Unsurprisingly many established providers lost points this time around with the higher market electricity rates, although that was somewhat offset by other ranking factors. That being said, there’s no arguing how higher electricity prices are altering the Texas electricity landscape. Without further ado, here are the rankings:

Bounce Energy                 4.01
Champion Energy             3.89
TriEagle Energy                3.75
StarTex Power                  3.71
Gexa Energy                     3.68
Amigo Energy                   3.15
Direct Energy                    2.98
TXU Energy                       2.84
Green Mountain Energy     2.75
Reliant Energy                   2.47

Congratulations to Bounce Energy, who once again held onto the top spot. Bounce is followed up by Champion Energy, another mainstay at the top of the ratings. Newcomers TriEagle Energy, StarTex Power, and Gexa Energy round out the top five.

When comparing these latest ratings to the ones from last summer, it is really apparent when just how much the market cap has really altered the way electricity companies are assessing risk in their portfolios as well as how the generators are bidding out electricity. In short, it’s really amazing just how much higher rates are across the board for customers, regardless of which provider they choose.

To make these emails happen, Champion will be partnering with Lowfoot, a company that specializes in innovations in the electricity and utility space. They also specialize in Smart Meter data aggregation. Lowfoot is making a lot of interesting waves recently in the Texas electricity market. Their technology is also front and center in allowing residential electricity customers to eventually (hopefully) be able to participate in Demand Response programs, which I’ve previously written about. In fact, there was a pretty interesting interview recently in FuelFix with Lowfoot CEO Phil Playfair. Playfair goes into a lot more detail about a Demand Response program.

I view this as excellent news on pretty much all fronts. I’m certain that Champion Energy customers will appreciate their new emails and the insight they provide. This is the kind of innovation that many people expected to become available when Texas electricity deregulated back in 2001. Unfortunately, very few REPs have actually chosen to strive for new innovations that set them apart from their competition. Instead we see lots of REPs doing the same thing over and over and scratching their head over why it doesn’t seem to be working, and why they struggle to engage with customers. Well done, Champion.

A start-up retail electric provider named OriGen Energy LLC has applied for an Option 1 Texas REP certificate. OriGen Energy is an affiliate of Texas REP Source Power & Gas and shares several principals and management with its affiliate.   Specifically, Javier Loya serves as CEO and President of OriGen Energy. Loya is a member of Source Power & Gas’ parent, SPG Energy Group, LLC.   John Werner is listed as COO of OriGen Energy. Werner is President of Source Power & Gas.   Kelli Mitchell, Vice President of Operations for Source Operations Group LLC, is listed as the complaint contact for OriGen Energy as well as Source Power & Gas.

Sadly, seeing existing REP’s starting up new REP’s is not a new turn of events. Some of these efforts are more innocent than others. Southwest Power & Light, YEP, and Texpo have all been the same company, operating under the same REP certificate, for years now. Additionally, we’ve recently seen bigger companies like TXU and Direct Energy start separate new brands to market to specific demographics, specifically philanthropic interests and green energy respectively. TXU started 4 Change Energy with an eye towards charitable contributions to the community, and Direct Energy started New Leaf to market directly to environmentally conscious shoppers. Both of these ventures are specific goals, and I can understand why they exist and are separate from their parent companies, even if I don’t agree with the necessity. But that doesn’t seem to be what Source Power & Gas is doing here with OriGen Energy. Let’s rewind and take a look at why this is confusing.

Source Energy is a relatively new electricity provider in Texas. And since they’ve been licensed, they haven’t been very active in advertising, trying to create a brand, or presenting themselves to customers. At least not that I’ve seen. In fact, outside of being listed on Power To Choose, I couldn’t find them listed on any other shopping sites. And they’re not even listed on the PUC’s complaint scorecard, indicating that they have less than 2,500 residential customers. So why is a company that has raised  capital, which has less than 2,500 residential customers, that isn’t actively trying to grow their customer base through shopping websites, starting an additional company/brand? To anyone paying attention, it would seem like Source Power & Gas has a lot of work they could be doing on growing their existing brand into a relevant player in the Texas electricity market. Instead, with their current brand still relatively unknown, they’re focusing their money, time, and resources on starting a new brand in OriGen Energy. Why? How does that make any sense?

