Texas Hubris Turns to Uncertainty

Sept. 18, 2001
Bottom Line Energy Issues - September 2001

Although their plans were closely compared with California, officials launching the Texas Electric Choice program repeatedly said their plan would not lead to problems similar to those that tanked deregulation there. But, errors in computerized record keeping and billing immediately cast some doubt on the efficacy of the pilot program after the launch was delayed several times from the schedule that was to allow consumers and small businesses to drop their regulated electric utility in favor of cheaper power from competitors. The Electric Reliability Council of Texas (ERCOT), which oversees the state's power grid, ran into problems trying to step up the volume of requests it was handling from 330 per day to 1300 per week, far below the goal of 21,000 by January when all customers were scheduled to have the option to switch. Only a small fraction of those customers who signed up for the program actually could be switched in a timely fashion. Delays may run into November.

Just after ERCOT announced the final round of testing and certification of suppliers, the program was hit with some unexpected price increases in addition to the computer glitches. Transmission line constraints made it difficult to move enough power to the Dallas-Fort Worth area from south Texas, where many new plants were built. As a result, prices in the northern part of the state have run higher with the median price in northern Texas running 48% higher than in the southern part.

Shell Energy, a retail unit of oil giant, Royal Dutch/Shell expressed frustration with the delays in a filing with Texas Public Utility Commission. Shell Energy estimated $75 for households consuming 10,000 kwh annually that could increase to $208 for double that demand. Then Shell Energy abruptly announced its decision to withdraw from the Texas market along with the deregulated electric market in Ohio where it had signed up 30,000 customers. The official announcement cited the slow pace of deregulation that would make it "unlikely that Shell Energy will be able to reach adequate size nationwide to be profitable in electricity in a reasonable length of time." More than 40,000 of the almost 114,000 Texas customers who selected alternative suppliers signed on with Shell, but only slightly more than 100 could actually receive power from it, while the others are waiting to be switched. The company said it would focus efforts on marketing gas in Georgia and Ohio. Consumers Union, a watchdog group in Austin, TX noted, "We are disappointed to see competitors jumping out of the market rather than into the market. Having fewer competitors will make it more difficult for consumers to see any savings in deregulation."

Jeff Dietert, energy analyst with Simmons & Co. International of Houston said, "Texas has the potential of being a very successful deregulation structure. Alternative suppliers who are sticking it out include NewPower Co., Green Mountain Energy, TXU Energy Services, First Choice Power, and AES NewEnergy.

Competitors have criticized ERCOT, saying the delays are costing them money and hurting consumer confidence in the promised benefits of deregulation. Vanus Priestley, VP of AES NewEnergy said, "We are more and more concerned every day. We're still not even agreeing on the basic numbers." He was referring to inability of the PUC and the energy companies to agree on one set of criteria for evaluating the performance of ERCOT. Nevertheless, Tom Noel, ERCOT CEO said, he will be ready for the market to open January 1. "Absolutely, I don't have any doubt." Stay tuned.

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