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ERCOT Scandal Just One of Five Utility Issues Sunset Commission Needs to Consider, Consumer Groups Say

July 12, 2004

ERCOT Scandal Just One of Five Utility Issues Sunset Commission Needs to Consider, Consumer Groups Say

Commission to Hear Testimony Tuesday on Effectiveness 
Of Public Utility Commission and the Office of Public Utility Counsel

AUSTIN – Texas consumer advocacy groups say the ongoing Electric Reliability Council of Texas (ERCOT) scandal should not shift attention from other critical consumer issues when the Sunset Advisory Commission begins its review of the Public Utility Commission (PUC) tomorrow.

The consumer groups identified additional reforms needed to protect the state’s nine million customers from abuses by electric utilities.

“The Sunset Commission needs to act now to protect residential and other small consumers in the electric market,” said Tom “Smitty” Smith, director of Public Citizen’s Texas Office  “We’ve seen a dramatic increase in electric bills. And key price protections in both electric and telephone service are set to expire next year. Consumers also ought to be concerned about a perilous proposal to abolish the Office of Public Utility Counsel and other rollbacks of consumer protections.”

Rate Protections Need Consideration

Since deregulation began two and a half years ago, the average monthly electric bill for residential electric customers who have not switched providers has increased 22 to 34 percent, depending on where customers live, said Tim Morstad of Consumers Union’s Southwest Office.   Eighty-five percent of residential customers in areas open to competition are paying these higher rates.

Morstad said that protected rates in both the electric and telephone markets are set to expire next year. This could result in unregulated monopolies.

“Neither the electric nor the telephone markets are sufficiently competitive for small customers,” Morstad said. “The Sunset Commission should consider these rate issues now, before it’s too late.”

Preserve OPUC

Consumer advocates are particularly concerned about a recommendation by the Sunset Advisory Commission staff to abolish the Office of Public Utility Counsel (OPUC).

“The Office of Public Utility Counsel is the leading consumer voice fighting increases in electric and phone rates and poor service,” said Morstad.

A small 20-person agency, OPUC was created by the Legislature in 1983 to independently advocate on behalf of small utility customers in important utility matters. It was created in an effort to balance out the big utility companies who spend millions on lawyers and lobbyists to represent their interests.

“Residential and small business utility customers in Texas deserve nothing less than the independent, non-conflicted advocacy performed by OPUC,” Morstad said. “Instead of abolishing OPUC, it should be strengthened.”

OPUC now plays a critical role at both ERCOT (as a voting member of the ERCOT board of directors and through participation at the committee level) and the PUC. Morstad called for more resources to be directed to the agency.

ERCOT Needs To Be Fixed

The ERCOT scandal is just one symptom of the problems with electric utility deregulation in Texas, said Carol Biedrzycki, executive director of Texas Ratepayers’ Organization to Save Energy (Texas ROSE).

“The bottom line is that ERCOT needs to be fixed,” Biedrzycki said. “One fix is to put ERCOT under the direct supervision of the PUC and to require ERCOT to comply with state open meetings and open records laws.”

Recent reports and allegations of contract irregularities and a lack of accountability at ERCOT have many convinced that ERCOT is out control. Biedrzycki said ERCOT should be put under the direct supervision of the PUC immediately.

“ERCOT members, board members, and employees under investigation for improper conduct or failure to comply with any state or federal law or regulation should be prohibited from participating in the decision making process or working at ERCOT,” Biedrzycki said.  “Parties who misuse the system or interpret laws and regulations to suit their own needs should be excluded from participating at ERCOT.”  

Consumer advocates urged the Sunset Commission to make the following additional recommendations for changes at ERCOT: 

  • Define conflict of interest for ERCOT employees and independent board members consistent with the standards applied to PUC employees and commissioners.  
  • Create an independent board with at least half of the members representing consumers. 
  • Cap the ERCOT administrative fee at 25¢ per megawatt hour by 2007.
  • Eliminate all spending not directly related to the operation of the grid or the retail market.
  • Subject ERCOT to the open records act and open meetings act. 
  • Define “competitively sensitive information” using the standards established under the Public Information Act and require all parties to make a factual showing that disclosure of the information would result in “substantial competitive harm.”
  • Prohibit the expenditure of the administrative fee on penalties and in court proceedings where the court finds in favor of the opposing party. 
  • Establish mandatory penalties for violations of the ERCOT protocols and the PUC rules by market participants.

Cheaper And Cleaner Ways To Provide Energy

The consumer groups also urged the Sunset Commission to recommend the PUC work more aggressively to take advantage of the state’s tremendous renewable energy resources.

“There are four big steps the state and the PUC can take to get more of the state’s wind power to market and help reduce high electric bills,” Smith said.

First, the Sunset Commission should recommend the Legislature increase the state’s current mandate to obtain three percent of the state’s energy from renewable sources such as wind power by 2009. The new goal should be getting 15 percent of energy from renewable sources by 2015 and 20 percent by 2020, Smith said.

“We also need the commission to recommend the PUC act now to get more transmission lines to the windiest areas of the state so we can get more clean, cost-effective wind power to the cities,” he said.

Smith said the commission also should recommend the state reduce the amount of energy used by 1% each year and that air pollution be reduced more to ensure the air in Texas’ cities is safe to breathe.

Are Low-Income Consumers Better Off Under Deregulation Than Under Regulation? 

“Low-income customers are particularly worse off under deregulation,” Biedrzycki said.

She said the increase in electric bills has hurt low-income households, who on average spend 13% of their total income on energy utilities, compared to 3% for average income households.  Almost a half million Texas households with incomes below 50 percent of the federal poverty guideline spend 47 percent of their total household income for energy utilities.

“While the price to beat rises, credit scoring by retail electric providers with lower prices locks low-income households out of the market where lower electric rates may be available,” Biedrzycki said.

She said the state’s LITE-UP TEXAS rate discount and Low-Income Weatherization Program were intended to benefit more than a million households living at or below 125 percent of the federal poverty guideline. 

“This program, the only benefit for low-income families in the move to deregulation, was decimated,” she said.  As a result of changes in funding approved by the Legislature, benefits were abruptly ended in April 2004 to more than 350,000 of the 700,000 low-income households enrolled at the time.

Are Our Consumer Protections Adequate?

The consumer groups said the Sunset Commission should recommend the repeal of several changes to PUC consumer protection rules that hurt consumers but help utilities pad their profits.  These include a loophole in the reconnection rule that could allow a consumer to be without power for a full four days.

“The big question is whether consumers in Texas are better off today than they were before deregulation,” Smith said.  “Unfortunately, the answer has to be no.”

Comprised of 10 state lawmakers and two citizens, the Sunset Advisory Commission will make recommendations for the 2005 Legislature regarding the ongoing need for the PUC and OPUC, while offering possible changes in each agency’s role and functions.

“The Sunset Commission review process has led to major reforms in utility regulations over the last 20 years,” Smith said. “It’s time once again for this commission to stand up for consumers.”