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Texas PUC Suggests Delaying Customer Choice in Northeast TX Until 2011

Many of the steps that led to the successful introduction of competition in ERCOT six years ago still have not taken place in portions of northeast Texas served by Southwestern Electric Power Co. (SWEPCO) and the Southwest Power Pool (SPP) portion of American Electric Power (AEP), and those areas should not be deregulated before 2011, a coalition of the affected cities and AEP told the Public Utility Commission of Texas (PUCT) in comments. The PUCT apparently agrees.

The PUCT originally delayed the move to deregulation in the northeastern part of the state not served by ERCOT until Jan. 1, 2007. However, in a report issued in April (Project No. 32104), PUCT determined that the area still had failed to develop a centralized wholesale market, retail market protocols or certification of a qualified power region. PUCT, which is taking comments on its revised proposal, now proposes delaying retail competition until at least Jan. 1, 2011.

In its report, PUCT noted that the power region in which SWEPCO and Texas North-SPP is located "is unable to offer fair competition and reliable service to all retail customer classes in Texas," which is "based on its experience in introducing retail competition in the ERCOT region, and its attempt to introduce retail competition in other areas of Texas outside of ERCOT, including previous efforts involving the SWEPCO service area."

PUCT authorized pilot programs outside of the ERCOT service area for retail competition in the service areas of Entergy Gulf States Inc., Southwestern Public Service Co. (SPS) and SWEPCO.

"In two of these areas, no retail electric providers (REP) offered service during the pilot projects, and no customers switched their service from the utility to a REP," PUCT noted. At one point, a single REP served a small number of commercial customers under the Entergy pilot project, but subsequently discontinued service to these customers. As a result of the outcome of these pilot projects, the commission delayed the beginning of retail competition in the Entergy and SWEPCO areas. Subsequently, the legislature enacted a law to delay competition in the SPS area and required Entergy to submit a new transition to competition plan by January 2007.

SWEPCO and Texas North-SPP took steps toward a possible transition to competition, including beginning pilot programs and establishing rates for the pilot programs; filing a business separation plan, unbundling cost of service rates, and price-to-beat rates; and separating competitive energy services. However, PUCT found that a "lack of participation in the existing pilot programs in the areas and the need for further development of the wholesale and retail market structure" indicated it should delay retail competition.

Under the proposed rule, before opening the area to full retail competition, the commission must determine whether the pilot projects have progressed to a point that competitive retail electric providers are providing service to a reasonable number of customers for all major customer classes in the SWEPCO and the SPP service areas. "After the completion of the other required stages and successful operation of a robust pilot project, the commission would determine whether full retail competition should commence in these areas." PUCT found that the proposed rule would not impose additional costs on the regulated utility.

In a filing with PUCT, Cities Advocating Reasonable Deregulation (CARD) noted its concern "that a move to retail competition at anytime in the next few years could cause electric rates to rise in northeast Texas, thus making this area of the state less attractive for economic development in comparison to the adjoining states." The 20 Texas cities noted that SWEPCO had the lowest rates for any investor-owned utility outside of ERCOT. "This is primarily due to the fact that over 90% of its native generation is lignite-fired generation. For example, SWEPCO's residential rates at 1,000 kWh are approximately 50% less than the lowest rates for a competitive REP in ERCOT regardless of the service territory."

The proposed rule requires SWEPCO to submit a transition to competition plan, which would include establishing a price to beat for eligible residential and commercial customers. However, "given the more than 90% reliance on lignite-fired generation by SWEPCO, it makes no sense to index the price of such generation to [New York Mercantile Exchange] Nymex Henry Hub gas prices." Instead, CARD said the rule should be restated so that the price to beat does not use Nymex Henry Hub natural gas prices "or any other natural gas market or index."

AEP also told PUCT it did not think the area was ready for retail competition.

"The AEP Companies agree that customer choice should be delayed until at least January 1, 2011. Furthermore, the AEP Companies generally agree with the approach the proposed rule takes towards reaching the introduction of retail customer choice in both SWEPCO's and SPP's respective service areas. Specifically, the AEP Companies are in general agreement with the process requiring completion of certain activities and events in defined 'stages' to reach introduction of retail customer choice in the respective service areas."

PUCT will hold a public hearing on the rulemaking at 10 a.m. CST on June 27 at the William B. Travis Building, 1701 N. Congress Ave., Austin, TX 78701.

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