Why Do Texas Churches Have High Demand Charges on Their Electric Bill?

Texas church demand charge The way the PUCT wrote the rules regarding peak demand charges and electric usage rates set by electric utilities like Oncor Electric Delivery allows for interpretation. As currently interpreted by electric utilities most churches pay unreasonably high demand charges even when little or no energy is used at their facility. The problem according to the TEPA organization and the Texas Baptist Christian Life Commission is that the rules have resulted in some unforeseen hardships on houses of worship. For instance, many churches are low load profile customers that may be above the 25% load factor rule but below 35%. Oncor already defines a low load factor customer as 40% and below. The TEPA organization or Texas Energy Professionals Association has requested that the rule by changed to make secondary voltage non-residential customers that are as much as 35% in load factor but still a low load profile customer avoid what are referred to as demand ratchets.

What is the Reason in the Current Law for Having Such High Demand Charges on Churches

The goal of the law was to make the demand charges for different load factors and the use of energy during peak demand periods a fair price for all non-residential accounts. What some believe has occurred is a harsh penalty on some places like many houses of worship who have to deal with a demand ratchet when their electric usage may peak on a Sunday but be flat to non-existent the rest of the week. The law was setup to be a one size fits all type of rule so it would spread out the penalty but in reality churches feel a huge brunt of these very high energy demand charges because of the unique characteristics of how they use energy during the week.

What is a Demand Ratchet?

A demand ratchet allows an electric utility to charge a minimum amount on your electric bill each month regardless of what you are actually using. They calculate this based on your highest peak month of the year and than take a percentage of that and charge you that as a monthly minimum. Your monthly minimum might be $300 – $500 and for some churches much more than this. Imagine paying this amount each month even during a month where you only used 900 kilowatt hours all month long! It can be shocking!

How Do you Lower the Demand Ratchet Penalty?

Many churches leave their current retail electric provider and try to find another one thinking that will fix their issue. This change in retail providers will do nothing to lower the demand ratchet problem. You may reduce the retail electric provider rate associated with the monthly kilowatt hours you use but the monthly minimum demand charge you pay will remain unaffected. In order to lower this demand ratchet amount currently you must show 11 months of historical change in your peak demand for electricity. A church many times has an annual load factor of 25 percent or lower. About 98% of churches fall under 35% for their load factor which is considered low as Oncor utility even defines 40% load factor as a low load profile. In this situation it makes sense to not penalize churches with super high minimum demand charges each month when they maintain a low load factor.

Churches are metered for demand by the electric utility in an unusual way from a churches perspective. The utility goes back historically and finds the highest kilowatts demanded in any one month. They bill a church a minimum percentage of this amount on their electric bill each month that could be in the range of a minimum fee like $300 – $500 and up. The problem is that a church is usually a fairly large facility and so it is capable of demanding quite a bit of energy all at one time if it needs to but that usually only lasts for the time of a service on Sunday on a hot summer day. If it is a hot Texas day and the AC equipment is old and outdated it might turn on and run all Sunday service long without ever cooling sufficiently. A peak demand might be reached that is extraordinarily high. So a church member donates 5 brand new high efficiency AC units so that doesn’t happen again. In the current law it does not matter what upgrades you made in efficiency. A new peak demand level has been reached and so for the next 11 month the church will have to pay $500 at minimum as their demand charge even if they use zero dollars in energy.  In order to lower the demand penalty number the church must lower that electricity KW demand number for the next 11 months and then the utility will make an adjustment lower in that demand charge.

What is Being Done to Change the Current Texas Church Energy Demand Charges?

A church that has a load factor of 25% or less is a low load factor church in the current PUCT rule but yet their is still a demand ratchet. A lot of law makers, organizations like TEPA, electric utilities, and city organizations are in agreement on changes that need to be made in the law specifically for churches because of their unique characteristics that are unlike most business uses of energy. This PUCT Substantive Rule 25.244 is attempting to dramatically change the law so that most churches will not have to deal with the huge hardship of paying an extra $300 – $500 in demand charges on their electric bill each month.

Will My Church Qualify as a Low Load Factor Church?

Many churches in the U.S. qualify as a low load factor non-residential electricity customer. Load factor is simply a way of describing how much energy was used in a time period, versus how much electricity would have been used, if the electric power had been turned on during a typical peak demand time for that customer. Many churches must work to avoid ever reaching a certain pinnacle of peak demand or that number could haunt you for the next 11 months as that is what your minimum demand charge is based off of. This long 11 month penalty is referred to as a demand ratchet.

How Do I Calculate My Churches Load Factor?