Here’s the thing: If it isn’t clear to someone like me what is going on, it certainly isn’t going to be clear to the average shopper. I’ve written before about the frustration of customers who might have bad experiences unknowingly ending back up with the same company operating with a different name. But this might be even worse than someone who fled a huge company like Reliant only to end up at another NRG offshoot like Pennywise Power. In this instance it’s a smaller company, with less resources, which by all accounts still seems to be trying to get their feet under them, starting a whole new brand to try and lure customers? If anyone had a bad experience with Source, what are the odds they’d have a better experience with OriGen Energy? It’s unclear to me if this is some kind of Monopoly play where they think it’s better to have as many squares on the board as possibly to try and land customers. One thing is certain, and that is that this is becoming a common practice.

NRG operates Reliant, Green Mountain Energy, and created Pennywise Power and Compassion Energy. TXU operates 4 Change Energy. Just Energy also operates the Tara and Amigo Energy brands on top of their own brand. Direct Energy also owns the brand First Choice Power, and they have started their new green brand New Leaf. The list goes on and on. And now Source Power & Gas is applying for a new license before they’ve even started using their capital to grow their existing brand. It’s one thing to apply for a new license to appeal to a specific market, or to keep running an existing brand that you’ve purchased. However, in my opinion, something like this is a different matter entirely.

Allowing new, small market REPs to apply for multiple licenses without developing their existing brand, does nothing other than create confusion in the marketplace. It continues to create the illusion of a robust market with dozens of options, when in reality the Texas electricity market is increasingly controlled by a shrinking group of larger companies. And why is the PUC encouraging this confusion, or at the very least, allowing it to happen with such prevalence?  It can’t be in the best interest for customers. But sadly, protecting the consumer seems like it is becoming less and less of a priority of the PUC.

Here are some details:

Specifically, the ratings component will allow customers to rate a REP on price, billing & payment, customer service, and communications, on a numeric scale with a rating of 5 being the best.

Visitors will need to register to rate a REP; however, registration only requires an email address. There will be a limit on how often a registered user may submit a rating, but it was not clear if different usernames from the same IP address could evade this procedure.

At this time, visitors will only have the option to submit a numeric rating; the site will not initially accept customer comments regarding REPs

Well, this is certainly a divergence from what are commonly considered to be the best practices for running a successful site in the Web 2.0 landscape. But I’m sure they’ll have plenty of success soliciting customer feedback when they’re requiring a registration process. And hopefully they will address IP issue for multiple reviews. Because I can speak from extensive experience that many providers and their agents will try to actively submit false reviews in efforts to make their employers look good, and the competition look terrible. But given the PUC’s track record on keeping their scorecard updated, I’m not confident about their diligence in monitoring submitted reviews.

Anything else interesting in the new changes? Absolutely:

In addition to the organic ratings, the PUC is examining including the JD Power Texas REP satisfaction rankings on Power to Choose as well. The Commission is still in negotiations with JD Power regarding such listings.

With the new ratings listed on Power to Choose, the current complaint information will be moved onto the main PUCT site.

So the PUC is going to include the JD Power rating information? That’s fine, JD Power is an excellent resource and I’ve used them as part of my ratings formula since I first started Texas Electricity Ratings. I suppose the PUC is finally acknowledging their own futility and lack of experience and attention to a rankings system and now they’re getting out of the way.

Unfortunately, I think buying their scorecard is a mistake. The information used to make up their complaint scorecard, namely customer counts and formal complaints, is information that is only available to the PUC. There’s no way I (or anyone else) can look up customer counts, or have immediate information on new REPs in the marketplace. Personally, if I were the PUC I’d be spending the time and resources in making sure their complaint scorecard is as up to date, all encompassing, and as visible as possible for all Texans shopping for electricity. I believe that would be in the best interest of consumers, not some tweaks to a shopping website.

