Choices, Choices, Choices

Deregulation aims to offer lower electricity rates to end-users by promoting competition and deregulating the market and the generation/supply of electricity.

By WILL MCGINNIS, CAS, Infinity Power Partners

In early 2022, the city council of Lubbock voted in favor of electric deregulation with the expectation of connecting Lubbock's customers to the Electric Reliability Council of Texas (ERCOT) grid by 2023. This raises questions about what deregulation means for electricity customers in the area and how it works in Texas. It is important for residents and business owners to understand the different options that surround utility costs in different regions.

In Texas, competition was introduced in the electricity supply market through Senate Bill 7 in 1999. This resulted in the emergence of Retail Electric Providers (REPs) who offer different rates, products and terms to consumers in the markets they operate. Examples of REPs in Texas include Reliant Energy, Green Mountain, TXU Energy, Summer Energy, Pulse Power, Constellation and many others. When you select an REP, negotiate a term, product and rate, they purchase the electricity and resell it to your place of business or residence, while the regulated utility is only responsible for the transmission and distribution of electricity via the “poles and wires” they own and maintain on behalf of consumers. It is worth noting that there are additional regulated “pass through” charges plus taxes customers are subject to paying, which are passed along at no markup and billed by the applicable REP. This article aims to explore these concepts further and provide a synopsis of how the Texas electricity market works.

Following winter storm Uri, many Texans became aware of ERCOT and its role in the deregulated markets. ERCOT manages the flow of electricity from the Texas interconnection and manages 95% of the state's electric load. Its purpose is to stabilize electricity across its territories in Texas, and it is overseen by the Public Utility Commission of Texas (PUCT), which enforces regulations regarding electricity generation, transmission, distribution and supply. The PUC also provides dispute resolution services for consumers, suppliers (REPs), and utilities, such as ONCOR, CenterPoint, AEP and TexasNew Mexico Power (TNMP), who own the “poles and wires” and are responsible for the distribution of electricity through the infrastructure they own and maintain. Additionally, Texas Electric Cooperatives operate in certain regulated regions where a COOP is responsible to reselling electricity, along with the transmission and distribution to a customers business or home.

Deregulation aims to offer lower electricity rates to end-users by promoting competition and deregulating the market and the generation/reselling of electricity. This has resulted in lower rates in Texas compared to the national average for many years and increased customer satisfaction. Customers who are dissatisfied with their current rates or customer service from their REP can easily switch to another without complications, but we suggest double checking you’re not under contract before making any changes to avoid a potential early termination fee (ETF) by cancelling early. This system ensures that larger companies do not become monopolies that can increase rates without oversight, which is a major goal of deregulation.

How does this factor into my multifamily asset and our utility costs?

Let's dive into the main topic of this article, which is deregulated markets in Texas and why you should care. If you happen to live in a deregulated market in Texas, such as Dallas, Houston, Corpus, Midland/Odessa, and soon Lubbock, you have the opportunity to choose from a variety of Retail Electric Providers (REPs) who compete for your business and can offer the best electricity rates. REPs have been operating in Texas for over 20 years and have continued to introduce new products and improve existing ones to satisfy their customers while attracting new ones. For multifamily property owners and operators, one of the most appealing offerings is a Continuous Service Agreement (CSA). This product allows them to manage the vacant electricity at a property whenever a resident moves in or out of a unit, reducing the time and effort spent on reconnection. The CSA also ensures consistent pricing and provides better monitoring of each unit on the property. In addition to the CSA, many REPs also offer a marketing program that can be a great source of ancillary income for property owners. As residents enroll with the preferred provider, the REP pays the owner a “door fee” which typically averages $65 to$75 per enrollment, sometimes higher, and paid on a quarterly basis. This is particularly advantageous for new developments and lease-ups, which can generate significant additional ancillary income.

Even if you're not managing a multifamily asset, you can still benefit from various programs and products. It's crucial to be proactive in managing your energy costs. You should keep in mind that you can always secure fixed electricity rates for future starts.

Another objective of deregulation is to allow you to manage your energy account and electricity expenses based on your desired level of risk. If you want to avoid the risk of fluctuating or changing energy rates such as an index plan, you may prefer a Fixed Product or Fixed Energy Rate. However, electricity rates vary depending on various factors, including your location, weather, load/demand/usage, and start date.

Therefore, when requesting rates from REPs, it's crucial to consider these factors, as REP will set different parameters on your offerings. You can compare the offers to determine what components are fixed, or passed-through, and then determine the best option for your business. By proactively monitoring the market or seeking guidance from a broker/consultant, you can strategize and create a procurement and management game plan, determine the best time to review pricing, and gauge your risk tolerance, along with other important items that can significantly impact your future energy spend.

With over 60 REPs across the state of Texas and more areas looking at deregulating the utility options, it is always a good to take a pro-active approach and avoid getting caught in a bad situation when it comes time to procuring your next energy contracts. This will provide your team and assets the best pricing and products available on the market at any given time. If your team has questions regarding your area, and if it is regulated or deregulated, there are many options online to help and you can also call the supplier/utility on your invoice. Broker/consultants can be an asset as they work with the suppliers and utilities on your behalf and have integral knowledge and market expertise about each territory’s pricing and products.

For more than 20 years, Texas has had deregulated electricity markets and their impact on your portfolio can be significant. Knowing which areas are deregulated can help your team with planning and development, as well as ongoing asset management.

Will McGinnis, CAS, is the vice president of business development for Infinity Power Partners, an energy management and consulting firm based in Houston. Infinity Power Partners work with electricity and natural gas customers nationally. They also provide procurement management solutions, risk management services and market insight throughout the development of client-specific strategies. McGinnis can be reached at 713-559-0559 or via will@infinitypowerpartners.com.