for electric supply, and billing. The large utilities, called “incumbent REPs” were initially required to freeze electric rates for their own customers. This rate, called Price-to-Beat, became the reference point for competing REPs to compare rates in an effort to lure away customers. During this initial period of five years, the incumbent REPs were not allowed to compete for customers in their traditional service area. However, they were allowed to compete for other customers in other areas of the state.
After five years the restrictions on incumbent utilities were removed. The frozen Price-to-Beat rate was eliminated and incumbent REPs were allowed to compete in their own traditional territories. In early 2007, direct mail began to pour into Texas mailboxes from incumbent REPs with incentives for customers to “come back” or “thanks for staying” as a direct result of the restrictions being lifted by the state.
Other new REP companies were allowed to form to compete against incumbent REPs for Texas customers. Many REPs have been formed. Some have come and gone because the risk associated with buying and selling electricity was not properly managed. When a REP goes bankrupt its customers are transferred to a rate called Provider of Last Resort (POLR). This POLR rate is typically very high and tied to the volatility of the market. REPs, that haven’t properly managed energy risk, usually go out of business when market rates are very high forcing customers onto high POLR rates. Opponents of deregulation point to POLR as proof of market failure. However, many REPs have been formed and continue to thrive because of sound risk management practices.
Other than being separated from their traditional retail and wholesale companies, the work and responsibilities of the TDSP did not change with competition. These companies changed names, such as TXU changing to Oncor; or Reliant changing to Centerpoint; however, the main mission of these companies remained the same with deregulation: Safely move electricity from generators to your home or business. These are the companies that read and maintain meters. They maintain the transformers, poles and wires of our electric system. When the lights go out, they find and fix the problem.
Wholesale Generating companies sale electricity to the REPs from generating assets they own and operate. The deregulated wholesale marketplace in Texas is largely a bilateral market. Wholesale electric transactions are handled mostly between two parties in private transactions. Since most electricity is transacted behind closed doors it is difficult for consumers to gauge market prices day-to-day. Most of the market intelligence for Texas electric transactions comes from wholesale energy brokers who are middlemen in the day-to-day in the bilateral market.
The state has recently delayed a transition of the wholesale market called “nodal.” Texas is divided into four prices zones: North, South, West and Houston. The price for these zones changes every 15 minutes. In an effort to better allocate wholesale generation and transmission costs, the state is attempting to transition the market from four zones to many nodal price points throughout the state. A transition from four price points to hundreds of price points that change every 15 minutes is a monumental task. The transition was scheduled to begin January 1, 2009 but has been delayed until the end of 2010.
Insight Energy Advisors will watch these market transformations for you. As Your Energy Decision Partner™ we will advise you and keep you informed of market changes. |
