Bill aims to deter monopoly-like control

Bill aims to deter monopoly-like control

Apr. 18--AUSTIN -- By R.A. Dyer, Fort Worth Star-Telegram, Texas Knight Ridder/Tribune Business News

Protecting Texans against unfair utility bills, spurring electric competition, and shoring up the state's defenses against a California-style power meltdown is the goal of proposed legislation now before the Texas Legislature.

But some electric companies say thanks, but no thanks: the proposals would needlessly complicate the deregulated utility market and hurt business, they say.

"If it ain't broke, don't fix it," one utility official said.

Welcome to the esoteric battle over "market power"-- an arcane conflict within the already obscure world of electric deregulation. In a nutshell, market power refers to the monopoly-like control that electric generation companies sometimes have within regions of Texas.

Almost everything that went bad during California's confused bid to deregulate electricity had to do with the abuse of market power, says utility analyst Clarence Johnson. The problem is technical, but it's also extremely important to anyone who runs an air conditioner or pays a light bill, he said.

"California opened people's eyes to the fact that market power can be exercised very aggressively, and that can cause extreme increases in prices," said Johnson, an analyst at the state Office of Public Utility Counsel.

Here's the background: Under current electric deregulation law, adopted in 1999, no utility can control more than 20 percent of electrical generation within the statewide market.

The fear was that if any one company controlled too much of the electrical generation, it could exercise "market power" throughout the state. For instance, any company that controls a large portion of the power plants in a region could drive up electric prices by shutting a few of them down.

But in recent years, the state has created several distinct regions for its wholesale electric market -- the north, northeast, west, and south, and around Houston. The new legislation -- Senate Bill 764 by state Sen. Kenneth Armbrister, D-Victoria, and House Bill 2724, by state Rep. Kino Flores, D-Palmview -- bars any utility from controlling more than 20 percent of electrical generation within these smaller distinct regions.

If a utility goes over the 20 percent cap, it doesn't have to divest itself of its power plants by selling them off. Instead, the legislation allows the utility to sell off temporary control of some of its generation capacity.

Utility attorney Geoffrey Gay said the legislation will help keep a lid on wholesale electric prices in North Texas -- where TXU controls about 40 percent of the generation -- or in West Texas, where it controls about 45 percent.

Moreover, TXU's separate retail company also buys much of the power in those regions, Gay said. "Between what the [retail company] is buying up, and what the generation company owns -- they have a stranglehold on the production and control of power in the area," Gay said.

But TXU officials say the legislation is unnecessary because regulators already sanction companies who abuse their position. TXU also denies that it can sustain control over wholesale prices.

Don't be snookered, said company spokeswoman Kim Morgan: HB 2724 and SB 764 will harm the market by creating more uncertainty. Would-be utility investors might cancel plans for new power plants because of the changing rules, she said.

It could also undermine wholesale electricity contracts, Morgan said. "The market has already developed well over the last two years, and market forces are already in place to prevent any kind of market power abuse," she said.

With control of more than 20 percent of the generation in the north zone, the northeast zone and the west zone, as defined by the Electric Reliability Council of Texas, TXU is no stranger to the market power debate.

In a report issued earlier this year, the Texas Public Utility Commission noted that TXU's dominant position raises questions about the future of deregulation. While the PUC found "no egregious behavior" by TXU, it said the company's actions can reverberate throughout the state's wholesale market.

"This report reveals issues that are in fact more complex -- yet no less important -- than whether any action taken by TXU was inappropriate," the PUC stated in the 33-page report. "These issues have to do with the design and functioning of the competitive wholesale electricity market, as envisioned by the Legislature."

In an unsuccessful lawsuit, a bankrupt competitor also accused TXU of abusing its market position and driving it out of business. A similar lawsuit pending in federal court accuses TXU, Houston's Reliant Energy and others of abusing their positions.

Although most residential electric customers pay a frozen, regulated rate -- and are protected against price fluctuations -- that price protection will evaporate in 2007. Market power abuses can also drive up the cost of residential electricity charged by smaller electric competitors -- which means those competitors have a harder time attracting customers.

HB 2724 is pending in the House Regulated Industries Committee. SB 764 is pending in Senate Business and Commerce Committee.

ONLINE:

www.puc.state.tx.us

-----

To see more of the Fort Worth Star-Telegram, or to subscribe to the newspaper, go to http://www.dfw.com .

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. TXU,