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 Provider Map
September 30, 2011
Last week’s purchase of First Choice Power by Direct Energy was yet another major acquisition of a Retail Electricity Provider by a major energy conglomerate. There’s been around a half a dozen of these deals in the past year, and in my opinion things have gotten a bit muddled and confusing. So I wanted to write a post to chart exactly who owns who in the deregulated electricity space in Texas.
Dominion Resources: Dominion Energy probably isn’t a name that is very recognized by Texas electricity customers. However, they are a huge energy company that deals in both energy generation and distribution in multiple states. Headquartered in Richmond, Virginia, they own the incumbent and regulated electricity providers in Virginia and North Carolina. In Texas, they own Cirro Energy, which they purchased in 2008. Earlier this year, Cirro Energy purchased Simple Power and absorbed their customers.
NRG: NRG, a new Jersey based company, is another huge energy company with massive power generation resources. On top of energy generation plants, NRG also owns Green Mountain Energy, which they purchased in 2010 for 350 million dollars. In 2009, they purchased former incumbent Texas electricity provider Reliant Energy for 287 million and change when Reliant was under heavy financial distress. This was a steal considering Reliant was the second largest REP in the state at the time and has huge brand recognition. In turn, Reliant Energy owns (and I believe operates) Pennywise Power, which is a new brand they’ve put into the deregulated Texas electricity market to try and capture different customers without effecting their core brand. So NRG owns Green Mountain and Reliant, and Reliant in turn owns Pennywise Power.
Just Energy – Just Energy is yet another big energy company, with resources all over North America. They had been a fairly smaller player in the retail electricity market in Texas until recently. Just Energy itself was mostly a niche provider, offering 5 year long term contracts to customers. However, they recently purchased the entire retail arm of Fulcrum Power. That includes Amigo Energy, Tara Energy, and Smart Prepaid. So now all of those brands are part of the Just Energy portfolio. They’ll likely keep the branding and still do business under the names Tara and Amigo, but it’s all Just Energy. Just Energy also owns another smaller REP, Commerce Energy.
Direct Energy: Direct Energy is actually a subsidiary of a British company called Centrica, but they’re known almost exclusively in North America as Direct Energy, so that’s the name we’re going with. Direct Energy is yet another huge energy generation company with huge and varied resources. In the retail electricity space they do business as Direct Energy and they are one of the biggest REP’s in Texas. They also operate in Texas as WTU Energy and CPL Energy in two respective TDSPs. In the Spring, Direct Energy also purchased Gateway Energy Resources for 90 millions dollars. Since then, Direct has removed Gateway as a brand from doing business in Texas. Just last week, Direct Energy made another huge purchase, this time of First Choice Power for 270 million dollars. Which is a huge price tag. So, as of now, every company I mentioned above is really a subsidiary of Direct Energy.
Constellation Energy: Constellation Energy is the largest energy supplier in America. Their 2007 revenues were 21 billion dollars. So yes, they’re another big energy guy. They own the regulated electricity entity Baltimore Gas and Electric. In 2 month period last spring and summer, Constellation announced purchases of both StarTex Power as well as MX Energy, two retail electricity providers that operate in the Texas deregulated markets.
Gexa Energy: NextEra Energy is the parent company of Florida Power and Light, the regulated electricity provider for much of Florida. They’re another big energy company, having generation resources in over 20 states. In 2005, Florida Power & Light purchased Gexa Energy. They still do business in Texas under the name Gexa.
Dynowatt: Dynowatt is a subsidiary of Accent Energy, which is a large company with natural gas ties in Ohio. Accent also serves deregulated New York, but they do business in Texas as Dynowatt.
TXU Energy: TXU is actually a subsidiary of Energy Future Holdings, which also owns Luminant, the power generation portion of the old TXU company that was forced to split because of deregulation laws. Now Luminant and TXU operate separately. TXU is the largest individual REP in Texas and one of the two former incumbent providers.
The following Retail Electricity Providers are stand-alone entities:
Texpo Energy: Texpo Energy is a smaller company operating in Texas. What makes them interesting is that they actually operate under 3 different brand names while all sharing the same PUC Certificate. The other two brands are Southwest Power & Light and YEP. So to sum things up, Texpo, Southwest Power & Light, and YEP are all the same company operating in Texas under different names.
