Coming in 2002: Retail Choice in Electricity

With retail choice in electricity coming in January 2002 in most of Texas, companies with commercial or industrial facilities are starting to receive calls from sales personnel, encouraging them to sign up with a "retail electric provider," which are the new electricity marketers in the "deregulated" Texas electric market. Several points are worth noting:

• The utility service areas in which retail choice will begin in earnest are those of TXU (formerly Texas Utilities), Reliant (formerly HL&P), Central Power & Light, and West Texas Utilities. Retail choice in other areas of the state won't start, if at all, until much later.

• The opportunity to choose a supplier can present an opportunity to have fixed price electricity, which helps business customers in their planning and budgeting process. On the other hand, electric utility customers who do not choose a supplier will automatically be switched to a retail electric provider that is affiliated with the former utility, at rates that will vary, based primarily on price changes in the natural gas markets. Obviously, variation in electricity rates is not easily dealt with in business planning and budgeting.

• For a residential customer or a commercial customer with a load of less than 1,000 kilowatts in the last 12 months, the affiliate must charge the "Price to Beat," which is 6% less than the utility rate, adjusted for fuel cost changes. For larger commercial and all industrial customers, the "Price to Beat" does not apply, and the affiliate can charge higher rates that can be even more volatile, absent a fixed price contract or other specific contract protections.

• Although negotiating a contract with a new supplier can provide price stability, there are many issues that should be carefully addressed before signing up with an electricity supplier. These include penalties for exceeding benchmark electricity usage, which can be significant for facilities whose usage swings with weather; contract termination provisions for payments that are late after only a very short time period; and various other commercial and legal issues that the proposed agreement's terms and conditions will cover.

• The law creating retail choice in electricity has special impact for apartment building owners. For example, if each tenant takes separately metered electric service directly from the utility as the "utility customer" (i.e., the apartment building owner does not submeter the electricity and does not include the electric service as part of the rent), the law gives the tenant the right to choose its retail electric service provider. The law also requires the apartment building owner to grant reasonable and nondiscriminatory access to others for metering purposes. Care must be taken in drafting lease agreements to minimize the impact of these requirements without unintentionally creating a new regulatory status for the apartment owner under the jurisdiction of the Texas Public Utility Commission.

• Similar issues exist for owners and occupants of office buildings. Tenants who are not customers of the electric utility, and therefore pay for electricity through their landlord (such as in rent, under an "allocation" methodology, or a "submetering" arrangement), will not have retail electric choice.

If a company's load and consequent electrical operating costs are significant — and it has not already selected a new electric supplier for 2002 — our law firm, an independent energy consultant, or in some cases both, could beneficially assist the company in developing a new electric supply arrangement. Strasburger is already working with clients on new power supply arrangements.

For further information on these regulations, feel free to contact Tom Anson at tom.anson@strasburger.com or Beth Tiggelaar at beth.tiggelaar@strasburger.com.

     
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