In the past, outside of a few hiccups, ERCOT has demonstrated an almost uncanny ability to properly forecast and supply the right amount of energy generation to meet the demanded Texas electricity. However, on Sunday and again Monday (4/29/2013), there were some odd pricing spikes on days with minimal demand and mild weather. Usually price spikes like the ones we saw happen on consecutive days of oppressive heat, or with plant failures of some sort (often inclement weather related). But these recent occurrences happened on days with max loads of 39 and 44k mega watts, respectively. The Texas electricity grid can handle loads of well over 70k mega watts. On a normal day, pricing is between $20-50 a unit. And if I say the average price per unit is $35, then for more than 3 hours Monday the price per unit averaged out around $175, which is five times the normal cost of electricity per unit.

So what caused these price spikes? I sent an email to Dan Jones, the independent market monitor, who acts as a third party to make sure ERCOT and the grid are operating as designed. I asked him if there were any plant outages or any other reason for the blowout pricing on Sunday and Monday. And while there weren’t any huge, unexpected plants offline, his responses did make sense. He cited a number of factors, such as some transmission congestion, higher than expected demand compared to historical demand, lower than expected wind energy output, and he reminded me that it isn’t as if plants are churning out energy in advance just in case they are needed, as that would be a huge waste. So there wasn’t a specific reason, it was a combination of factors. And while I’d argue that allowing that to happen for more than 3 hours is unacceptable neglect on the part of ERCOT in failing to get more generation online during the peak demand period on a mild day, Mr. Jones’s reasoning for how it happened is logical and makes perfect sense.

He did bring up on thing in his email I did find interesting, however. At one point, he stated that while prices were higher than normal, he isn’t sure that he would label the price points as a “blowout.” And Mr. Jones isn’t alone in that thinking. I asked around for several other people that work in the marketplace, and none of them seemed to consider a price move of “only” 5x the normal rates to be that big of a deal, and certainly not critical. I wonder if consumers who had their prices inflated 5x normal for hours on end would be as oblivious or indifferent when they received their bills at the end of the month? I’m thinking not.

After asking around, I’m disturbed and concerned by the what I fear is complete tone deafness of the entire ERCOT landscape when it comes to consumer bottom lines. Whether or not engineers or beancounters can comprehend (or care to comprehend) the end-user experience, but price spikes of “just” 5x trickle down to customers and have tangible results. And no one looking at the business of Texas electricity and thinking regular spikes like Sunday and Monday aren’t a big deal would be correct in their thought process. Price moves reverberate through price curves after the fact and they trickle down to the customers. If something similar happens a couple more times before it even gets really hot, that will absolutely affect customer bills sooner rather than later. Of course, that is a good reason to lock in your rates now, particularly with natural gas prices looking to keep rising, but that is a different conversation altogether.

Of course, none of that answers my earlier question of how ERCOT could let that kind of price spike go on for over three hours. If they’re letting things like this slip through the cracks in mild weather, what does that portend for the summer months? When temperatures are in the 90′s and 100′s and the grid is pushing around 70k mega watts of demand, we could be looking at price spikes of 140x normal pricing come June (thanks to the increased market cap), instead of just the 5x we just experienced yesterday.

As of today (4/29/13), the Complaint Scorecard hasn’t been updated since February 28th. That means that they’re more than one month late on updating their complaint scorecard for Texas electricity providers. And the latest data for consumers is more than two months old. If the PUC were updating it according to schedule, we’d have had the March scorecard posted at the beginning of this month, and we’d be days away from the release of April’s scorecard. But there’s no telling when they’ll actually get around to updating it.  And now that summer temperatures are starting to creep into Texas, and a majority of people will be doing their shopping for new electricity providers, customers need the latest data more than ever to help them make informed decisions.

Of course, this isn’t the first time in recent memory that the PUC has been tardy with their scorecard. I’ve previously written about overarching issues in November of 2012, January of 2013, and February 25th of 2013. That means that outside of December (where I possibly missed it because of the holidays), the complaint scorecard hasn’t been updated on time in almost 6 months.