You can always contact your electric utility NOT your retail electric provider to find out what your load factor is and how they calculate it. Keep in mind if you signed up with a retail electric provider like Spark Energy, Bounce Energy, or Ambit Energy and live in Dallas you would call Oncor Electric Delivery to ask this question. If you signed up with one of these retail electric providers and live in Houston you would call Centerpoint Energy Utility.

The way Oncor and other electric utilities calculate the load factor percentage is by dividing the total kilowatt-hours consumed in a designated period such as a month by the product of the maximum demand in kilowatts and the number of hours in the month.

So let’s say we have a Texas church that uses 36,000 kWh in the month. We would divide that number by their peak demand which is 100 kW multiplied by 30 days multiplied by 24 hours in a day.

What you end up with is 36,000 kWh divided by 72,000 kWh which gives you a 50% load factor. What this means is that the church used 36,000 kWh and this was 50% of the total energy the electric utility planned to have available for this facility to use at the 100 kW demand level.

So Why Have Churches Been Cheated Out of So Much Money From Past Demand Charges?

The intended goal of the current demand ratchet rules was supposed to be a one size fits all approach but the law makers did not foresee how the special characteristics of a church would cause the law to significantly penalize a church compared to other nonresidential facilities.

You see the electric utility must plan at all occasions the likelihood that the church may need to hit that demand kW number of 100 kW. In order to offer this power guarantee to this facility they must charge a premium for this 100 kw high demand number that this church requires even though they don’t use a lot of monthly electric usage in kilowatt hours.

All electric utilities such as Oncor Electric or Centerpoint Energy must be able to meet peoples peak demand for electricity at all times or risk a blackout. When utilities structure in demand charges they can build up their infrastructure to offer this peak electric power when it is called for. This is why many churches in a city can open their doors on Sunday and turn on all their power at the same time and the city doesn’t have a resulting power outage.

The good news is that work is being done in the political arena for churches at the Public Utility Commission of Texas to make the case that churches that have a 25% and as much as a 35% or lower load factor should not have an 11 month demand ratchet in place. These demand ratchets make it harder for churches to work to lower their peak demand number because when they do make a change in the efficiency of their building they receive no reward for doing so unless they keep it low for the next 11 months.

Just as the PUCT has made changes to their energy demand penalty rules for certain agricultural businesses in Texas we believe there is a solid case for lowering energy demand penalties for Houses of Worship. The great news is that we even have the electric utilities on our side for changes to these laws for churches and they see that making these changes will not hurt their ability to provide reliable power to others on the Texas electric grid.

You can read more about the PUCT Substantive Rule 25.244 and a request from a local Texas christian organization to the PUCT …. click here for the Texas Baptist Christian Life Commission’s request to the PUCT

Clearview Electric in Danger of Retail Electric Provider Certificate Being Revoked

The Public Utility Commission of Texas has stated in their latest filing that they believe the requirements of a retail electric provider certificate holder are well known and should have been known by Clearview Electric. The commission does not believe a waiver should be given to Clearview Electric in order to allow them to comply with the requirements of being an REP in Texas unless specific circumstances warrant it.

The PUCT has asked that Clearview give them at least 90 days notice prior to the expiration of their suspension period on whether they plan to come into compliance with the PUCT rule P.U.C. Subst R.25.107 by the compliance deadline. So what is this rule all about and how does it relate to the Texas electricity consumer? Below is a summary of the rule that the PUCT is trying to get Clearview Electric to be in compliance with.

The amendment to §25.107 (1) provides requirements for a change in control of a REP, (2) strengthens the reporting and certification requirements related to managerial resources and ability, (3) limits the number of business names (dbas) a REP may operate under, (4) provides requirements for certification as a distributed generation REP serving large commercial customers, (5) allows the commission to draw on a letter of credit upon the revocation of a REP certificate, (6) defines erroneous switch-holds related to deferred payments plans as a significant violation of the commission’s rules, and (7) makes other clarifying changes.

As you can see the rule seems to be related to making it transparent who owns an electric company as well as limiting the amount of names one REP can hold. I would imagine these rules are in place so that an electric provider cannot hide behind many names for the sole purpose of gaming the system and advertising and promoting to customers in a way that could be seen as unethical and bad for the retail electric markets. We are not saying that Clearview Electric has done any of these things as it appears their violation has more to do with the letter of credit rule. The PUCT may not believe this provider will do anything bad but by enforcing these rules they protect the electric consumer from the possibility of something bad happening.

