into business as AEP Retail Energy.
CPL (Central Power & Light), sold by AEP to Direct Energy in 2002, has filed an intervention in their license hearing protesting the move. Obviously Direct Energy is frustrated by the idea that AEP could resume business in the REP space. Much of the value they got when they purchased CPL and and WTU (West Texas Utilities) from AEP was in the familiar brand names to the people in those service areas. The same way Reliant and TXU have the name recognition and history of brand awareness that comes with being an incumbent. If AEP suddenly comes into those areas and sells electricity as anything with AEP in their name, it drastically devalues Direct Energy’s purchase.
Direct Energy isn’t alone in their protests. The Alliance for Retail Markets (ARM) and The Texas Energy Association of Marketers (TEAM) have also filed motions to intervene in protest of AEP’s application. ARM is a coalition of REPs that act together in some matters, including Gexa, Champion Energy, Green Mountain and more. TEAM is a similar group of deregulated market participants made up or other REPs with members that include Bounce Energy, Amigo and Tara Energy, StarTex Power, Cirro Energy and more. Basically all of the other REPs in the marketplace are opposed to this happening because they know that AEP will be have a competitive advantage. Additionally, the PUC itself will weigh in to the presiding judge with their opinion. My understanding is that the PUC is against allowing AEP Texas to do business as AEP Retail Energy. Whether that prevents them from doing business with a different name isn’t clear.
My Closing Thoughts and Additional Concerns
As someone who sees people submit reviews about REPs on a daily basis, trust me when I say that probably half the people in Texas still don’t have a firm grasp on how the deregulated electricity market works. Allowing the use of the AEP brand name to sell electricity will be just another hurdle of confusion for customers. Texas has made great strides in awareness in the past decade but we still have a long way to go before everyone understands the market entirely. Some people still don’t even know they have electric choice, much less the difference between an REP and a TDU. Allowing AEP Texas to blur that line further would be a huge step backwards.
One thing that no one will bring up in the hearing but that makes me uncomfortable is the idea of collusion. Some people think it is fine if AEP gets into the retail electricity game as long as they don’t use the AEP brand. Personally, I don’t think they should be allowed to get into the retail business period. No one at this hearing is going to accuse AEP Texas of colluding with AEP Retail by sharing sensitive and valuable consumer information because that would potentially be libelous. No company will say “AEP shouldn’t be allowed to do business in the retail space because we don’t trust them not to cheat.” But it doesn’t meant the other REPs aren’t thinking that thought. I know I have concerns.
In Illinois, ComEd (the incumbent provider who still operates as the TDU and sells retail electricity) has been accused of some suspicious activity in regards to slamming customers when contracts are about to expire. Is it so hard to believe some people at AEP Texas might forward or send a few emails with advantageous customer information to AEP Retail? Maybe I’m being paranoid, but why even let AEP in a situation with that temptation? In 2002, the divisions of Reliant and TXU to create Oncor and Centerpoint were carefully observed with strict oversight by the PUC. The separation of the REP and TDU aspects are the lynchpin of how a deregulated market managed to function in the first place. Centerpoint and Oncor were carefully split and are divided with different shareholders, board members, management, and in the case of Reliant now operate under a completely different parent company in NRG. AEP will just be able to start up a new division and get to work. And if granted this license as is, they’ll barely even have to change their name.
Additionally, if they were granted the mass market license, you don’t think Centerpoint would be right behind them to file an REP certificate? Centerpoint is already blurring the lines between TDU and REP in other ways, and this would be the next logical step for them. They might even try to do do their retail business in the Bayou City as Houston Lighting & Power (HL&P), which they own the rights to since that was the company’s name until 1999. For those that don’t know, HL&P was the electricity company in Houston until it became Reliant Energy. And HL&P already has a ton of existing brand awareness. But I’m sure that in the mind of AEP, that wouldn’t confuse anyone else either.
Hopefully when the dust settles, AEP won’t be granted a license. I think the ramifications would be widespread and negative.
Recharge Texas is back to their usual tricks and painting deregulated electricity in Texas in a negative light. Even worse is they have managed to wrangle a position blogging for the Houston Chronicle’s Fuel Fix blog, which I’m concerned will give them further false credibility.
Anyway, Recharge Texas is once again claiming that Texans are paying more in deregulated areas than they in regulated areas. The problem with this argument is that the numbers they use to support their theory are supplied by the United States Energy Information Administration (EIA).
Now, don’t misunderstand me, there’s nothing incorrect about the EIA’s numbers, other than they’re typically 2 years old at any given the time. The problem is that the EIA can only compare average regulated electricity rates to average deregulated electricity rates wholesale. What that means is that deregulated averages must include all of the people who don’t shop for electricity, don’t leverage the market choices to their financial advantage, and the people who still don’t know or understand they have electric choice.
