Texas needs tighter standards for electricity retailers

By SANDRA HAVERLAH
Special to the Star-Telegram on June 24, 2008

It's a shock to learn that your electricity provider has pulled the plug and gone out of business. That lesson was driven home to more than 40,000 Texas families recently when four different retail electricity providers suddenly ceased operations, just in time to welcome the heat of summer.

Fortunately none of those families was left without electricity, although some are still wondering whether their deposits will be returned. The state has an established process to transfer these customers to other providers under the Provider Of Last Resort program, so they continue to get electricity.

Some of those customers were undoubtedly wondering, though, how the retail providers they selected could fold so abruptly. In part it's because the market is maturing, and the competition to provide lower prices is tightening margins and weeding out retailers who can not effectively compete.

However, questions remain. Was it too easy for some of these companies to operate in Texas? What am I paying for electricity from my Provider of Last Resort? Will I get my deposit back?

To avoid squeezing consumers, the state needs to do more to see that providers have the financial resources to stay the course through margin contractions and surges in energy costs. With the accuracy of hindsight, we see that the state was too eager to attract new electricity providers when deregulation took effect in 2002. Texas could have exercised more vigilance over the financial qualifications of the companies it was trying to recruit.

Companies weren't required to provide financial proof that they would be around long enough to offer consumers a viable choice. Under current regulations, a company can set up shop as an electricity retailer with as little as $100,000 on hand. These low-ball requirements have attracted 300 providers.

We have players in the game, but now it's time to exercise more vigilance about their qualifications.

It's been six and half years since Texas opened its electricity market to retail competition, and the frontier days are over. So while this market is maturing, it remains a critically important source of electric power, and the anything-goes approach can't be one that we take.

Consumers need protection against fly-by-night electricity retailers that have neither the resources nor, in some cases, the intent to deliver on their promises.

The Public Utility Commission of Texas and the Electric Reliability Council of Texas must continue to take quick and decisive action. They need to put some standards in place that will demand proof of financial capability from potential new market entrants and those already competing here.

The PUC has begun reviewing the rules related to Providers of Last Resort for electric service and the kind of information these companies must make available to the public.

That's encouraging, but Texas can do more.

Texans deserve to know, for example, that regulators have responsibly scrutinized an applicant before allowing it to sell electricity.

In addition to financial screening for new applicants, the state needs to collect financial information on the existing market participants and use that information to detect troubled retail providers before they collapse.

There should also be adequate financial mechanisms that guarantee consumers receive their deposit funds when switching companies.

The PUC appears to be taking the lead, and it needs to quickly follow through with real changes that inspire trust and confidence that the market will work for consumers � not against them.

It is unrealistic to think that companies will never go out of business, especially in the volatile energy market.

In a competitive retail electric market, it's up to consumers to choose the electric provider they want, and there's a certain amount of unavoidable risk in that. This level of risk only underscores the responsibility of state regulators to provide the kind of information that will help consumers make intelligent choices.