Texas News and Analysis

Residential and small commercial customers of the affiliated provider receive a standard rate offer, or what the PUC has labeled the "price-to-beat." This rate is designed to give the affiliate's customers a discount while allowing competing providers to offer lower rates. The initial price-to-beat rate included a rate reduction of at least six percent and remains in effect until 2007. However, rates can be adjusted up to twice yearly for wholesale fuel price increases. Until recently, there was no mechanism for downward adjustments when fuel charges decrease.

Electric competition is currently limited to five utility territories: 1) TXU Energy (with 2.7 million residential customers in Dallas/Fort Worth and north Texas); 2) Reliant Energy/Houston Light and Power (with 1.7 million residential customers in and around Houston); 3) Texas/New Mexico Power/First Choice Power (200,000 residential customers in west and in southeast Texas); 4) AEP-West Texas Utilities (limited choice in this area), and 5) AEP-CPL Retail Energy in the Corpus Christi and south Texas areas.

I know of circumstances where social workers get calls about people they've seen who are hospitalized for heat-related reasons, and the hospital will not discharge them because they don't have any place to go where there's air conditioning. Carol Biedrzycki, executive director, Texas Ratepayers' Organization to Save Energyregarding restoration of low-income weatherization programs, August 2003

This is just very disturbing, and it shows the worst aspect of competition. It's no different from your loan sharks that have sky-high credit costs.Randall Chapman, executive director, Texas Legal Services Center, commenting on high electric rates, July 2003

Rural electric cooperatives and municipal utilities were allowed to decide whether they wanted to participate in retail competition. No municipal utility and only one of the 75 electric co-ops in Texas have elected to enter the electric market. However, the one co-op that has expressed interest - Pedernales Electric Cooperative – is the largest co-op in the state, serving 173,000 customers in central Texas. The co-op recently bought some transmission lines from American Electric Power and, in January 2003, asked the PUC to allow it to compete for customers. That decision is still pending.

As of August 2003, 535,063 of the 4,964,393 residential electric customers eligible for choice (almost 11 percent) had switched to competitive electric suppliers.

As of September 2003, the following issues are of importance to Texas consumers:

The switching process
In most states, deregulated or not, traditional investor-owned utilities do the job of switching customers. In most deregulated states, an electric provider (or supplier) sends in the paperwork that authorizes the switch, and the utility makes the change. In Texas, the Electric Reliability Council of Texas (ERCOT), the power grid operator for most of the state, manages a database of all electric customers and processes all customer switch orders for all utilities. After being notified by a customer, an electric provider must contact ERCOT, which mails a verification notice to the customer and then notifies the current utility that its customer wants to switch service.  All of this takes time – sometimes up to a month. One result is that customers planning to move from one place to another must make sure that they have service well before they move.

Under the traditional utility system, a new customer received service within 24 to 48 hours after requesting it. Under the new, more complicated system, the process has sometimes taken up to a month or more, including timing for a final meter read. Customers who are moving from one place to another must make sure that they have service well before they move.

The ERCOT system has also led to billing backlogs. Part of the problem is the path that the billing process must follow before a statement reaches the customer: The transmission and distribution company reads the meter and sends the usage data to ERCOT, which sends it on to the electric provider, which then bills the customer. By the end of 2002, about 82,000 customers had not received at least one electric bill since deregulation began.

Rates and the fuel rule
The Texas deregulation law mandated a six percent rate cut when competition began on January 1, 2002. After the law was passed, the PUC adopted a "fuel factor" rule, which allows the incumbent utilities to request rate increases when the price of natural gas goes up by at least four percent and then remains steady for at least 10 days. Rate change requests can be made only twice a year, and, until recently, only utilities could make such requests.

The incumbent utilities began asking for hikes in the price-to-beat after the price of natural gas – which is used to generate about half of the electricity in the state – shot up during the winter of 2002-03. The two largest utilities – TXU Energy and Reliant Energy – asked for and received rate hikes early in 2003 of 12 percent and 10 percent, respectively. AEP-CPL received a 15 percent increase.

The utilities came back in July 2003, asking for and receiving similar increases because of higher natural gas prices. Most utilities’ rates are now in the neighborhood of 11 cents per kilowatt-hour, and competitive providers have been able to go no lower than about 9 cents. This compares to a "price-to-beat" rate of 8.4 cents when deregulation began in 2002.