Currently this company is suspended from selling electric service in Texas. I went on their website and they no longer have Texas listed as one of the states they sell electric service in. From what I can find online they only have about 30 electric service customers in Texas. The PUCT wants a $30,000 letter of credit from them to protect the investment in energy of these current customers but will eventually need a $500,000 letter of credit for them to fully comply. Some of the things the PUCT would like Clearview to agree with in writing to avoid revocation of their REP certificate in Texas are listed below:

  • They must agree to revocation if they fail to comply with rule P.U.C. Subst R.25.107 by the deadline date.
  • Must agree to revocation if they significantly violate any additional rules of P.U.C. Subst R.25.107 before the deadline date of compliance.
  • Clearview must agree that its $30,000 standby letter of credit cannot be withdrawn until they file a $500,000 letter of credit to comply with P.U.C. Subst R.25.107(f)(4)(F)
  • Clearview must agree that once revoked or through Clearviews voluntary ceasing of service to Texas customers it must pay their $30,000 letter of credit to the Public Utility Commission of Texas.
  • They must agree to not add any new Texas customers until the conditions of P.U.C. Subst R.25.107 are met.
  • Clearview must agree to give 90 days advanced notice advance of the June 30 2012 deadline if they will be ceasing operations in Texas or providing the letter of credit.

The PUCT believes that if Clearview Electric cannot agree to these requests that the commission should consider revoking the REP’s certificate.

I looked at the information the PUCT had on Clearview Electric and they do not list any DBA’s this company uses or any bizarre change of ownership information. My opinion is that this electric company may have just not had the required $500,000 letter of credit the PUCT requires for them to operate as a retail electric provider in Texas.

If this is the case it makes sense for the PUCT to be heavy handed in this regard because many electric providers have gone out of business and did not have the money to cover the investment in the energy they purchased when the market moved against them.

The $500,000 letter of credit helps protect customers, investors, and the tax payers from a provider buying energy and then never paying the ERCOT electric grid back for that purchased power.

 

Prepaid Electricity Company Rules in Texas

The PUCT of Texas has written some new rules for the public to review about if prepaid electricity companies in Texas should begin transitioning their customers over to a HAN device (Home Area Network). This is typically a ZigBee Smart Energy chip on the meter that allows a home electric meter to send back real time prepaid electricity data to the electric utility. As of June 2009 there were no commercially available in-home devices for checking your real time prepaid electricity meter data however the PUCT has made it available on their portal but you have to wait one day before you can see it. Start looking out for the smart meter Texas portal which will be available for anyone with a smart meter as well as those prepaid electricity customers using a smart meter and Zigbee smart meter chip to allow prepaid information to transfer over to the electric utility. At this time this smart meter payment system is not available for prepaid electricity customers in Texas. You will need to continue to use Ace Cash, telephone payment, and other arrangements.

How Often Can Prepaid Electricity Payments be Made?

A prepaid pay as you go electric company in Texas must allow you to make payment weekly. So if you want to prepay for your electric service every week they cannot decline your payment. The prepaid electric company must let you know atleast every two weeks what your estimated current balance is, the time and date, and estimated number of days of remaining electric service on your account.

A prepaid electric company must respond to your request to what your remaining prepaid balance is by atleast the following day prior to 5 p.m.

How To Qualify For An Electric Rate Discount?

If you qualify for an electric rate discount from the Department of Health and Human Services and the Texas Lite Up program then the prepaid electric provider must assist with working with these agencies. The pay as you go electric company must assist with provisioning energy assistance that comes from DHHS or Texas Lite Up.

It should be noted that a prepaid electricity company is not responsible for making sure your information is accurate with the DHHS. If there is even a difference with a phone number or date of birth you will be declined by Texas Lite Up. Unfortunately Texas Lite Up does not communicate this to the electric company so you will want to call and find out from both the provider and Texas Lite Up what information they have on file for you is. Everything must match or your assistance will be declined.

If you qualify for food stamps or other government assistance you will automatically qualify for energy assistance provided your information is the same at both places. Be sure to check!

Why Not Use a Traditional Electricity Company in Texas?

Considering that prepaid electricity companies in Texas charge the highest energy prices among all providers why not pay a deposit and save several hundred dollars? If you are considering a pay as you go Texas electric company you are likely a low-income electric service customer. The department of health and human service and Lite-Up Texas already have a rate assistance program for you. Texas electric companies are required to work with DHHS low income residents in working out arrangements to lower deposit amounts as well as your per kWh electric rate. Prepaid electric companies will end up costing you a fortune but a traditional electric company will give you a cheap price for energy and you can avoid the deposit. Try some of these traditional electricity companies in Texas first before going with a pay as you go energy company. You can try Champion Energy, Bounce Energy, Ambit Energy, TXU Energy, Startex Power, Green Mountain Energy, Reliant Energy, and the list goes on. Some will be easier to work with than others but ultimately your price per kWh and customer experience will be better served with one of these electric companies than by using a pay as you go provider.