Believe it or not, almost half of Texans in deregulated areas are paying as much as 50% more than the competitive market rates for electricity. Because of this the EIA information is a poor source for comparison because it skews deregulated rates high. Recharge Texas then uses these inflated numbers to make a blanket statement that deregulated electricity is more expensive than in regulated areas. When the fact of the matter is that deregulated electricity rates are substantially cheaper in deregulated areas for people who actually shop and compare.
Basically Recharge Texas is painting all of deregulation in a bad light simply because some people choose to pay a premium or don’t take advantage of the deals available. It is the equivalent of saying the price of food is more expensive in Texas than elsewhere because everyone chooses to shop exclusively at Whole Foods or Central Market, or that purchasing cars in Texas is more expensive because everyone purposefully chooses to pay sticker price without haggling.
Why am I bringing this up when the title of this post is discussing Entergy bills? Well, I stumbled across this article, and it is yet another example of a regulated utility about to raise rates. In this instance, the rates to be raised are already substantially higher than deregulated rates. In the month of October, the average bill for a customer with Entergy that used 1,000 kWh of electricity was $114.69.
For comparison, and you will have to take my word for it because it required me to do a lot of math, the average electricity bill in October for all the deregulated areas of Texas was $103.89 cents. And this includes all of the inflated bills from people who pay 50% over market prices. Entergy is ALREADY almost $11 more expensive compared to deregulated areas. If you add $14 to Entergy’s bill, it would be more than $24 higher than the monthly average in deregulated areas of Texas. If Entergy only gets half of what they’re asking for, it is still more expensive than all of deregulated Texas by about $18.
Other regulated areas more expensive than the average cost of the deregulated areas of Texas include El Paso and Victoria. And I’ll also include Austin considering Austin Energy is 250 million dollars in debt because they have refused to raise rates in well over a decade. They’ll be more expensive than deregulated areas very shortly while still be sporting a quarter billion dollar debt.
So chalk up Entergy, which services a massive chunk of East Texas customers, as another regulated area with massively higher bills than areas with deregulated Texas electricity. And that is even with all the high bills from indifferent shoppers that inflate the picture of deregulation. What would those numbers look like if everyone exercised electric choice?
Texas Electricity, AEP Texas and the Rules of Deregulation – Part 3
November 29, 2011
If you’ve read Part 1 and Part 2 of my examination of AEP’s application to sell deregulated electricity in Texas you are acquainted with both the basics of the situation, as well as just how much confusion exists by consumers in the Texas marketplace. In this section, I’m going to pick back up on market confusion and competition, examine why AEP is insisting on operating under the AEP brand and talk about how the rest of the Texas electricity market views AEP’s application.
Brand Awareness, Competitive Advantages, and Market Confusion
Anyone who has ever taken a marketing class or just watched a healthy amount of television understands the importance of marketing and brand awareness. When viewed under that lens, it is easy to see why AEP wants to sell electricity service under the AEP brand name. In the same survey we referenced in Part 2, which was commissioned by AEP to support their REP application, it was revealed that 52% of all customers in the AEP Texas TDU service area expressed some form of brand recognition for AEP Retail Energy. To recap, AEP Retail Energy is the brand name AEP hopes to sell retail electricity under and for all intents and purposes is a company that does not even exist to retail customers in Texas. Yet 52% of people expressed recognition. Additionally, it had the second highest recognition of any REP brand currently operating in any AEP territory behind only West Texas Utilities (37% to 36%), the former AEP retail electricity branch which was sold to Direct Energy in 2002.
That is the power of branding. When a company that doesn’t even exist yet in Texas has 56% total state market awareness and is effectively tied for first as the most known brand in a company’s native service territory, it is easy to see why AEP is so intent on doing business as AEP Retail Energy. The AEP name brand gives them a huge competitive advantage.
If you don’t believe brand awareness is that big a deal, lets further shine a light on the competitive advantages and their importance in the Texas deregulated electricity marketplace. Here are some more telling facts from the survey results turned up by AEP.
So what does all this data tell us? It tells us that brand recognition is extremely important when competing for customers. It’s no coincidence that TXU and Reliant are far and away the largest two REPs in the state of Texas. The two companies combine to serve almost 45% of all deregulated electricity customers in Texas. Is it any wonder that AEP wants to also capitalize on their own pre-existing brand awareness? They want to be one of three companies fighting for that 45%, as opposed to one of the other 50 or so REP’s slugging it out for the other 55% percent of customers.