After wholesale power prices went from $50 per megawatt hour in the summer of 2002 to as high as $990 per megawatt hour in February 2003 ($10 short of the cap set by ERCOT and, nationally, by the Federal Energy Regulatory Commission) the PUC decided to review the fuel rule. Approved in March 2003, the PUC’s amended fuel rule allows utilities to request rate increases after gas prices have increased at least five percent in a 20-day period; prices must increase at least 10 percent if the rate request is made after November 15 in a calendar year. The PUC also gave itself the authority to reduce the price-to-beat beginning in 2004 if warranted by market conditions – i.e., if fuel prices fall.

Consumer groups insist that the new fuel rule does not require utilities to show that their costs have actually increased. They also believe that outside groups, such as the Office of the Public Utility Counsel, should be able to request a decrease in price-to-beat rates if natural gas prices fall.

However, PUC chair Rebecca Klein has resisted requests for a full review of utilities’ expenses, stating that it "would reflect processes used in the regulated environment rather than a market-based system used now."

Some utility analysts believe that the days of cheap power are over in Texas, largely because of much higher natural gas prices. While wholesale power prices in the state are back down to about $50 per megawatt hour as of August 2003, they are higher than those in traditionally higher priced regions such as the Ohio Valley ($30) and New England ($48).

A legislative raid on energy assistance and conservation  
Until September 1, 2003, more than 500,000 low-income electric customers in areas of Texas with retail competition had been receiving a 17 percent discount on their electric bills since June 2002, as part of the LITE-UP TEXAS program. The program is funded by a system benefits fund (SBF) authorized by the 2001 legislature.

Most states that passed energy deregulation legislation over the past decade included provisions for system benefit funds to pay for residential energy programs. The idea was that these programs would help residential utility customers, including the low-income, adjust to any adverse effects of a competitive energy market by providing services – ranging from bill payment assistance to home weatherization – formerly provided by regulated utilities. The charges are collected as small monthly fees on ratepayers’ electric and/or gas bills.

The Texas SBF had also continued funding for low-income weatherization programs previously funded through utility rates and for customer education about electric deregulation. The weatherization program mostly served households with incomes below 100 percent of the federal poverty guideline ($8,590 per year for an individual, $17,650 for a family of four). Over 90 percent of the recipient households were elderly, disabled or have small children under the age of six.

In 2002, the SBF generated $144.6 million. Of that, $97 million was allocated for the discount, $7 million for low-income energy efficiency, $12 million for customer education, and $27 million for the school fund.

Facing a $9.9 billion deficit, the 2003 legislature began eyeing the SBF as a source of general revenue. Early in the session, the House Appropriations Committee recommended that the SBF be used to raise the discount to 20 percent and to fully fund the state weatherization program. However, the Senate Finance Committee rewrote the proposal. That committee’s recommendation eliminated the electric discount altogether, along with weatherization and consumer education, according to Carol Biedrzycki of the Texas Ratepayers Organization to Save Energy. She said that after lobbying by low-income advocates, the Finance Committee decided to keep the discount, but lower it from 17 to 10 percent, leaving weatherization and customer education with nothing. In the Budget Conference Committee, attempts to restore the weatherization funding failed, although customer education recovered $750,000 a year (compared with $12 million in FY 2002).

The Conference Committee recommendation was approved by the legislature, along with another provision that changed the language of the original 1999 deregulation law to allow it to transfer the SBF funds into general revenue funds. The changes became effective on September 1.

The SBF "allowed us to address a lot of homes that normally wouldn’t have been weatherized," said Joseph Guerrero, program manager for state weatherization programs in the Texas Department of Housing and Community Affairs.

The Texas Legal Services Center (TLSC) and Texas Ratepayers’ Organization to Save Energy, joined by AARP Texas, filed a petition with the PUC in July, asking that electric utilities be ordered to restore $10.7 million in funding a year for the weatherization assistance program. The groups claim that the 2003 legislation amended the system benefit fund budget but did not amend the mandate that the weatherization program that helps low-income households control their utility costs be continued.

The PUC staff will review the petition, and the commissioners could discuss it at a meeting in late August, spokesman Terry Hadley said.

Here's a look at residential electric rates in Texas since 1995:

Natural gas 
Although there are no unbundling programs for residential and small-volume commercial customers, several communities in Texas have acted to provide their residents with gas cost advantages. Texas is somewhat unique in that the Railroad Commission of Texas (RRC) has jurisdiction over intrastate transportation city gate sales for resale and retail rates outside of city limits, but individual communities and municipalities regulate retail natural gas service within their boundaries. As a result, some communities have formed innovative arrangements with their natural gas providers. San Antonio Public Service, for example, has provided both electricity and natural gas to its citizens and businesses for more than 60 years.