Required Notifications To Help Avoid Being Disconnected

At the time you enroll with a prepaid electricity company you should be notified by them about how and when payments should be made. How and when account statements will be made available to you. How is electric service usage estimated. If you will receive a notice to pay for more service prior to being disconnected. When will these statements be delivered and how long after delivery do you have to prepay before disconnection. How and when you will be told of your remaining electric usage balance including time and date, and estimated number of days left.

Understand Your Fixed Electricity Rate

If your pay as you go electric company is offering you a fixed electricity rate they are required to disclose: price per kWh, number of kWh the fixed cost is based on, a statement about whether the price will change and why. Some electricity companies are advertising a fixed price based on teh current market prices but when your electric switch occurs charging you a different price. Be sure to watch out and ask about this practice before choosing a prepaid electric company.

A Facts Label Clearly Identifies What Makes Up Your Electric Rate

An electricity facts label is required by the PUCT to be offered to a pay as you go electricity customer. The facts label is like a food label on a can of food and should spell everything out for you. Some providers however will quote one price on the Facts Label and charge you something different. They get away with this practice because they say the price on the Electricity Facts Label was based on that date and not the date of the electric switch. Be sure to ask about this before choosing an energy company.

How Long Do I have To Change My Mind?

You have 3 days to change your mind about signing up with your prepaid electric company. The 3 days starts when your electric service is officially switched and turned on and not when they receive the contract from you.

Is The Advertised Electric Rate What Your Are Paying Now?

A prepaid electric company cannot charge more per kWh than what the provider of last resort is charging. You will have to contact the PUCT to see what the POLR rate currently is.

Somewhere on the electricity bill you should see something that says, “the average price you paid for electric service is”. This will be the electric rate per kWh you are paying. Make sure this rate matches what they advertised to you.

Pay As You Go Electricity Usage Estimates

The prepaid electricity provider should use historical electricity usage data that you have accumulated to revise their usage estimates. If your prepaid electricity company is using estimated usage from the previous tenant even though they have several months of your usage data they could be overcharging you by a lot.

Prepaid Electricity Bill Due Dates

A payment due date should be listed on the electric bill you receive from your pay as you go electric company. Be sure to look out for this.

If the Texas prepaid electric company has a 24 x 7 call center or payment center receive payments than they can make the bill due no later than 5 days after you receive it. Make sure you send in payment or you could risk a disconnection. I would try making payment late in the night to test whether or not they have a 24×7 payment center as this 5 day due date can be a little difficult especially if there are times when you cannot pay.

If the pay as you go electricity provider does not have a 24 x 7 payment center than the due date cannot be less than 10 days after the customer receives the bill.

If your bill is sent by email then according to the PUCT you received it the day the electric provider emailed it to you.

When Is A Prepaid Electric Bill Considered Late?

Your electricity service payment is considered late if it is not received before close of business on the payments due date. During holidays the electric bill due date is extended to the next business day after the holiday.

Prepaid Electricity Facts Label

Your electricity facts label should indicate the number of days a payment of $20, $50, $100, and $200 can be expected to last at monthly usahe levels of 500 kWh, 1,000 kWh, and 2,000 kWh.

The Proper Disconnection Notice You May Receive From A Prepaid Company

The disconnection notice can be sent along with your electric bill or request for a deposit. “Disconnection Notice” should be prominently displayed on the notice. The disconnection date cannot be a holiday, weekend day, or day that the REP is not available to take payment. The disconnection cannot occur less than 5 days after the notice is issued if they have a 24×7 payment center. If the prepaid electric company is not open all hours to take payments then you have a full7 days to make your late payment before being disconnected.

Being Underbilled For Several Months

If you were underbilled for several months and then all of a sudden you receive a gigantic electric bill you have some options. The PUCT allows for you to be put on a deferred billing arrangement with your pay as you go electric supplier. You can pay in $50 installments until you have paid back the underbilled amount without being disconnected for non-payment.

Electric Service For Critical Care Customers

If you have a serious illness and tell the electric provider that if they were to disconnect you it could cause serious harm to yourself and even death than they must send you a waiver. The waiver basically states that you agree to be disconnected if you make a late payment. If you choose not to sign this waiver the REP must switch you to another product or electric provider that avoids a disconnection in electric service.

