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Public Utility Commission Decision May Enable Largest Electricity Providers In Texas To Become More Powerful

More than 4 million people in Texas were without power Tuesday morning, as severe weather has increased demand and decreased supply.
More than 4 million people in Texas were without power Tuesday morning, as severe weather has increased demand and decreased supply.

This story has been updated to include a statement from Reliant, a subsidiary of NRG Energy.

Two energy industry behemoths may soon consolidate even more of the electric utility market share as a result of a Friday-evening decision by the Public Utility Commission of Texas.

Companies saw sky-high wholesale prices over the past week, and market analysts expect many small-to-midsize electricity providers to collapse over the next couple of weeks due to massive losses.

The decision from the Public Utility Commission, or PUC, could allow two companies that already hold more than 70% of the market share to scoop up even more consumers, which experts worry will stifle competition and raise prices for everyone in the unregulated market in the long term. The unregulated market covers most of Texas, except for places with public utilities, like Austin and San Antonio, or people who get their energy from a cooperative.

Tim Morstad works on financial security issues for AARP Texas, with a focus on electric utilities.

“What this may lead to is further consolidation and further control of the retail electric market in Texas by large companies,” he said. “And with less competition, consumers can certainly get hurt. The last thing we need is unregulated monopolies. We've already gone through too much as a state with the pandemic and job losses and now this electricity emergency. We don't need long-term consequences from an even less competitive, deregulated electric market.”

The concerns from experts like Morstad boil down to who gets to provide electricity as power companies go out of business.

When private electricity providers go under, their customers won’t lose power because of what’s known as the “provider of last resort” — POLR. When one company folds, its customers are switched over to another provider so that consumers don’t experience disruptions in service. Consumers have no choice in the matter. It just happens. POLR rates tend to be higher than what consumers originally signed up for with their energy company of choice.

On Friday evening, the Public Utility Commission of Texas decided to open up voluntary POLR applications so that more companies can jump into the game.

“My concern here is that A: this is all very confusing for customers who are going to be stranded by companies that went out of business, and B: they're ultimately going to have to go choose again in a market that's less competitive, where they're probably going to end up paying more over the long term,” Morstad said.

NRG Energy and Vistra Corp already control more than 70% of the market share. The Public Utility Commissioners indicated a desire to allow Reliant Energy, a subsidiary of NRG, as well as TXU Energy, a subsidiary of Vistra, to voluntarily take on more customers as other companies go under. In a press release, the commission said this “voluntary” method will lead to “a competitive rate, rather than the higher so-called ‘POLR rate.’”

During the meeting, Commissioner Arthur D'Andrea explained his reasoning for supporting the plan.

“I don't want (consumers) to have to deal with getting put on a bad POLR plan,” he said. “And then we have to call them and say, ‘switch off this plan now and get on something better.’ They should not have to deal with that now. And so, this outcome is all about protecting them.”

D’Andrea went on to explain the potential downside of the move.

“I don't love the fact that we are experiencing massive consolidation in the retail space,” he said. “That's not good, but I think we have to focus on protecting those ratepayers right now, and this is the way to do it.”

It’s unclear how many private electric providers are about to go out of business, but Morstad expects the fallout to be far-reaching.

“Our regulators must demand stronger standards to make sure that the companies that enter the market can withstand trying times like this,” he said. “Because there can be tens of thousands or more electric customers who are left dangling out there if their power provider goes out of business.”

The commissioners believe larger companies like NRG and Vistra can handle that huge demand.

In a written statement, NRG Energy subsidiary Reliant said, "By volunteering to be a (retail electric provider of last resort), Reliant is working to minimize any impact to customers affected by retailers exiting the market. Customers who are switched to a POLR are free to choose another provider or plan at any time."

Reliant did not directly address questions about market consolidation concerns. Vistra did not immediately respond to Texas Public Radio’s inquiries.

“If we've got two companies at 75% (of market share) currently, and (NRG and Vistra are) about to go to 80%, 85% — maybe north of that, who knows — then I think it begs some real questions,” said energy and climate consultant Doug Lewin.

“I mean, how much competition do we have? And I want to be clear: people will say, ‘Well, there's all these different (electricity providers) out there.’ But NRG just bought Direct Energy, so one of the two largest (electricity providers) just bought the third largest,” he added. “So if you have Direct Energy, you're owned by NRG. If you have Green Mountain, you're owned by NRG. If you have Pennywise, you're owned by NRG. You know, Vistra owns a bunch of different brands, not just TXU. So, is it the illusion of choice, or is it actually choice?”

The commissioners gave companies until Monday at 3 p.m. to submit applications to become voluntary POLRs, and they delegated the decision-making authority to Thomas Gleeson, the executive director of the Public Utility Commission.

“So they left companies less than 72 hours (to apply),” Lewin said. “Obviously, there's some urgency to that because some of these companies will start going under quickly. But it doesn't leave a lot of time for a lot of competition.”

Customer switchovers are expected to begin on Wednesday. At that point, Morstad said, the market will begin a long-term shift.

“They may end up with some of these customers for the long term,” he said. “And that's going to further consolidate the market and make it less competitive. And prices can go up for consumers.”

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Dominic Anthony Walsh can be reached at Dominic@TPR.org and on Twitter at @_DominicAnthony