Customers mired in FERC ruling chaos, Enron collapse & post-Sept.11 economic confusion

By Roxane Richter

Talk about a triple play. Up at bat, electric competition seems to be riddled by numerous anti-choice strikes, including new FERC standards, Enron’s collapse and general post 9-11 malaise and economic confusion. Here’s a quick rundown of the majors involved in the current triple-header threat:

  • Strike One: FERC’s new market power test. Under the latest tenets, if a company controls generation greater than its peak demand, rates must be based on per-unit production costs, not on market-based prices. FERC claims the directive would address much-needed market-power issues concerning large utilities that could influence energy pricing in their service territories.
  • Strike Two: The imminent demise of Enron, one of the most notable and aggressive proponents of competitive electric markets, may cause states like Arkansas, Montana, New Mexico, Oklahoma and others-already teetering on the brink of open competition-to lock out further pro-competition moves.
  • Strike Three: Since Sept.11, 2001, consumers have clearly turned their attention away from energy issues. Deloitte & Touche’s new Consumer Awareness Survey of Electric Deregulation in the USA showed 39.7 percent of American consumers were aware of changes in the electric industry, down from 50.5 percent in an earlier survey. This move reversed the current five-year trend, which showed an ever-increasing consumer awareness of open electric competition.

And adding insult to injury, the Yankee Group has also observed an ugly shift in consumer attitudes toward electric providers-in 2000, 83 percent of consumers were satisfied with their electric provider, dropping to 67 percent by 2001. But the group found that, in general, consumers are happiest with their local and long-distance phone companies, with electric providers ranking second, and cable providers, Internet service providers (ISPs), and wireless providers follow close behind.

New moves in New Jersey

Already, two of the three major threats affecting choice are hitting home for New Jersey’s plans on a proposed customer-supply Internet auction for utilities.

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New Jersey’s Board of Public Utilities recently approved a utility-sponsored plan to supply customers via an Internet auction in February of 2002, Reuters reported.

In approving the plan by the state’s four utilities (units of Public Service Enterprise Group, FirstEnergy, Conectiv and Consolidated Edison), the board rejected a former call from the state’s Ratepayer Advocate to postpone the decision (citing the turmoil in the power market caused by the Enron Corp. bankruptcy and FERC’s market power rulings). Ratepayer Advocate claimed that Enron’s collapse is causing a number of short-term disruptions that have serious implications for the state’s proposed 18,000 MW-auction. Plus, concerns abound that many players will be embroiled in lawsuits and possible financial quandaries due to Enron’s bankruptcy, thereby possibly reducing players and revenue.

Auction naysayers also claimed that large utilities like Public Service Enterprises’ PSEG Power and Reliant Resources would be in a position to exercise market power by withdrawing capacity from the auction or pricing it above competitive levels; a concern that draws heavily upon FERC’s latest interim market-power standard.

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Under the proposed plot, an Internet auction in February will choose the basic generation service providers for the utilities, to be effective Aug. 1, 2002. This move changes the state’s current modus operandi, whereby power is now purchased by the customer’s utility and is priced under board-approved rate caps.

But New Jersey is not the only state rocking in the wake of the “three-strikes-you’re- out” play; Texas has lassoed some broncos bucking competition too.

Texas-sized problems with profits & providers

The adage that it’s always “bigger in Texas” may not apply to new power companies’ profits operating in the state’s newly deregulating electric market. And that’s making potential power providers mightily unhappy with the state’s newly mandated price-to-beat restrictions.

Back in December of 2001, the Fort Worth Star Telegram reported that metroplex-area consumers would pay more for electricity beginning in January than they paid when the electric deregulation law was drafted, under the Texas PUC’s “price-to-beat rate,” a rate that TXU, Reliant and the state’s other major utilities must charge during the initial years of deregulation.

The newspaper reported that an analysis by a taxpayer-supported watchdog group showed that a typical homeowner paid about $74.08 a month for electricity in January 1999, shortly before lawmakers adopted the deregulation law. But by January 2002, under the proposed price to beat, that same homeowner would pay about $76.74 per month (about 3.6 percent more).

Some independent power companies say the price to beat is so low that they may not be able to make ample profits to compete in Texas. Add to that the cash and liquidity woes of Enron Corp.’s spinoff, New Power Co., so far the largest residential player in Texas with 61,000 customers. Due to Enron’s bankruptcy filing, New Power said it has enough cash to conduct business through the second quarter of 2002 and is already in talks with lenders, citing a need for $50 million in 2002 and another $50 million in 2003, a company spokesman said.

In Texas alone, New Power has to take on seven other competing firms in January of 2002, including the likes of incumbent provider Reliant Energy HL&P, and newcomers like Republic America (marketing under Energy America brand), TXU Energy, Gexa Energy, Green Mountain Energy, Entergy and First Choice Power. For now, the Texas PUC has chosen two “provider of last resort” (POLR) as Dallas-based TXU (marketed under Assurance Energy) and Houston-based Reliant Resources (under StarEn Power) as safety net power providers picking up low-pay and no-pay residential and small commercial consumers.

And although rates for POLR customers would end up lower than most pre-deregulation rates, they generally don’t match the promised rate cuts under electric deregulation laws enjoyed by the public at large.

Texas is one example of what some citizen watchdog groups term “the gouging of the poor” under POLR statutes. The Fort Worth Star-Telegram reported that the Texas PUC estimated that a typical bill for a customer receiving POLR service in Fort Worth would be $111.20 per month; in Dallas about $107.50 a month (under a separate contract with American Electric Power); in Houston, TXU’s POLR rates ran about 50 percent higher than those currently charged.

Vital signs-steady

That’s not to say choice is dead. Some states are “getting it right,” like Pennsylvania. “We have a very vibrant market thanks to electric competition,” PUC Chairman Glen R. Thomas said. “We believe that if a Northeast RTO is established properly, FERC can make Pennsylvania’s market, and our region’s market, even stronger.” Thomas claims that the state has the #1-in-the-nation electric-competition program; that electric competition has already saved employers and families nearly $4 billion; over one million Pennsylvanians have cumulatively shopped for power (with 600,000 currently shopping); nowhere in Pennsylvania are customers paying more for electricity than they were in 1996 (before electric choice); and finally, prior to choice, rates were 15 percent above the nation’s, now rates are one percent below the nation’s.

So clearly, open market competition is not dead (maybe just temporarily wounded), and some states are getting it right despite the current triple-strike play.

Richter is a veteran energy journalist specializing in new technologies, deregulation, risk management and energy marketing. She can be reached at roxrich@flash.net.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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