What Does Everyone Else Think?
Not surprisingly, not everyone is on board with the AEP license application. CPL (Central Power & Light), sold by AEP to Direct Energy in 2002, has filed an intervention in their petition protesting the move. We can assume Direct Energy is frustrated by the idea that AEP could resume business in the REP space. Much of the value they got when they purchased CPL and and WTU (West Texas Utilities) from AEP was in the familiar brand names to the people in those service areas. The same way Reliant and TXU have the name recognition and history of brand awareness that comes with being an incumbent. If AEP suddenly comes into those areas and sells electricity as anything with AEP in their name, it drastically devalues Direct Energy’s purchase. And customers in that area will likely be even more confused, as has already been illustrated.
Direct Energy is not alone in their protests. The Alliance for Retail Markets (ARM) and The Texas Energy Association of Marketers (TEAM) have also filed motions to intervene in protest of AEP’s application. ARM is a coalition of REPs that act together in some matters, including Gexa, Champion Energy, Green Mountain and more. TEAM is a similar group of deregulated market participants made up or other REPs with members that include Bounce Energy, Amigo and Tara Energy, StarTex Power, Cirro Energy and more. So basically, all of the other REPs in Texas are opposed to AEP’s application to sell deregulated electricity. They know that AEP will be have a distinct advantage because of established brand recognition. Additionally the PUC will also weigh in with their opinion in court, and my understanding is that they’re strongly against the idea of allowing AEP to do business as AEP Retail Energy. Whether that prevents them from doing business as some other name isn’t clear
This concludes my examination of the importance of brand awareness and the market confusion that still exists in the world of Texas electricity. In the last post in this series, I’ll offer my own opinions on AEP’s actions as well as some other concerns that aren’t being addressed in the hearings.
Texas Electricity, AEP Texas and the Rules of Deregulation – Part 2
November 28, 2011
So if you’ve read part one of my look into AEP’s application to sell retail electricity, you have an understanding of the rules that separate TDUs and REPs, as well as AEP’s place in the Texas electricity market. Now it is time to highlight why what AEP is doing is problematic for consumers. Lets jump right in below.
Market Confusion for deregulated Texas Electricity
While there are many concerns about AEP getting into business as an REP, the main focus of this battle will be on whether or not letting AEP into the market will be confusing to customers. In other words, people might further misunderstand the roles of REPs and TDUs or customers might mistakenly think they don’t have electric choice. Some customers might even think that could receive worse service from AEP the TDU if they don’t order their service from AEP the REP. Does this seem far fetched? Well, it shouldn’t
Many of those fears were confirmed by a research survey AEP conducted to SUPPORT their application. In fact, the release of the survey results has created quite a stir in the electricity world, with many people writing different articles and commenting on the eye-opening results.
Here are some startling facts from the survey*:
So, in summation, less than 1/3 of people surveyed actually have an understanding about how the competitive electricity market works, less than 25% of the people in deregulated areas can correctly identify their TDU, and 52% of all customers in AEP service territories already believe that AEP sells retail electricity. I would say this is pretty definitive proof that Texans still don’t understand deregulated electricity. Additionally, I think it is strong evidence that allowing AEP to sell retail electricity would further add to market confusion.
AEP’s suggested Compromise
What is AEP’s response to any potential market confusion that might occur from them operating a TDU as well as an REP? It is to include this disclosure in the fine print of their advertisements, disclosures, and most importantly business cards:
AEP Retail Energy is not the same company as AEP Texas Central Company or AEP Texas North Company, which are sometimes referred to together as AEP Texas, and AEP Retail Energy is not regulated by the Public Utility Commission of Texas, and you do not have to buy AEP Retail Energy’s products to continue to receive quality regulated services from AEP Texas Central Company, AEP Texas North Company, or AEP Texas.
Additionally, AEP will cite the full company name in their Electricity Facts Labels (EFLs) as: AEP Texas Commercial & Industrial Retail Limited Partnership.
Remember earlier when it was mentioned that the two TDU divisions of AEP are commonly referred to as AEP Texas? Look at the first two words of what would appear on an EFL…that’s right, they are AEP and Texas, respectively. AEP Texas. AEP’s suggestion to eliminate confusion and create separation from AEP Texas and AEP Retail Energy is to list the extremely long company name on EFL fine print…the first two words of which are AEP and Texas.
As someone who works in this industry and is familiar with customer habits, believe me when I tell you that most people don’t even read their EFLs or fine print when they sign up for electricity plans. The notion that listing the full company name will make things perfectly clear to all customers is extremely unlikely. Add in the fact that the first two words of the long company name listed are AEP Texas and the idea that customers will completely disassociate AEP Energy Retail from AEP Texas becomes almost an impossibility. I would argue it strengthens the connection. I would also suggest that is exactly what AEP has in mind.