Hopefully this helps to give people a clearer picture about who some of the players are in Texas electricity. It is important that people know exactly who the company is that is supplying their electricity. For example, if someone had a bad experience with one company, they might not want to get service from another one of their subsidiaries. And since there’s been so many purchases and mergings of REP’s in the last 6 months, I thought it might be a good idea to chronicle which companies have ended where after the dust has settled. I’ll try to update this page moving forward as well. I doubt we’ve seen the last of big REP acquisitions, so this family tree might change.
I’ve included a crude flowchart below. Yes, I do realize it looks like it was put together by a 3rd grader.
Texas Electricity Crisis: Explaining the Market Dangers
August 9, 2011
Everyone has seen the ERCOT notices to conserve electricity recently. They seem like there have been daily alerts and calls to action for people to regulate their electricity intake for the sake of conservation. I’m sure a lot of people dismiss this stuff out of hand, but the concern is valid. And I’m going to take the time here to explain what is going on behind the scenes that make this a crisis, because I believe there is an extremely high probability that this record drought and heat wave is going to end up driving a number of Retail Electricity Providers (REPs) out of business and change the deregulated electricity market forever.
The Basics
Ok, I think the first step in understanding the dangers facing our Texas electricity market is to understand the grid and electricity demand, and how it effects an REP’s expenses. So, starting there, lets state that the Texas Electricity Grid has a capacity to generate 73,000 megawats, or Megs. But the actually every day capacity is more around 68-69k megs because ERCOT wants to be able to maintain their reserves. And lets also keep in mind that almost every day last week, ERCOT was calling for electricity conservation. 3 times last week, the Texas grid had demand higher than 68k megs…so basically, the entire grid red-lined for 3 straight days. That’s an important fact, so keep that in mind, while we take a look at the trading aspects.
The REPs who bill you every month have to buy electricity, just like we have to buy our electricity. Every month, an REP has to estimate how much electricity they’re going to need to purchase to cover their customer base. So your average REP does some math, estimates what their monthly need will be, and places their order for Megs. They’ll lock in a certain amount at a pre-set price from a trader, and then they’ll go about their business. If they guess close, they’re doing good. If they were too conservative and bought more than they needed, they left some money on the table. If they guess short, then they have to buy spot amounts of electricity from traders at a much higher premium to cover their needs.
Two important factors to consider: 1.) A key part of an REP estimating their monthly purchase of Megs is taking into account how weather will potentially effect usage. Hotter weather means they need more electricity for their customers to meet their demands. 2.) Last week there were several articles talking about how the demand for electricity was so high during this heat wave that prices were shooting up to 3k dollars per unit during certain hours of the day as to what is normally anywhere from 20-400. Of course, it’s normally anywhere from 20-400 during summers that don’t have record heat and aren’t going through the greatest drought and lack of rain in most of our lifetimes.
And make no mistake. There’s been almost no rain in Texas in many months and there doesn’t appear to be any end to the record breaking heat in sight.
The Dangerous Landscape
Ok, now that I’ve laid out some of the pieces, lets take a closer look at the weather. I already mentioned that the weather plays a role in how REPs forecast their monthly energy purchases. I’ve also mentioned that this is the hottest summer Texas has seen in decades. So now lets take a look at exactly what that means when those two things combine. Unless an REP specifically forecast an August that had no rain and more than two straight weeks of 110 degree temperatures in Dallas and 103 degree temperatures in Houston, then odds are they underestimated how much electricity they had to buy for August. I’m speculating here, but I feel extremely confident when I say that almost no REP in the market predicted this kind of heat, consecutively, this long without rain. Which means that almost no REP bought enough electricity in advance to meet this kind of demand. I’m betting that almost everyone is short.
