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makes no sense to assume that the Legislature intended that the rate reductions become apparent only after inflating the Price to Beat to include costs not contemplated by the statute or the Public Utility Commission's fuel roles. The end resuk of this exercise is that Texas will lose its competitive advantage over other states with regard to energy costs. The artificial inflation of costs to consumers will not only cost Texas consumers more for energy, but will also cost Texas jobs and economic growth. It is not likely that competition will force affiliated REPs to lower Price to Beat fuel factors if natural gas prices decline. Aggressive competition based on price is unlikely to be a profitable strategy when competitors are few and market demand is relatively unresponsive to price. All REPs stand to gain if prices are held at levels higher than cost. Raising the Price to Beat simply means that all other price offerings in the allegedly competitive marketplace will also rise because the objective of the handful of bidders for any given load is the same objective as a "Price Is Right" gameshow contestant - to get as close to the actual retail price without going over. With the exception of a few areas in Texas, residential and small commercial customers have virtually no REPs willing to offer prices lower than the Price to Beat. For example, even though customers formerly served by TXU have the option of receiving service from ten different providers, only one provider was offering rates in December, 2002 that were lower than the Price to Beat. The lone price competitor, Reliant's affiliated REP, offers a relatively modest five percent rate reduction, which equals about four dollars in savings each month for the average residential customer. The price discounts, if any, in other service territories generally range between one and five percent of the Price to Beat rate. In WTU's service area, no provider offered a rate in December, 2002 that was lower than the Price to Beat rate. In Texas, small customers have been indifferent, at best, to switching oppormhities. Indeed, the absence of any true customer switching in Texas suggests that customers do not yet see any substantial benefit from competition. The fact that customers are paying rates higher than they would have been under regulation is troubling when there are so few REPs that are willing to provide service to residential and small commercial customers. While REPs must perceive an opportunity to earn profits in order for robust competition to develop, it does a grave disservice to the residential and small commercial customers of Texas to increase regulated rates beyond a level supported by evidence and statutory guidelines simply to declare the residential market competitive. As was demonstrated in the southeastern and northwestern portions of Texas, REPs may be unable to undercut the regulated Price to Beat rate for particular customer classes. If that is the case, it is for the Legislature, and not the Public Utility Commission or market participants, to decide whether residential and commercial ratepayers will subsidize the for-profit REPs. 1813\OOhnac~mo030113grog 1 5