TXU Wholesale Energy (Luminate) PUCT Fine Explained

Meeting Date: Dec 18, 2008
Date Delivered: Dec 18, 2008
Agenda Item No.: 18
Caption: Docket No. 34061 – Notices of Violation by TXU Corporation, et al., of PURA 39.157 (a) and P.U.C. Subst. R. 25.503(g)(7).
In this docket, the Commission is asked to approve a $15 million dollar settlement between the Commission and Luminant regarding
the accusation that Luminant engaged in “market power abuse” as that term is defined in PURA and our substantive rules. I will vote
to approve this settlement, the largest in the history of the PUCT, but would like to take this opportunity to explain why I think
such a settlement is appropriate.
By way of review, the Notice of Violation (NOV) initially arose out of the “ERCOT 2005 State of the Market Report,” prepared by
Potomac Economics (Potomac), which at that time was serving as “advisor” to the Wholesale Market Oversight group within the PUCT.
This report was published in July 2006. In Chapter V, “Analysis of Competitive Performance,” Potomac avaluated whether any electric
power suppliers had engaged in either “physical withholding” or “economic withholding.” According to Potomac, physical withholding
occurs when a particpant makes resources unavailble for dispatch that are otherwise physically capable of providing energy and that
are economic at prevailing market prices. Potential economic withholding is evaluated by calculating an “output gap”. The output
gap is defined as the quantity of energy that is not being produced by in-service capacity even though the in-service capacity is
economic by a substantial margin, given the balancing energy price. A participant can economically withhold resources, as measured
by the output gap, by raising the balancing energy offers so as to be dispatched or by not offering unscheduled energy in the
balancing energy market.
Potomac concluded, wth regard to physical withholding, that they did not find evidence of physical withholding and that there were
positive indicators that the largest suppliers did not engage in physical withholding, but “that firm conclusions would require a
more detailed examination.” With regard to economic withholding, Potomac was concerned that Company C (TXU) began offering energy
in the last week of June (2005) at prices far in excess of generic costs–that being more than $50 per MWh above generic short run
marginal costs. This activity therefore led to an additional investigation by Potomac. Subsequently, Potomac, now in their new role
as ERCOT Independent Market Monitor, conducted an “Investigation of the Wholesale Market Activities of TXU from June 1 to September
30, 2005.” That report was filed in March 2007.
In assessing the report of March 2007, it is important to note a couple of things. First, during the period analyzed by Potomac,
there was no definition of “market power.” PURA section 39.157 (a) defines “market power abuse” as “practices by persons possessing
market power that are unreasonably discriminatory or tend to unreasonably restrict, impair, or reduce the level of competition,
including practices that tie unregulated products or services to regulated products or services or unreasonably discriminate in the
provision of regulated services. For purposes of this section, market power abuses include predatory pricing, withholding of
production, precluding entry, and collusion.” However, PURA does not define “market power”. In PUC substantive rule 25.504, which
became effective on September 13, 2006, the Commission defined “market power” to be “The ability to control prices or exclude
competition.” Because there was no definition of market power during the June 1 to September 30, 2005 time period, Potomac created
its own definition of market power as “the ability for a market participant to profitably raise prices above competitive levels.”
Second, in its analysis, Potomac excluded un-offered capacity from online units. In other words, there were other suppliers of
power that could have provided power but shose not to offer energy into the balancing energy market (BES). (To some degree, I
believe this was caused by $300 “shame” cap which the Commission has subsequently done away with.) Had those other suppliers
offered energy into the BES market, then TXU would have been the pivotal supplier less of the time.
Third, TXU’s offers during the study period were designed to cover the “full costs of owning, operating, and maintaining units
expected to be needed to satisfy the forecasted load. This amount includes the initial investment costs and other fixed costs such
as leasing arrangements for gas turbines.” Potomac rejected this approach claiming that in a competitive market, there is no basis
for an entity to take into account sunk costs [when designing a bidding strategy]. According to Potomac, TXU’s strategy should be
the same “regardless of whether TXU won the units in a lottery or TXU paid a large sum to buy the units.” In other words, according
to Potomac, TXU should have been bid its generation units either at or near its short run marginal costs.
I have been and continue to be skeptical of all three of Potomac’s above enumerated positions. The Commission’s definition of
market power is different and I believe better that the one used by Potomac. In any competitive market, one or more participants
may have the ability to raise prices above “competitive levels” for a limited period of time. However, in a market, the response to
high prices from one producer is that other competitors, both existing and new, will eventually begin to offer prices below your
prices and soon take away your market share and your profits. I don’t know why other generators didn’t offer power into the BES
market during the study period (perhaps it was the fear of the $300 shame cap), but we know that had they done so, TXU would have
been pivotal less of the time and therefore TXU’s offers would have set the price less frequently. Therefore, it is unclear to me
why TXU should be punished for the inactions of others.
In a previous memo by me, filed on May 11, 2005, in Project No. 30513, which was a “staff investigation into the Wholesale Market
Activities of TXU” during the fall of 2004 (and which resulted in a determination that TXU did not engage in market power abuse
during that time frame), I took exception to Potomac’s previous analysis. In that memo (a copy of which is attached), I said, “It
seems perfectly rational to me that a generator would attempt to recover a return on and of capital investment through its BES
offers. I think it a bit theoretical to assert that generators in ERCOT are acting rationally only when they offer at short-run
marginal cost. If generators are unable to recover long-run marginal costs, then I fear we run the risk of discouraging additional
generation at a time when it appears that we are really beginning to need it.” I still believe this to be the case. As a report on
Capacity, Demand and Reserves (CDR) recently released by ERCOT demonstrates (page attached), ERCOT’s reserve margins have
dramatically improved since May of 2007 when they were projected to be below 12.5% as early as 2009. I am unconvinced that the
ERCOT region would have experienced such a robust new generation build were we to limit generators to recovering only their short
run marginal costs.
In Order No. 26, issued in this docket on July 21, 2008, ALJs Harvel and Walston opined on the issue of the maximum penalty that
could be assessed against TXU if the alleged violation(s) of market power abuse was found to be true. Staff argued for $171
million, Luminant argued for $610,000 or $7.930 million, in the alternative. According to the judges, there is no way to justify
staff’s proposed penalty of $171 million. Using the most generous calculation available-3,085 alleged seperate bid curves times the
maximum penalty of $5,000 per violation (which was the previous maximum dollar amount but has subsequently been raised to $25,000),
the total maximum penalty would be $15.525 million. The ALJs said, “In this case, Staff’s proposed trebling of Luminant’s alleged
damage to the market would result in an adminstrative penalty that would greatly exceed the penalty cap contained in section 15.023
(of PURA). Staff has not provided any legal authority to authorize such a penalty.”
Because I believe it would be very difficult to prove in a court of law that Luminant’s bidding behavior in the BES market during
the study period was an abuse of market power, and because the proposed settlement is at the high end of the highest probably
recovery if Luminant were actually found guilty, I propose that we accept the settlement.From: Julio Bejarano [juliobejarano@sbcglobal.net]
Sent: Friday, December 19 2008 8:41 AM
To: Smitherman, Barry
Subject: TXU fine