So what happens when everyone is short? Well, the short answer is that REPs have to spot buy energy to cover the needs and demand of their customers. And when REPs have to buy short, they have to pay a premium. But what happens when the grid is operating at maximum capacity…for consecutive days and even weeks? How does an REP buy electricity when there’s almost no electricity to purchase? The answer to that question is that the cost of buying this electricity goes way up. At the height of a day’s heat, back in July, the highest consistent prices we saw were 300 per unit. And mostly it was anywhere between 30 and 100. The same numbers here, for about 3 hours a day each day for the past two weeks have been 3000. So the cost of buying spot power is 100 times more expensive if a company has shorted their demand. And above I’ve made the assumption that almost everyone has to have shorted their demand. So instead of an electricity company maybe having to cut some checks for 5k if they need to spot buy some power, now being short will cost them 500k. And that’s just an estimate for smaller or medium sized companies. What happens for guys like Reliant or TXU with millions of customers? They could be having to cut checks to ERCOT for energy in the 5-10 million rage. And that is PER DAY. And we’ve been having record heat and a maxed out grid for the past 10 business days, and there’s no relief in site for the hot weather.
More on the Financials
So if you’re a bigger electricity provider with near a million customers or more, such as Reliant, TXU, or Direct Energy, could you end up having to write a check to ERCOT for 50 million or more in excess energy purchases because of this heat? Quite possibly, but lets not pretend that the big guys have a slush fund where they can write a check for that kind of money without feeling any pain, because they cannot. That will hurt a LOT, but they’ll probably survive. They also have energy generation resources that likely give them quite a few advantages in terms of trading and energy purchases because of the amount they buy, as well as connections they likely have with their own traders from back when Texas was regulated. But what about companies like Stream and Ambit, who have hundreds of thousands of customers between them, and no access to any trading benefits in Texas? Or larger companies like First Choice Power or Cirro? Can these companies afford to write a check for 15-20 million dollars for the month of August just to cover power? Even big companies rarely operate with that much cash on hand, particularly in an industry where margins are so small. And what about smaller companies, with less than 20k customers? Do we really think those companies have the kind of cash reserves that they can afford to burn hundreds of thousands of dollars a day in spot energy purchases to meet their customer’s demands?
And there’s one more financial consideration to consider: Ancillary Charges. Now, I’m not going to lie, I don’t completely understand Ancillary Charges and everything that goes into them. I do know that they’re basically fees paid to ERCOT by the REPs as a percentage of an REPs total “load” on the marketplace. Basically, it’s a check that has to be cut to ERCOT based on how many customers an REP has on the market, or their percentage of the electricity on the grid. In other words, the bigger a company, the bigger the bill for Ancillary charges. Talking to some of the people in the market place, because of the increased amount of energy on the grid, smaller and medium sized companies might be paying an additional 50-100k dollars a DAY in Ancillary Charges, and this is entirely on top of their spot energy purchases. And all of this is on top of whatever operational costs they have as a company, like employee salaries and insurance, etc. I can assure everyone, this is a complete nightmare for the Texas electricity market.
Final Thoughts
One thing I think is important to consider here is that this really is a fluke circumstance. It’s not like any of these businesses have likely done anything wrong, it is simply that this weather is so far outside the realm of any expectation that no one could reasonably expect temperatures this high, this many days in a row. And there’s no relief in sight from the weather, with temperatures projected in the high 100’s in Dallas all week, and the low 100’s in Houston. Electricity Companies are absolutely bleeding cash and writing huge checks unless they forecast weeks of 100 degree weather and zero precipitation across the entire state and purchased their energy accordingly back in July. And even if they did, they’re still cutting ERCOT huge checks every day because of the massive amount of electricity being used by a grid that is running at 100% maximum capacity for the past week and, again, likely to be running near 100% capacity all through August.
Let me try and sum this up as easily as possible. Back in February, we had a couple of cold snaps that maxed out the electricity grid for a couple days, caused electricity outages, and generally really stuck it to the electricity providers. As a result, two companies went out of business because they couldn’t come up with the money to pay ERCOT for their energy purchases and Ancillary Charges. Compared with this record drought weather, that cold snap is starting to look like a walk in the park for REPs. I would not be surprised to see anywhere from 10 or even 20 electricity providers having to fold up shop or getting purchased by the larger entities for a song. It will be interesting to see, but I bet by September the landscape of deregulated Texas electricity doesn’t look anything at all the way it does today. The only question is how many guys will go out of business, and how the market will permanently change as a result if a mass exodus of competitive electricity providers takes place.
If a massive change does take place, I’ll examine what it means for consumers in the marketplace in regards to electric choice. But right now, it’s simply important that customers understand what is happening behind the scenes at their electricity providers.