Ironically, the last time they updated their complaint scorecard was 3 days after the last article I wrote calling them out for failuring to keep it regularly refreshed. Coincidence? I guess we’ll see when they get around to updating it again this time. One thing is certain, however. It’s difficult to give the PUC any kind of grade other than “F” for their efforts on the scorecard to date.

UPDATE: After my post this morning, coincidentally, no doubt, the PUC updated everything for March about 2 hours later. It only took 29 days and one public question to get there.

Next up yesterday was a report in the blog of the Dallas Morning News that Luminent, the power generation arm of Energy Future Holdings, was engaging in an internet flame war with the Sierra Club over the air pollution of their coal generation plants. And getting into a flame war usually only increases the media coverage of the accusations, which is evidence by the DMN blog writing an article in the first place. So on top of the bankruptcy news, which has been bubbling around for years now and which looks inevitable, now Energy Future Holdings has an environmental group nipping at their heels.

Next up is the release that Oncor, Energy Future Holdings’s transmission and distribution arm, is collecting hundreds of millions of dollars for consumers to pay their expected federal taxes…only that they aren’t using the money to actually pay taxes. This is huge news because, well, it is essentially Energy Future Holdings collecting money from Texas electricity customers to repay their own massive debts. Because Energy Future Holdings has been losing money hand over fist for years, and are billions upon billions of dollars in debts, Oncor hasn’t actually had to pay any taxes to the government. But that certainly hasn’t stopped them from taking the money from consumers. If this is true, this is a huge PR blow to a company that is already on the ropes on pretty much every possible front. And while technically this practice is legal, almost no one will find their behavior moral. They’ll look like they’ve been pilfering extra money from their customers to stave off their creditors and bankruptcy.

And just as all of this news was released, Oncor’s public conference call for the quarter with investors has been announced for May 7th. Want to wager that there will be a lot more people paying attention to this call than usual?

For years now, the power generators in Texas have been complaining about how natural gas plants prices are so low that they can’t invest in new power generation construction. As a result the Texas electricity market has been racing towards the reserve margin for power generation. And the repeated company line by all these power generators, such as NRG, is that they simply can’t guarantee making a profit while natural gas prices are so low.

And yet, big companies like NRG keep purchasing more existing power generation plants. This is the second or third large plant that has been purchased by a big power generation company in the past year. So if it is so difficult to make a profit in this market, with these prices, then why are big companies gobbling up all the existing generation assets possible?

If you apply logic, the answer is simple: Companies like NRG keep buying existing power plants because they are, in fact, making a profit. Additionally, while the power generation situation in Texas is in flux, power generators have been leveraging the situation for greater benefits from the Texas PUC, such as a ruling to triple the market cap for energy purchases during times of high usage. As the generators continue to wring concessions from the PUC, the generators know that by gobbling up existing plants in Texas, they’re positioning themselves for an even larger slice of the Texas electricity pie. And the sad situation is that generators can make more money by buying existing assets and leveraging market scarcity than investing in new plants and helping stabilize the market. Even worse, the PUC isn’t giving them any reason to not behave this way.

Voluntary demand response is where certain businesses shut down their power service during times of peak demand. Right now voluntary demand response exists only for commercial electricity customers…typically large businesses that are given incentives to shutting down their service during the hours of peak demand. But recently the PUC has floated the idea of making this option available to residential customers of Texas.

It’s a solid idea, even if it is only another band-aid over what is growing into a fairly large bullet hole in regards to the Texas electricity market. The problem is that the program, if made available to residential customers, could leave a lot of the Texas Retail Electricity Providers (REPs) holding the bag if customers choose to switch from one provider to another.

The reason for this is that REPs have to purchase electricity in advance for their customers, and if they’re buying on the spot market they might be paying exorbitant prices during days of peak demand. If in turn they managed to purchase energy on those days (which are exactly the days this program is designed to be utilized), then the REPs might be paying for electricity that isn’t needed if a large percentage of their customers willingly shut down their power for 3 hours. And if a month or two later, some of those customers leave for another provider, that is lost money that they’ll never be able to recover.

