Infinite Energy, in commenting on the Texas PowerToChoose website, has recommended that the Texas Public Utility Commission prohibit retail electric suppliers from offering an all-in rate which includes TDU charges, as Infinite recommends that TDU charges be "unbundled" and be required to be passed through at no mark-up.

Infinite claims that this would address transparency and gaming issues related to average EFL pricing where prices can be designed to appear as low as 1¢/kWh at certain usage levels

However, Infinite's proposal would destroy a central tenet of customer choice, in depriving REPs of a tool for innovation, and depriving customers of their ability to negotiate pricing which best suits their needs

Infinite's proposal also has the potential to negatively impact low volume (and therefore more likely low-income) customers.

"As all residential electric customers in a given TDU service area pay the same delivery rates, those rates should be presented separately from REP charges. The REP's Energy and Service Charges form the basis of competitive choice and customer decision-making; as such, EFLs and the Website can highlight the REP's Energy Charge(s) and Service Charge(s) in a uniform format that empowers customers to select products that meet their individual needs while reducing or even eliminating abuse," Infinite said

Infinite's claim that all residential customers, "pay the same delivery rates," is simply not true, and while REPs' internal charges from the TDU are identical for such customers, it needs to be stressed that customers do not pay delivery rates, nor should they. While REPs may face the same regulated TDU costs, there are a number of legitimate reasons (discussed below) for why a REP would want to recover those costs in a manner other than that charged to the REP, and not just because the REP wants to place a mark-up on the TDU charge, but because each customer is unique.

"[T]he Commission should likewise eliminate products that purport to offer a 'bundled' Energy Charge. These products perpetuate the lack of transparency through the bundling of flat and volumetric charges," Infinite said

Infinite further recommended that the PUC, "Eliminate bundled products by requiring TDU charges to be passed through without markup for all residential products offerings."

While Infinite's comments were directed at the PowerToChoose website, it specifically said the EFLs "on which it [the website] is based" should remove bundled TDU pricing. It was not clear that Infinite is recommending that only EFLs on PowerToChoose reflect unbundled TDU pricing.

However, even if Infinite's argument for unbundled TDU pricing were limited to PowerToChoose, it would still effectively serve to create REP price regulation in the market, for reasons Infinite identifies in its comments

First, to the extent there are two EFLs in the market -- one which conforms to the PowerToChoose unbundled TDU charge standard and non-PowerToChoose EFLs which do not and that can be used elsewhere -- products with the non-conforming EFLs would be met with skepticism from customers since they are not in the "approved" PowerToChoose format. This would elevate a certain class of products in the market, and while not de jure prohibiting these products, this would serve to inhibit them.

Moreover, to the extent there are classes of products not listed on PowerToChoose, because they do not have unbundled TDU charges, the reliance that the market supposedly places on PowerToChoose for "approved" products would further consign products not conforming to Infinite's unbundled TDU pricing scheme to history, even if such products continue to be permissible

Indeed, Infinite argued that there is a continued need for the PowerToChoose website to list offers, stating, "There will always be a need for a competitively neutral forum for customer education, which should include 'default' product offerings that are subject to immediate Commission oversight. While not every shopping customer needs or uses the Website, a significant number do - and ownership of this primary resource ensures that the Commission both controls the primary message received by customers and has the opportunity to identify trends and issues quickly."

Think about that. PowerToChoose being used to, "control[] the primary message," about electricity products. And in this case, it would be that rates with bundled TDU charges are somehow bad.

We would take issue with Infinite's proposal in principle regardless of how TDU rates are set, but Infinite's proposal is especially unworkable where there are flat non-volumetric TDU charges which Infinite proposes must be passed through without markup. Though not specifically addressed by Infinite, we cannot see how this pass-through would be accomplished without markup unless each TDU charge was specifically applied to the customer in the exact same manner it was applied to the REP. Therefore, flat TDU charges would be passed-through at flat rates, and volumetric TDU charges would be passed-through via volumetric rates

While REPs may be charged by the TDUs in a certain manner, this may not provide the best value for customers. Some customers may be better off paying for TDU charges via a volumetric rate only (low usage customers), while others would benefit from paying a mix of a flat rate and volumetric charges.

Infinite seeks to return TDU pricing to a "plain vanilla" product, with no ability for the REP to tailor pricing to an individual customer's needs

The argument for such price regulation is: since REPs have to pay regulated TDU charges, they should be passed-through to customers in the same manner.

But there are legitimate reasons REPs may wish to recover TDU costs in a different manner than that charged to the REPs themselves, especially when it comes to flat monthly charges

Indeed, while the gimmicky usage windows which result in 1¢/kWh rates have been a target of consumer advocates, these same advocates have taken aim generally at non-gimmick flat fees, whether they be minimum usage fees, or flat fees that are not tied to usage.

