Business failure is a fact of life in deregulated markets, so it’s no surprise that some electric retailers are going under in Texas. The question is how to minimize the fallout so fewer people get burned.
When two retailers closed recently, the state had to transfer 23,000 residential customers to new plans. Some are paying two-thirds more for power, an increase that comes at the worst possible time — as summer kicks in and electric usage is about to take off.
How to avoid this fate? Just pick a company with staying power.
That would be easier if consumers had more information about the providers, but few details are generally available, especially about startups. Electric deregulation in Texas has always focused on attracting new entries, not qualifying them, so it requires little disclosure, and most companies don’t offer much.
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Want to know if your provider is profitable or how much money it has in the bank? Good luck.
It’s time for this to change. The state could start by requiring audited financial reports, credit ratings, customer-service records and background information on the founders — and make all of the information available to the public.
Many people may not bother to check such records, just as some investors buy stock without reading a company’s prospectus. But consumer advocates and others could comb the data and compile consumer-friendly report cards, in the same way that airlines are rated on their on-time performance and lost luggage.
Put such data on the state’s power-to-choose Web site, and it’s a click a way for electric shoppers.
At the same time, regulators should raise the bar for doing business in Texas, requiring electric retailers to demonstrate that they can live up to their promises. If companies sign a contract to provide electricity at 12 cents a kilowatt hour for the next 12 months, it’s natural to wonder if they can ride out a spike in fuel prices.
No one can know that for sure. Early in the decade, TXU fell into deep financial trouble because some bets in Europe and Australia went bad. But requiring more financial safeguards raises the odds of survival, even in tough economic conditions.
A top regulator signaled that Texas may be ready to move in that direction. Last week, at an emergency meeting of the Texas Public Utility Commission, Chairman Barry Smitherman said Texas has “become a mature market,” so “it’s probably about time we took a look at the barriers to entry.”
Texas has a safety net to ensure that electric service continues without interruption. That’s rightly the No. 1 goal for regulators, and that part of the state plan has functioned well. But the cost is high for those caught in the middle.
“Through no fault of their own, these customers are finding themselves with a much higher rate,” Commissioner Julie Caruthers Parsley said at the meeting. “Whatever can be done in the market to mitigate that, we want to encourage it.”
She was urging other providers to step forward and quickly offer more competitive rates to those who were switched.
When National Power Co. and Pre-Buy Electric failed, the state moved all customers en masse to a “provider of last resort” — that’s standard procedure.
Amigo Energy accepted all of National’s variable-rate customers for a rate of 19.9 cents per kilowatt hour. Variable plans are currently available in North Texas for 12.5 cents.
The state’s so-called POLR rate is higher because thousands of customers might be absorbed at once by the provider, and it may have to scramble to cover the commitment. Customers typically will switch to a cheaper plan, but that can take one to two months.
Because failures usually accompany a rise in natural gas prices, residents are likely to be thrown into the marketplace when electric rates are high.
In the months after Hurricane Katrina, when gas prices soared, four electric retailers failed in Texas.
And from March 2003 to the summer of 2006, 11 retailers left the market. The current strain from high natural gas prices is expected to force out some other providers, perhaps in coming weeks.
“This system [of electric deregulation] is so broken that it’s not working in the best interests of consumers,” says Carol Biedrzycki, executive director of Texas Ratepayers’ Organization to Save Energy.
In February, her group proposed a report card for electric retailers that would include details in a dozen categories. It would address customer service, including complaints and the time needed to resolve problems; financial results and fines from the PUC; and average hold times for customer calls.
Providers have opposed such reports, saying they would be incomplete or quickly outdated. And tougher requirements, whether on public reporting or financial reserves, would discourage new entries.
That clashes with the goal of Texas lawmakers, who are banking on robust competition to keep the market strong. To attract new players, the state requires that retailers have as little as $100,000 on hand. With the bar set that low, retailers flocked here, and more than 300 are registered in the state.
Most specialize in commercial accounts, with two to three dozen providing residential service. That’s probably a lot more than the market can sustain over the long term, which means a shakeout is inevitable.
Many consumers in Texas may already have electric choice, but they deserve more: an informed choice.