07-G Senate Bill 7 - Laserfiche WebLink

Home Browse Search

As Functional Markets Develop Within ERCOT Zones, Market Power Concerns Become More Apparent. CAPP and STAP Cities' primary long-term concern is that the retail market power in Texas is not sufficiemly diffused among enough players to create a truly competitive market. The absence of numerous strong market players means that competitive forces cannot keep prices in check and unregulated monopolies will develop. The June bankruptcy filing of New Power, Inc., a residential REP created by Enron, reinforced the view that marketing to small accounts is developing only among a very few REPs. Prior to declaring bankruptcy and abandoning the Texas retail market, New Power, Inc. was the most successful residential REP not affiliated with an incumbent utility. After its departure, few independent REPs remain to compete for customers based on price. Few Competitive Offers Exist, Even for Desirable Load. The limited number of competitive options available is evident to CAPP and STAP. In theory, the aggregated city load represented by CAPP and STAP should be extremely attractive to the competitive market. Municipal load is characterized by substantial, consistent usage, including desirable off-peak usage. Strong load diversity exists. In addition, considerable opportunities were available for expanded services. Yet even with all of these desirable characteristics, CAPP received only four bids in response to its Request for Proposal for 2003 service that was sent to 13 potential providers. Of the four bids - all submitted by REPs that were affiliated in some way with incumbent providers - only two bidders submitted proposals to meet all of the requirements of CAPP's request. The price differential for the energy portion of the potential supply agreement bids was amazingly slim. All of the bids were for prices higher than had been agreed to in the power contract for 2002. Initially, there was a 12.5 percent differential in indicative bids. As negotiations continued, energy prices rose 6 percent. The price differential between bidders then narrowed to 6 percent. CAPP's experience indicates that the REPs are all focusing on the same pricing parameters emanating from daily weather patterns and natural gas futures. Whether the customer is an aggregator seeking service for diversified load or a small commercial customer, it is clear that there are few creative or attractive price offerings in the current market. If retail service offers continue along this path, then restructuring has simply given customers a choice among pre-existing, unregulated monopolies. The Statute Inadequately Addresses Market Power Control Within ERCOT Zones. While the original deregulation legislation contains some protection against market power by mandating that no entity control more than 20 percent of generation within a market, that intent has been frustrated by the development of functional markets inconsistent with the theoretical market envisioned by SB7. Prior to January 1, 2002, the relevant market was thought to be ERCOT. However, in reality, ERCOT rules and practice have created multiple zones with additional charges for power flowing between zones during periods of transmission congestion. Each zone has, in practice, become a distinct market, particularly in times of congestion. As a result, one affiliate of an incumbent utility has significant market dominance in several zones. 1813\O0~mao~mo030113grog 16