barry

As expected! As I look at your picture I could not see the ring around your head from you having your head stuck up Perry’s or Craddick’s Ass. You came in after your predecessor oked the fine two hundred million for stealing from us usurers. We payed double for our electricity and now you let TXU off the hook for stealing from us. Go big business! When you were appointed by the governor I wrote you at the time and called you out on this exact chess move. I consider as big a thief as the other two above mentioned crooks. I plan to run a full page ad in the paper reminding everyone of the Governor’s big business protective practices. He is going down! I can only hope so are you ass sniffer.
Julio Bejarano
juliobejarano@sbcglobal.net
972-735-0444
You can read in more detail about this case against TXU on the PUCT website when searching for control number: 34061From: Julio Bejarano [juliobejarano@sbcglobal.net]

Luminate which is a subsidiary company of Energy Future Holdings and is the power generation side of their business was fined by the PUCT for approximately 15 Million around December of 2008 for what the PUCT called “market power abuse”. Energy Future Holdings bought TXU Corp which included Luminate, Oncor, and TXU Energy and is now a new company although still uses the same brand names. After looking into the issue further it appears PUCT Commissioner Barry Smitherman has some valid points that the $15 million penalty that was pushed by the staff at the PUCT may have been the wrong decision against TXU which now goes by Energy Future Holdings and whose power generation side is actually known as Luminate. After reviewing the commissioners detailed notes about what caused the MCPE balancing energy markets prices to spike in the summer of 2005 it looks like Luminate’s dominant position in the wholesale energy market in Texas created a bias against TXU simply because Luminant happened to be one of the biggest participants in the wholesale energy market. By having what the PUCT commissioner and others refer to as a “shame cap” it likely hindered other wholesale generation companies from bidding into this market which would have kept prices down. You can read what an uneducated consumer believes to be the truth and then we recommend you read the facts for yourself below which has more to do with unnecessary government regulation over the Texas energy market.

Sent: Friday, December 19 2008 8:41 AM

To: Smitherman, Barry

Subject: TXU fine

barry

As expected! As I look at your picture I could not see the ring around your head from you having your head stuck up Perry’s or Craddick’s @ss. You came in after your predecessor oked the fine two hundred million for stealing from us usurers. We payed double for our electricity and now you let TXU off the hook for stealing from us. Go big business! When you were appointed by the governor I wrote you at the time and called you out on this exact chess move. I consider as big a thief as the other two above mentioned crooks. I plan to run a full page ad in the paper reminding everyone of the Governor’s big business protective practices. He is going down! I can only hope so are you @ss sniffer.