Some ideas Nelson proposed to mitigate this would be only allowing this program to residential customers who sign a 2 or 3 year fixed rate plan. Additionally there is the possibility that any technology that would have to be installed for customers could be recovered by an REP if a customer moves elsewhere after their term expires. None of these are clean solutions, but I think it’s encouraging that the PUC and REPs are actually having a meaningful dialogue about the prospect. Lately the PUC’s decisions have all been in favor or electricity generators, as opposed to REPs and the actual electricity customers of Texas. At least in this instance the PUC is interested in being fair to the REPs, while still potentially allowing residential customers an opportunity to take part in what would be a cost saving program during days of excessive heat.

The Increased Market Cap

When the PUC raised the market cap last summer, it had the expected cause of raising the price of wholesale electricity during the summer months. Their idea was that this might “guarantee” profits for electricity generators, and thus encourage more generation. Of course, the extra investment in generation hasn’t happened yet, but this summer we’ll be looking at a dramatic increase in wholesale pricing, which means we’ll be looking at higher electricity prices for retail customers as well. Basically, the cost of buying electricity through the summer months is going to be more expensive than ever before this summer (and every summer to come), and these prices will inevitably be passed to the customers, although we haven’t seen that yet. More on that in a bit.

Companies Selling at a Loss

Another major factor, which I’ve also written about extensively, is some companies selling at a loss. Companies like NRG/Pennywise Power are currently selling electricity at a rate that is a net loss to the company. There are a number of reasons why NRG and other companies might be doing it, but what can’t be argued is the effect that it has on the rest of the electricity market. By setting prices at a loss, it forces many other companies to try and keep their prices as low as possible, or else risk becoming a non-factor in the market. It prevents smaller companies from gaining any market share, or worse forces smaller and even established companies with less funds and security to gamble and take risks in an effort to grow or maintain their business. This leads us to the last major factor in an electricity market bubble.

The Prevalence of Risk in the Marketplace

The way REPs evaluate risk is changing in the state of Texas. Typically risk is centered around 2 factors: A) Unertaintly in how much electricity will be used by consumers B) Uncertainty of wholesale costs. To manage this, REPs mix forecasting expected usage and locking in secure electricity purchases at wholesale prices. But this doesn’t prevent wild fluctuations from day to day, and sometimes hour to hour.

Normally that is fine, but the raising of the market cap last summer but the PUC, coupled with some REPs selling residential electricity below cost is trimming the margins to zero (or negative) for REPs attempting to stay competitive. And this is forcing many REPs to change their strategy…or in other words to gamble more with spot market pricing as opposed to locking in long term wholesale electricity purchases. If it is costing REPs 400% to buy electricity for their customers when summer months are included, which is the case now thanks to the market cap increase, the temptation to gamble is going to be very strong for a lot of REPs.

By taking on more risk to save money, the trouble starts during hot weather days where the grid is strained and there would be threats of rolling blackouts.There were a couple days like this last summer, but nothing truly frightening. However, two summers ago, when the temperatures across Texas averaged over hundred degrees for a month, there were several handfuls of days like that. And on days like that, prices on the spot market jump from $30 to $4500 (with the new rules) per unit. That’s a price increase of 150% per unit (units are 15 minutes). What happens if you’re and REP buying 25% of your customer load on the spot market on days like that? Lets say you’re a company with 40,000 customers, which means you need 40 megawatts of electricity to power all of your customers for one hour. And lets say you’re buying 25% of that on the spot market. So 10 Megawatts, every hour, every day. Well, when prices shoot up during the superpeak hours during an emergency (3-7 pm), a company 10 megawatts in the hole is suddenly facing a situation where they’re burning through and extra $125-150k an HOUR over expected costs. So they’d be eating about $500k dollars a day in unexpected costs. Now imagine if a company is leveraging more than 25% (although this would likely only be much smaller providers). Also consider this: Currently a licensed Texas Retail Electricity Provider is only required to keep 500k dollars in cash reserves on hand at any time. In a situation like what I described above a company could burn through their entire cash reserve in the span on 4 hours on one bad day. What happens if this happens 3 days in a row (these events are often stacked in clusters of hot days)? Or such as two summers ago, where it seemed it happened several times a week for an entire month?