Yesterday, EnergyChoiceMatters.com, with tongue firmly planted in cheek, noted the "surprise" that TXU Energy not only did not see an acceleration in net customer churn during its first two months of bankruptcy, but actually grew its customer base.

This stands in contrast to the narrative certain REPs were pitching in the days leading up to a bankruptcy filing -- namely that they were "licking their chops" to start picking off customers due to uncertainty and customer trepidation with a Chapter 11 TXU.

However, we went on record at the time that we did not see a huge risk to TXU churn from the bankruptcy filing, estimating that net residential churn may increase by an incremental 10,000 per quarter (bringing total net residential churn to ~20,000 meters per quarter, still well below the 30,000+ net quarterly churn during 2012 and nearly 50,000 during certain quarters during 2011).

While we expected some uptick in net churn from customer uncertainty, increased competitors' marketing, and potentially decreased focus internally at TXU (from various bankruptcy distractions), we did not agree that TXU would see a material decline in its customer base, or churn above some recent historic levels.

Our initial reason for this was as follows: Much of TXU's customer base has proven to be intractable, due to status quo bias. If hyper-competitive offers up to or over 50% off of what TXU was charging ex-PTB customers (during the immediate aftermath of the 2009 crash in prices continuing until a few years ago) did not motivate customers to switch, we were skeptical that concerns about TXU's future would do so.

Moreover, we doubted the message of TXU's bankruptcy would effectively reach most ex-incumbent customers who have stuck with TXU. And this appears to have been played out. Most local press stories on the bankruptcy emphasize EFH, which most customers will not link to TXU. The EFH company which has attracted the most local press coverage in the bankruptcy case has been Oncor, followed by Luminant. We've seen few stories specifically about TXU (one which does come to mind concerned letters regarding bankruptcy claims sent to TXU customers)

Accordingly, with little TXU-focused press coverage, the whisper campaign against TXU as a viable entity has been left to competing REPs, and we come back to our earlier point above. If a REP could not get a TXU customer to switch when it was able to offer 5¢ power versus TXU's price for ex-incumbent customers (which we speculate could have been as high as 12-15¢ during the same period), are some whispers about TXU's bankruptcy suddenly going to move customers?

However, this only explains why churn did not accelerate as some were expecting. It does not explain how TXU managed to gain customers -- something it was not even consistently doing pre-Chapter 11.

Upon greater reflection and observation of market pricing, we have a few thoughts on some potential factors driving TXU customer growth, which we stress amount to speculation.

But one key issue we had not previously considered is Luminant's position during bankruptcy. We suspect Luminant is having a harder time finding counter-parties (at least on favorable terms) with which to hedge and market its generation output, given its bankruptcy proceeding and uncertain future (and whether contracts will survive the proceedings).

Accordingly, this would leave Luminant with two options. Either dump its output into the real-time market (which is not attractive, given the dampening effect it would have, plus given the mild weather which has not led to favorable prices), or, try to hedge the power via retail channels and extract greater margin versus real-time sales.

The latter could explain the sudden growth in TXU's book. The retail market may be the only viable channel to market the Luminant generation during bankruptcy. And being the only available channel, it also creates new motivation with respect to pricing -- after all, its not enough to simply market the power at retail, but TXU needs to win those deals to dispose of the Luminant generation.

That means much more aggressive pricing from TXU (or other EFH retail brands), particularly for small to mid-merit C&Is, which we have seen some support for, and which explains the material increase in EFH retail's small business meter count from March 31, 2014 to June 30, 2014 (a net gain of 4,000 meters -- growth in TXU's small business customer base that has not been seen since ... well, in an admittedly rushed review we looked back through EFH's 10Q's/10K's through March 31, 2010, and in that period we did not once see a gain in small business retail customer count; the best the company did was a flat small business customer base for several quarters in 2012-13).

We also see more competitive residential pricing from one of the EFH retail companies. Although we stress this is a quick snapshot, we note that 4Change Energy's lowest fixed rate plan at Oncor is only 0.3¢/kWh higher than the cheapest offer from a competitor. Back in January, 4Change Energy's lowest fixed rate plan at Oncor was 2.5¢/kWh higher than the cheapest offer (admittedly, this may also show, in part, competing REPs backing away from more risky deals)

While TXU, at least in its Power to Choose postings, has not suddenly begun playing on the low end of the market, the gap between its lowest fixed offer and the lowest fixed offer on PTC is now only 3¢, when in January it had been 4.5¢ (prices for Oncor territory)