03-01-2010 – Rob Snyder appeared with PUC Chairman Barry Smitherman as part of an energy industry panel hosted by the Dallas Morning News.
Texas electricity deregulation opinions all over the grid in industry panel
By ELIZABETH SOUDER and ERIC TORBENSON / The Dallas Morning News
Published 28 February 2010 11:27 AM
Depending on who you are, deregulation of the Texas electric industry has been a boon or a burden.
We gathered nine executives, officials and consumer advocates to discuss who has benefited from deregulation, who has been harmed and what’s to come.
There was no consensus. Retail executives said their customers want the freedom to choose among pricing plans and features, but one consumer advocate said people simply want low prices, and they “don’t give a flip” about choice.
Participants also discussed confusion about contract terms, stricter repercussions for taking advantage of consumers and whether smart meters will change the customer’s experience.
Most of the participants agreed on one point: Anyone who tries to live in the past, who cannot or will not learn about the new system, could get hurt.
The Texas Legislature deregulated the retail electric industry in 2002. No longer would utility monopolies reign. At that point, most people served by the Texas grid could choose their retail provider. Lawmakers had already deregulated the wholesale market, allowing any willing investors to build generation plants and trade power.
Only the power line utilities, such as Oncor, remain fully regulated.
Since 2002, Texans have debated whether deregulation caused prices to rise or fall. Officials, lobbyists and corporations have produced dozens of studies designed to prove their points.
Participants in Monday’s discussion offered two basic approaches.
Consumers can now find prices in Texas that are lower than they were the month before competition began, despite inflation and a doubling of fuel costs. That’s the view of people who say deregulation has been good for consumers.
But Geoffrey Gay, a lawyer with Lloyd Gosselink who represents cities in rate negotiations, pointed to different data. He said the average price for electricity for the entire country has risen 40 percent since 1999, according to data from the Energy Information Administration. But the average price in Texas rose “a whopping 68.5 percent.”
“You have to say something’s wrong,” Gay said.
Gay and other consumer advocates have long fretted that the deregulated wholesale market focuses on volatile natural gas prices.
In a regulated market, rates follow the average price of fuel. But in Texas’ deregulated arena, the most expensive power plant operating at any given moment sets the wholesale price for the entire market. Normally, that most expensive plant uses natural gas.
So when natural gas prices rose strongly in 2008, wholesale prices rose. And any generation company using a cheaper fuel, such as coal or nuclear power, made a big profit.
“In 2008, generators seemed to be printing money,” Gay said.
“But then the price drops. Are the generators today benefiting? I don’t know,” he said.
That concern hits on Public Utility Commission Chairman Barry Smitherman’s strategy to ease power prices.
“We’re actually building a system that will be less dependent on natural gas,” he said.
Texas is adding more wind generation and building the transmission lines to carry more wind. Smitherman said the PUC is also working on projects to eliminate the congestion that has contributed to price spikes.
“The wind is clearly making a difference on price,” he said. Power prices in West Texas have been “dirt cheap,” he said. A new power line carrying wind power to South Texas and Houston cut prices there as well, he added.
David Roylance, president of rate comparison Web site SaveOnEnergy.com, said retailers have become much more efficient as they compete for business. Under a regulated system, a utility is assured that rates will cover its costs plus a profit.
“Costs have gone from being a source of profit, where I could get a return on that, to now it’s a destroyer of profit. So I’m intently focused on efficiency,” he said.
Consumer advocates worry that confusing retail offers leave consumers paying higher bills than they could be.
And even though many cheap offers are fair, some customers are so confused about the process that they just stick with the old electric company.
“I think they’re choosing based on confusion rather than quality information because it’s just – it’s a smorgasbord out there,” said Tim Morstad, associate state director of AARP.
Lloyd Gosselink attorney Gay said customers simply want “low prices, reliable service, and they don’t give a flip generally about choice.”
Dozens of retail electric providers have sprung up with hundreds of offers. Some plans promise a fixed price, and under some plans, the price varies monthly or even hourly. Some plans include renewable energy, free thermostats, airline miles, even gift cards.
Gay suggests that the PUC should require each retailer to make at least one standard offer that people can easily compare, with no special fees or extras.
SaveOnEnergy’s Roylance said the confusion goes deeper.
“We have a language problem,” Roylance said. “We love to talk about kwh, and we love to talk about demand and about congestion. None of that resonates with the consumer.”
Roylance would like to see retailers talk about the total monthly bill, or even simplify it to the cost for setting the thermostat at 72 degrees.