Texas Electricity: Minimum Usage Charges
August 2, 2011
Earlier this week, I got an email from a Texas Electricity Ratings reader, suggesting I write an article about Minimum Usage charges. We’ve discussed Minimum Usage charges in the past here, but to clear things up, in short, they’re additional charges that are tacked onto a person’s bill if they use less than a certain amount of electricity per month.
The tricky part is that the charges and the thresholds for the charges are different for every REP (Retail Electricity Provider). Which is what the reader asked me about. I thought it was a great idea, and I should have thought of it myself a long time ago. So I ran through most of the major providers operating in Texas and researched to put together a list of the minimal usage charges for each provider, as best as I could find. So below is a guide to the minimal usage charges for Texas electricity.
Ambit Energy: $9.99 for less than 1000 kWh per month
Amigo Energy: Depending on the plan it is $9.95 of $6.95 for less than 1000 kWh per month
Bounce Energy: $4.95 for less than 1000 kWh per month for almost all of their plans, except intro plans are $6.96 per month for less than 1000 kWh.
Champion Energy: $4.95 for less than 500 kWh per month
Cirro Energy: $5.25 for less than 1000 kWh per month
Direct Energy: I couldn’t find a Monthly Fee in their Terms of Service or EFLs
Dynowatt: $6.95 for less than 1000 kWh per month
First Choice Power: $5 for less than 650 kWh per month, plus a $4.95 base charge
GEXA Energy: Seems to simply use a sliding rate per plan for different usage w/o a minimum charge
Green Mountain Energy: Didn’t seem to see any minimum usage charge in the EFL or Terms of Service
Mega Energy: $12.96 for less than 1000 kWh per month
MX Energy: Seems to simply use a sliding rate per plan for different usage w/o minimum charge
Reliant Energy: $9.95 for less than 800 kWh per month
Southwest Power & Light: I didn’t see minimum usage but they had a $7.95 monthly meter fee.
Spark Energy: $8.99 for less than 1000 kWh per month
StarTex Power: $4.99 for less than 500 kWh per month
Tara Energy: $6.95 for less than 500 kWh per month
Texas Power: $10.00 for less than 1000 kWh per month
TXU Energy: TXU uses a base $4.95 charge and sliding rates for less or greater than 1000 kWh, per plan.
Also, I’d like to point out a few other things about the list above. First off, just because I didn’t find a charge doesn’t mean there isn’t one…I just could have missed it looking through the documents. Additionally, all the EFLs I looked at were from plans in the Centerpoint service area. I looked at at least 2-3 plans for each provider to get an idea of consistent charges listed…I did NOT pour through every EFL from every single provider. This is simply to give people and idea of what to expect, and hopefully be helpful. Also, it’s important to note that for the guys that don’t have any minimal usage charge, chances are high they simply tacked it onto their sliding rate scale. But if you find a great price on a guy with no listed charges, then absolutely go for it.
One last note, Stream Energy’s EFL was…weird. Despite advertising their tiered pricing for rates on a 500, 1000, and 2000 kWh scale like everyone else in the market, the fine print of the EFL says their actual tiers are:
The Price is a tiered
pricing structure, based on the following tiers: i) up to 699 kWh depicted in the EFL as Average Monthly Usage of 500 kWh, ii) 700 to 1,499 kWh depicted in the EFL as Average Monthly Usage of 1,000 kWh, and iii) 1,500 to 2,499 kWh depicted in the EFL as Average Monthly Usage of 2,000 kW
So just keep in mind that you have to use a bit more electricity to get to their cheaper electricity rates.
Any questions?
Cirro Energy Acquires Simple Power
May 10, 2011
I figured that something was up when Simple Power removed all of their plans from Power To Choose sometime last week or over the weekend. So today I wasn’t surprised when a trip to the Simple Power website redirected to a page at Cirro Energy with the following message:
We appreciate your business as a valued Simple Power customer, and want to share some exciting news. Simple Power customers are now part of Cirro Energy, a Dominion Resources company. Your service is about to get even better with the backing of a Fortune 200 company that has been serving electric customers for over 100 years.
Rest assured, there will be no changes to your current contract and there is nothing you need to do at this time.
Cirro Energy has been operating in the Texas electricity market pretty much since it first deregulated in 2001. Cirro is based out of Richardson, Texas and they have a strong brand awareness in the Dallas area. Additionally their parent company, Dominion Resources, is a huge energy generation and transportation company that operates in the middle part of America.