The consumer advocates' argument is that such flat fees discourage conservation, as the flat fee blunts any lower cost from decreased usage

However, in Infinite's world, REPs would apparently be compelled to pass-through any flat fee TDU charges as a flat fee, incurring the wrath of customers who feel this penalizes them for using less power. Many low usage customers are low-income customers, whose ability to save on their electric bill would be stymied because they would be unable to avoid the flat TDU fees by being prudent and conserving electricity

This is not a hypothetical, nor are we talking about de minimis amounts. The flat fees at CenterPoint Energy Houston Electric amount to $5.47 per month, a not insignificant percent of the bill for a customer using 500 kWh monthly.

If a REP wants to serve a market niche as being "good guy conservation leader" and do away with any flat fees, Infinite's backwards plan to unbundle TDU fees would deny the REP this right, and deny customers this innovation. Sure, maybe the product could be offered on some third-party website, but if you believed what Infinite says in its comments, customers first wouldn't find the offer -- because they are reliant on PowerToChoose to switch -- and second, customers would be wary of the offer since it's not "transparent." What are the odds such a "rogue" product -- which seems to be desired by consumer advocates, will succeed?

This is just one simple example where a REP may not wish to pass-through TDU fees in the same manner as it is charged to them. As energy becomes more of a "service" with a focus on the total spent (and not line items as Infinite seems to push us towards), you can increasingly imagine scenarios where REPs use increasingly innovative ways to recover their TDU costs

Indeed, while we don't mean to say the economics of such an offer is here yet, imagine a world where a REP offers a solar plus storage solution for a flat cost. Imagine part of the marketing of this offer is that the customer pays NO electricity charges (meaning fees related to their metered usage) -- customers only pay a single cost for their "service", which includes solar, storage, and grid power as needed. To make things simple for the customer, the REP doesn't bill the customer for "electricity" separately, it merely rolls such costs into the larger service bill for one flat charge. Even in a situation where the customer takes 0 kWh grid power, there would still be flat TDU customer charges, but the REP, because it wants to provide a simple, seamless, all-in-one service, merely reflects that in its total cost, and doesn't want to confuse (or upset) the customer with a TDU line-item in a month where the customer's grid usage is 0 kWh.

While Infinite's proposal may not prohibit such a product, it would relegate such a product to second-class status, when such product is actually the innovation that we thought was the intent of the Texas market -- not simply to have everyone pay the same line-item TDU fees that they did 20 years ago

Infinite's apparent devotion to a "transparent" and "competitively neutral" PowerToChoose site is self-serving, as made apparent in its comments, as the company seeks a no-cost customer acquisition channel so that it can compete with REPs that spend money on advertising.

"If the Website were eliminated, smaller REPs which do not have recourse to deep advertising budgets would not be able to present competitive product offerings to the Website's large audience -- and thus impose downward pressure on the prices offered by larger REPs. The Website's audience consists of approximately fifteen thousand visitors a month. Those customers would inevitably be drawn to the REPs willing and able to spend the most on advertising, and those REPs are the ones whose prices would most likely increase in response to the decrease in competitive pressure exerted by the Commission's well-known, easy-to-navigate Website," Infinite said

Infinite has a severe lack of faith in free enterprise if it believes this. Essentially, the only way to keep prices down in a market is for prices to be posted on a government-run website. Why aren't we doing this in other industries, think of the billions in price pressure being lost if only the government would start listing prices for new cars, gasoline, airline tickets, hotels, homes, and health insurance (wait, they did that last one -- and prices are going up).

We don't wish to minimize barriers faced by start-ups or small companies, and we believe new, start-up entrants are essential to a healthy and innovative market, but the idea that a government run, government-funded website is the answer to introduce more competition into the industry simply rings hollow, and essentially ignores the creativity, nimbleness, and innovation that is the hallmark of Texas entrepreneurism.

Moreover, the experience of the Texas market belies Infinite's bald assertion that only large players spending big money on advertising will succeed. Two of the largest REPs in Texas (Stream, Ambit) -- and now nationally -- grew from small start-ups, without traditional advertising, and without a reliance on the PowerToChoose site -- instead relying on what, for the retail energy industry, was a novel sales channel in network marketing. Eliminating offers on PowerToChoose isn't going to hand the market to TXU or Reliant, while it would allow for more transparent and better comparisons of offers by not shoe-horning things into a government standard, which at every turn has led to some form of strategic pricing to make offers appear the best on the site, instead of what's best for customers. We've no doubt if Infinite's proposal were adopted, it wouldn't be long before a new pricing plan not envisioned by Infinite would serve to undo the laudable goals Infinite is trying to achieve in bringing transparency and simplicity to price comparisons.

See Infinite's Comments here

-- By Paul Ring

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Texas   Power To Choose  

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