Ok, now that we’ve established that the concerns over market confusion are very real and taken a look at the research and AEP’s proposed compromise, we can move forward. In the next section I will take a much closer look at the potential confusion and the implications it could have for competition in the deregulated electricity market. We will also talk about who is opposing AEP in this hearing.
*For anyone interested in looking at the actual results of AEP’s survey, they can download a PDF of the file from this link.
Texas Electricity, AEP Texas and the Rules of Deregulation – Part 1
November 22, 2011
In a series of articles, I want to take a look at American Electric Power’s (AEP) court hearing regarding their application to become a Retail Electricity Provider (REP), similar to Reliant, TXU, Gexa, or Bounce. The interesting thing about their application is that AEP is currently a Transmission and Distribution Utility (TDU) for 2 regions of Texas. This is interesting because all TDU’s like Centerpoint, Oncor and AEP were forced to split from their REP businesses as a part of deregulation in 2002. Consequently, this hearing is big news and could have a huge impact on the entire Texas electricity landscape.
Understanding the Basics
To start, lets take a quick look at the intent of the rules put in place by the PUC when deregulation was first enacted. In section 25.342 of PURA (Public Utility Regulatory Act), the general purpose of the separation of TDU’s (Transmission and Distribution Utilities) and REP’s is laid out as follows:
The commission seeks to prohibit practices between regulated and
competitive activities that may unreasonably restrict, impair, or reduce the level of competition during the transitional separation of personnel, information flow, functions, and operations, and after a competitive market is established
In short, the intention of the rules are to prevent a competitive advantage in the deregulated areas of the Texas electricity market. Companies like Centerpoint and AEP who operate transmission utilities and have access to valuable customer information as well as an established brand shouldn’t be allowed to sell electricity. This separation is the reason that a deregulated electricity market can function and succeed. It is why in 2002 Reliant spun off Centerpoint and TXU spun off Oncor. AEP sold Central Power & Light and West Texas Utilities, which were their retail electricity business units, to Direct Energy. If the PUC hadn’t forced companies to separate their retail and transmission businesses then creating a fair deregulated market would have been impossible.
AEP Texas & Retail Electricity in Texas
When PURA went into effect in 2002, AEP opted to sell their retail electricity interests outright and concentrate on their power generation and transmission businesses. Now, nine years later, AEP Texas has filed an application with the PUC to become a certified retail electricity provider. And surprisingly, AEP has been granted a hearing that will determine whether or not they will be certified to sell electricity to all mass market customers in Texas. As I write this, parties are giving testimony in the hearing and a decision will be made sometime in early 2012. If their motion fails, AEP will still have the right to appeal in another court.
How is this even possible? As previously mentioned, deregulation forced the separation of retail and transmission energy companies in 2002 and AEP was forced to sell their retail interests. How can they now be allowed to start a new retail company using the AEP name?
The short answer, unsurprisingly, is legalese. The company seeking a PUC license is a subsidiary of parent company AEP, registered as AEP Texas Commercial & Industrial Retail Limited Partnership. The two separate companies that operate the transmission and distribution services, commonly referred to as AEP or AEP Texas in this article, are officially known as AEP Texas North and AEP Texas Central, respectively. In the eyes of the law, these are all three separate and independent companies.
Of course, there is some precedent in this situation. Oncor, the TDU for the Dallas and Ft. Worth area, and retail electricity provider TXU operate as two individual entities under parent company Energy Future Holdings. But this isn’t quite the same situation at all. The split of Oncor and TXU was carefully handled with massive PUC oversight in 2002 to ensure the two companies were truly separate. Oncor operates completely independently without any management from Energy Future Holdings. Additionally, great pains were made to separate TXU and Oncor with very different names and separate branding. And over time, Oncor has taken on separate minority ownership and board members from their parent company to even further the separation. AEP is simply coming along almost a decade later, starting a new subsidiary, and saying they’d also like to sell retail electricity to everyone in the deregulated areas of Texas-despite the fact they also operate two TDUs. The kicker is that they’d like to do it under the AEP name or some variation of the highly recognized AEP brand. But more on branding and marketing later.
These are just the basic facts surrounding the AEP case in regards to their intentions, the complications, and how it relates to the rules and boundaries set up by the initial laws put in place during deregulation in 2002. In the next section I will examine the details of AEP’s application and the issues surrounding their efforts to sell deregulated electricity in Texas .