Julio Bejarano

juliobejarano@sbcglobal.net

972-735-0444

PUCT Commisioner Barry Smitherman Explains The Problems With This Penalty Against Luminate

You can read in more detail about this case against TXU on the PUCT website when searching for control number: 34061

Meeting Date: Dec 18, 2008

Date Delivered: Dec 18, 2008

Agenda Item No.: 18

Caption: Docket No. 34061 – Notices of Violation by TXU Corporation, et al., of PURA 39.157 (a) and P.U.C. Subst. R. 25.503(g)(7).

In this docket, the Commission is asked to approve a $15 million dollar settlement between the Commission and Luminant regarding the accusation that Luminant engaged in “market power abuse” as that term is defined in PURA and our substantive rules. I will vote to approve this settlement, the largest in the history of the PUCT, but would like to take this opportunity to explain why I think such a settlement is appropriate.

By way of review, the Notice of Violation (NOV) initially arose out of the “ERCOT 2005 State of the Market Report,” prepared by Potomac Economics (Potomac), which at that time was serving as “advisor” to the Wholesale Market Oversight group within the PUCT. This report was published in July 2006. In Chapter V, “Analysis of Competitive Performance,” Potomac avaluated whether any electric power suppliers had engaged in either “physical withholding” or “economic withholding.” According to Potomac, physical withholding occurs when a particpant makes resources unavailble for dispatch that are otherwise physically capable of providing energy and that are economic at prevailing market prices. Potential economic withholding is evaluated by calculating an “output gap”. The output gap is defined as the quantity of energy that is not being produced by in-service capacity even though the in-service capacity is economic by a substantial margin, given the balancing energy price. A participant can economically withhold resources, as measured by the output gap, by raising the balancing energy offers so as to be dispatched or by not offering unscheduled energy in the balancing energy market.

Potomac concluded, wth regard to physical withholding, that they did not find evidence of physical withholding and that there were positive indicators that the largest suppliers did not engage in physical withholding, but “that firm conclusions would require a more detailed examination.” With regard to economic withholding, Potomac was concerned that Company C (TXU) began offering energy in the last week of June (2005) at prices far in excess of generic costs–that being more than $50 per MWh above generic short run marginal costs. This activity therefore led to an additional investigation by Potomac. Subsequently, Potomac, now in their new role as ERCOT Independent Market Monitor, conducted an “Investigation of the Wholesale Market Activities of TXU from June 1 to September 30, 2005.” That report was filed in March 2007.

In assessing the report of March 2007, it is important to note a couple of things. First, during the period analyzed by Potomac, there was no definition of “market power.” PURA section 39.157 (a) defines “market power abuse” as “practices by persons possessing market power that are unreasonably discriminatory or tend to unreasonably restrict, impair, or reduce the level of competition, including practices that tie unregulated products or services to regulated products or services or unreasonably discriminate in the provision of regulated services. For purposes of this section, market power abuses include predatory pricing, withholding of production, precluding entry, and collusion.” However, PURA does not define “market power”. In PUC substantive rule 25.504, which became effective on September 13, 2006, the Commission defined “market power” to be “The ability to control prices or exclude competition.” Because there was no definition of market power during the June 1 to September 30, 2005 time period, Potomac created its own definition of market power as “the ability for a market participant to profitably raise prices above competitive levels.”

Second, in its analysis, Potomac excluded un-offered capacity from online units. In other words, there were other suppliers of power that could have provided power but shose not to offer energy into the balancing energy market (BES). (To some degree, I believe this was caused by $300 “shame” cap which the Commission has subsequently done away with.) Had those other suppliers offered energy into the BES market, then TXU would have been the pivotal supplier less of the time.

Third, TXU’s offers during the study period were designed to cover the “full costs of owning, operating, and maintaining units expected to be needed to satisfy the forecasted load. This amount includes the initial investment costs and other fixed costs such as leasing arrangements for gas turbines.” Potomac rejected this approach claiming that in a competitive market, there is no basis for an entity to take into account sunk costs [when designing a bidding strategy]. According to Potomac, TXU’s strategy should be the same “regardless of whether TXU won the units in a lottery or TXU paid a large sum to buy the units.” In other words, according to Potomac, TXU should have been bid its generation units either at or near its short run marginal costs.

I have been and continue to be skeptical of all three of Potomac’s above enumerated positions. The Commission’s definition of market power is different and I believe better that the one used by Potomac. In any competitive market, one or more participants may have the ability to raise prices above “competitive levels” for a limited period of time. However, in a market, the response to high prices from one producer is that other competitors, both existing and new, will eventually begin to offer prices below your prices and soon take away your market share and your profits. I don’t know why other generators didn’t offer power into the BES market during the study period (perhaps it was the fear of the $300 shame cap), but we know that had they done so, TXU would have been pivotal less of the time and therefore TXU’s offers would have set the price less frequently. Therefore, it is unclear to me why TXU should be punished for the inactions of others.