TXU Energy chief executive Jim Burke said his market research shows that nearly everyone in Texas’ deregulated market knows he can choose his provider. Further, he said, people are accustomed to choosing among complicated product offerings, as they do with cellphones.
“Whether it’s the electric market or anything else, people like competition,” he said. “People don’t want someone else making decisions for them.”
Rob Snyder, chairman of retail electric provider Stream Energy, said, “I don’t understand where we’re getting off here that education isn’t working. … I think millions and millions of customers in this state have voted with their feet.”
Smart meters further complicate the market. Oncor is installing digital meters throughout North Texas. Oncor can communicate directly with the meters, allowing the company to see immediately when power goes out at an individual home and, in some cases, restore power remotely.
The meters record a customer’s usage throughout the day. Retail electric providers can use the data to build new services.
“I’m going to look at that information in a way that’s never been reviewed before, and say, ‘Why is Mrs. Smith using four times the amount of energy that her neighbor is using?’ And I’m going to send the vans I have, my people, who go in to install efficiency, and say, ‘Mrs. Smith, can we come to your house to help you lower your bill?’ ” said Jim Steffes, vice president and general manager, Texas, for Direct Energy.
Ultimately, the consumer or the electric company could communicate with household appliances remotely. A consumer might log on to a Web site and program his dishwasher to turn on at a certain time, when his electricity price drops.
Snyder of Stream Energy said it will take years for appliances to catch up with this vision. While Burke is busy installing software systems to handle the smart meter data, Snyder isn’t bothering just yet.
Morstad of AARP questioned whether people even care to talk to their appliances.
“When we talk about the golly-gee-whiz gizmos that are coming, our folks are hardly interested in it,” Morstad said, adding that for people who aren’t tech-savvy, the benefits won’t outweigh the cost.
The meters will cost $686 million, and the PUC is allowing Oncor to charge residential customers $2.19 a month for the new meters for 11 years.
Bob Shapard, chief executive of power line operator Oncor, said studies show that once people can see their usage in real time, they tend to cut back by around 10 percent.
“If we use 10 percent less power in this state, first we’d save over $3 billion a year,” Shapard said. “You’d take those old, inefficient units off the grid, and the price of power, even for that retired couple that did nothing, would go down for them.”
Under a regulated system, the PUC is responsible for making sure utilities don’t take advantage of customers. Now consumers largely must watch their own backs.
Rep. Burt Solomons, R-Carrollton, wants the PUC to “do a little better job on behalf of the public.”
“It is too easy in my opinion, and I think a number of legislators’ opinions, for bad actors in the system, who have stepped outside of the sidelines more than once, in fact numerous times, to be able to affect pricing or affect fair terms,” he said.
Solomons said he would like to see any fines the PUC collects go back to the consumers who were harmed rather than the state’s general fund.
Smitherman said he has gone after bad companies since he joined the PUC in 2007.
“Since I’ve been chairman, we’ve levied $30 million in fines. That’s more than [in] the history of the PUC before my tenure,” he said.
He said that when the original deregulation rules don’t work, the PUC changes them.
In 2008, power line congestion got the wholesale market so heated that some retailers went out of business. Those retailers dumped their customers on companies acting as so-called providers of last resort.
At the time, those providers could charge a much higher rate. The higher rate was designed as an incentive to take customers on short notice.
In practice, thousands of customers – who did nothing wrong – got burned by surprisingly high electricity bills.
Smitherman said the PUC changed the rules so that the providers of last resort can only charge customers the spot rate on the wholesale market, and they must wait two weeks before charging a deposit.
TXU’s Burke pointed out that customers often cull bad companies on their own.
He said: “The measure of is it working or not isn’t just, ‘Does Chairman Smitherman have a crew out that’s there assessing penalties?’ It’s ‘How do the customers end up taking matters into their own hands and picking different retailers and learning along the way?’ ”
Panel participants couldn’t agree whether electricity prices in Texas have been sweet in the past, and they certainly couldn’t come to a consensus on the future.
Solomons said: “Prices are low today, I agree, but prices are low because a lot of energy prices are down. In an economic crisis, what happens when things come out and get better and prices start spiking again?”
Smitherman expects lower prices.
“I think we’re in for a prolonged period of low prices,” he said.
Oncor’s Shapard is even betting on low prices. He signed up for an electricity rate that can change each month.
“I’m actually on that 8.3-cent rate,” he said, “but because I have a bearish view on commodity prices.”