I’m not certain exactly how many customers Cirro is adding from their purchase of Simple Power, but it is a fairly substantial number. More and more it seems like the bigger Texas electricty providers are purchasing and absorbing some of their competition in the retail electricity markets. A couple months back, Spark Energy purchased the customer book of Abacus energy after they ran into financial trouble due to the harsh winter storm that engulfed the state and its’ effect on electricity prices.
Customers who had a contract with Simple Power should keep in mind that in Texas, they have electric choice. That means that just because Cirro Energy has purchased the customers and contracts, customers will still likely have the chance to select a different electricity provider if they don’t want to go forward with Cirro.
Market Rates: South Texas 1/19
January 19, 2011
Today’s entry into the Texas electricity shopping guide is for the AEP Central region, which covers South Texas. This includes Corpus Christi electricity and electricity in Brownsville. This area of Texas hands down has the most expensive electricity rates, so anyone living in this area should ALWAYS be diligent in regards to their electricity prices and the best ways to save money on their utility bills. The list below outlines the lowest electric rates from some of the more established electricity providers on the market.
Month to Month Electricity Plans:
Month To Month Green Electricity Plans:
Long Term Fixed Rate Electricity Plans:
Long Term Fixed Rate Green Electricity Plans:
Market Rates: South Texas 1/12
January 12, 2011
The Texas Electricity shopping guide region that we’re taking a look at today is the South Texas region (AEP Central). The South Texas region includes electricity in Brownsville and electricity in Corpus Christi. This is hands down the most expensive region in Texas, and it starts at a full cent and a half higher than rates in Dallas and almost an entire cent higher than the electric rates in Houston. Because it’s so expensive, it’s important that if you live in this area of Texas to be extra diligent in regards to shopping for electricity. Below are a list of the cheapest rates in Texas electricity from some of the most recognized companies. The sampling includes month to month plans, longer term fixed rate electricity plans, and environmentally friendly green energy plans.
Month to Month Electricity Plans:
Month to Month Green Electricity Plans:
Long Term Fixed Rate Electricity Plans:
Long Term Fixed Rate Green Electricity Plans:
Market Rates: South Texas 12/15
December 15, 2010
Wednesday means that we’re taking a look at South Texas electricity rates, which covers Corpus Christi electricity and Brownsville electricity. The South Texas area, which is the AEP Central transmission region, is consistently the most expensive area of Texas in regards to electricity prices. The month to month rates start a full cent, and in most cases a full cent and a half, higher than the electricity prices in the Metroplex. Because of that, it’s pretty important to stay on top of the price changes and best deals when shopping for electricity in South Texas. Especially when rates start at 20% higher than they do in other areas of Texas. Below is a list of the best plans to save money when shopping in South Texas.
Month to Month Electricity Plans:
Month to Month Green Electricity Plans:
Long Term Fixed Rate Electricity Plans:
Long Term Fixed Rate Green Electricity Plans:
Market Rates: South Texas 12/8
December 8, 2010
Today’s Texas electricity shopping guide is for South Texas (AEP Central). This region covers electricity in Corpus Christi as well as Brownsville electricity. This area consistently has the most expensive electric rates in the state of Texas, so it’s a good idea to be diligent about prices when shopping for plans in this part of Texas. For comparison, the month to month rates in this area start at a full cent higher than starting month to month electric rates in Houston. The rest of the plans follow a similar pattern. So in hopes of helping customers save money by getting the best rates possible, here are the cheapest plans available from many of the more established electricity providers.
Month to Month Electricity Plans:
Month to Month Green Electricity Plans:
Long Term Fixed Rate Electricity Plans:
Long Term Fixed Rate Green Electricity Plans:
Market Rates: Fixed Rate Plans 7/13
July 13, 2010
Today’s entry into the Texas electricity shopping guide are the short and long term fixed rate electricity plans. The plans listed cover 6 month, 12 month, and 24 month electricity plans. Hopefully some of these plans will allow customers to save money as well as offer peace of mind of not having to worry about their electricity bill for awhile.
Oncor:
Centerpoint:
AEP Central:
AEP North:
TNMP:
Texas Electricity Ratings: The Blog 