In a previous memo by me, filed on May 11, 2005, in Project No. 30513, which was a “staff investigation into the Wholesale Market Activities of TXU” during the fall of 2004 (and which resulted in a determination that TXU did not engage in market power abuse during that time frame), I took exception to Potomac’s previous analysis. In that memo (a copy of which is attached), I said, “It seems perfectly rational to me that a generator would attempt to recover a return on and of capital investment through its BES offers. I think it a bit theoretical to assert that generators in ERCOT are acting rationally only when they offer at short-run marginal cost. If generators are unable to recover long-run marginal costs, then I fear we run the risk of discouraging additional generation at a time when it appears that we are really beginning to need it.” I still believe this to be the case. As a report on Capacity, Demand and Reserves (CDR) recently released by ERCOT demonstrates (page attached), ERCOT’s reserve margins have dramatically improved since May of 2007 when they were projected to be below 12.5% as early as 2009. I am unconvinced that the ERCOT region would have experienced such a robust new generation build were we to limit generators to recovering only their short run marginal costs.

In Order No. 26, issued in this docket on July 21, 2008, ALJs Harvel and Walston opined on the issue of the maximum penalty that could be assessed against TXU if the alleged violation(s) of market power abuse was found to be true. Staff argued for $171 million, Luminant argued for $610,000 or $7.930 million, in the alternative. According to the judges, there is no way to justify staff’s proposed penalty of $171 million. Using the most generous calculation available-3,085 alleged seperate bid curves times the maximum penalty of $5,000 per violation (which was the previous maximum dollar amount but has subsequently been raised to $25,000), the total maximum penalty would be $15.525 million. The ALJs said, “In this case, Staff’s proposed trebling of Luminant’s alleged damage to the market would result in an adminstrative penalty that would greatly exceed the penalty cap contained in section 15.023 (of PURA). Staff has not provided any legal authority to authorize such a penalty.”

Because I believe it would be very difficult to prove in a court of law that Luminant’s bidding behavior in the BES market during the study period was an abuse of market power, and because the proposed settlement is at the high end of the highest probably recovery if Luminant were actually found guilty, I propose that we accept the settlement.

PUCT Answers Question on MCPE and POLR Electric Rates

The Public Utility Commission has responded to one of our blog subscribers with some very helpful information regarding rules and law changes that will help lower MCPE rates, POLR rates and hopefully prevent more electric companies from going under. ERCOT has also changed some rules to hopefully make congestion charges less which will reduce the market clearing price rate, specifically in Houston, and hopefully make Houston’s MCPE rates similar to the rates in other location in the state. Houston has the highest MCPE prices in the state.

Background on MCPE Electric Rates

For those not familiar with MCPE, it stands for Market Clearing Price for Energy. National Power, Riverway Power and others had a failed business model that relied on buying energy from the MCPE index which is a variable price and selling it as a fixed rate to their customers. When MCPE went up higher then they anticipated they went backwards on their energy investment and had to get out of the business quick, leaving their customers on a very high POLR rate.

You can read exactly what the Public Utility Commission of Texas has said below:

Mr. Hipp Thanks for your email. I’m sorry that this has happened to
you. Prior to the last couple of weeks, only six REPs had gone out of
business since the retail electricity market was deregulated in Jan
2002. Almost all of those REPs had a flawed business plan whereby they
were buying energy short term through the ERCOT balancing energy market
and then selling it long term to their customers. It seems as if
National Power may have been pursuing the same flawed business model.

With regard to financial stability for REPs, the PUC does have rules
regarding financial resources. We have tried to balance the desire of
the legislature to have robust retail competition (and a multitude of
REPs who can enter the market) versus only having a handful of large
“household name” REPs with larger balance sheets. Having said that, the
PUC will be opening up our rule regarding REP finances to determine if
it needs to be changed.

Our rules do require the “exiting REP” to notify the customer;
unfortunately National Power did not do that and we are considering an
enforcement action against them.

POLR has always been designed as a service that continues the flow of
electricity to your home in case your REP goes out of business. Because
the POLR provider unexpectedly receives a bunch of unplanned customers
almost overnight, the plan was designed to be priced based upon the
Marginal Clearing Price of Electricity in the ERCOT balancing energy
market. That price has been unreasonably high of late. We have asked all
the POLRs to price electricity to you at levels below what our rules
allow. We will also be opening up our POLR rule to see if it needs
adjustment.

As of last Friday, ERCOT changed some of it operational procedures which
we believe will allow transmission congestion to be resolved more
inexpensively. We will be closely monitoring the balancing energy
market this week to see if there is any improvement.

As we have asked of all others in your situation, please switch to
another REP or another product from the POLR as soon as possible.
Thanks again. Barry

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