Archive for August 2008

FW: Smitherman Memorandum: Voluntary Deferred Payment Plan Programs

Chairman Smitherman filed the following memo late yesterday in docket 35973 in anticipation of today’s Open Meeting discussion….

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Last meeting I filed a memo which addressed the voluntary deferred payment programs presently offered by several retail electric providers (REPs), the current PUCT rules relating to the disconnection of power for the ill, disabled, and critical care customers, and the increase of the discount factor used this summer for low-income assistance from the System Benefit Fund (SBF). With this memo I’ll elaborate a little on those points as well as address the two petitions that are docketed on the agenda for this Open Meeting. 

Since the last open meeting, two additional REPs– Gexa Energy and Stream Energy have begun offering voluntary programs that allow low income and/or elderly customers to avoid disconnection for the remainder of this summer by paying minimal amounts on their bills. (A third, Green Mountain Energy, will be announcing a deferred payment plan today or tomorrow.)  With their addition to the three which are already offering such programs, TXU Energy, Reliant, and Direct, over 85% of low income residential customers in the competitive retail areas of ERCOT are covered by these voluntary programs. This, in my opinion, is how a market should work with retailers differentiating themselves based upon the products, service, and price that each offers. If you are with a REP that is not presently offering disconnection protection for this summer and this is a service that is important to you, then I advise you to switch to one of the five (soon six) REPs that are offering the service. 

As I previously wrote, there are numerous protections against disconnection found in the PUC’s Substantive Rules. Since last meeting, some have suggested that “critical care” customers really are not protected from disconnection. I firmly disagree. PUC Subst. Rule 25.497 speaks directly to  the additional requirements that REPs and Transmission and Distribution Utilities (TDUs) must meet to address disconnection issues for critical care customers. However, market participants often go far beyond these rules, with some companies having additional, internal prerequisites that must be met before a customer is disconnected, while other companies go the extreme and will not disconnect critical care customers. Therefore, the assertion that critical care customers are not protected is erroneous. 

As most of you know, the SBF money was not appropriated for the summer 2006. The absence of that money was one of the reasons the Commission adopted Project No. 32874 relating to the disconnection of electric service for that summer. For the summers of 2007, 2008, and 2009, the SBF has been funded. The presence of this money was one of the reasons that the Commission denied the petition for emergency rule making in Project No. 34400, last summer.

On July 9, 2008, the Commission approved an order, in Project No. 28073, setting the discount rate based upon current POLR rates rather than upon the minimum POLR rate. Calculating the discount factor in such a way required a “good-cause” exception to PUC Subst. R. 25.454(e), and resulted in a significantly higher discount for low-income customers. Based upon our calculations, the average discount per participant, beginning in July of 2008, should be almost double what it was in the summer of 2007. 

Regarding the two petitions filed requesting adoption of an emergency rule prohibiting disconnection for the remainder of this summer; I am reminded of my memo of two summers ago in Project No. 32874. Once again the Office of Public Utility Counsel (OPC), joined by Texas “ROSE”, Texas Legal Services Center, and two state representatives, has filed a petition that would cover a staggeringly large number of people-to wit, every residential customer in ERCOT, nearly five and a half million of them. Passing such a petition would be bad public policy for many reasons, but allow me to focus on three of them. 

First, Texas is home to many people with the financial means to pay their electricity bill on time.  Does octogenarian billionaire T. Boone Pickens really need to be protected by OPC?  

Second, many low-income and /or elderly customers, who availed themselves of the 2006 Commission ordered moratorium, accumulated large balances that came due in October through February which they found difficult if not impossible to pay. For example (using numbers supplied to me by one of the REPs), if a low income elderly customer had bills in July, August, and September of $265, $258, and $194, respectively, and chose to defer 100% of those bills, their new bills in October, November, December, January, and February, would be $284, $269, $306, $314, and $282, respectively. In each month, beginning in October, the new bill is higher than the monthly bills the customer apparently couldn’t pay back in the summer. In other words, on top of the normal bills due in the fall and winter, this customer also has to pay cumulatively $717 deferred from the summer. It is hard to understand how we could consider this program to be “helping” the customer. 

Third, low prices in the competitive retail market are a result of robust competition. While it is not the Commission’s job to insure a REP’s viability and profitability, it is also not right for us to foist obligations on a REP which will result in substantial losses. We know from the experience in the summer of 2006 that the REP community collectively wrote off millions of dollars in  “uncollectible” bills. This happened because many customers, who had been given a deferred payment plan, switched away to another REP without first paying off their bill to the REP who gave them credit (on average, customers who engaged in this practice in 2006 left their REP with an unpaid bill of about $900.) In my opinion, any deferred payment plan must have as a component a commitment from the customer to pay off the deferred amount.

Lastly, let me comment about the typical weather in September in Texas. Contrary to some assertions, August, not September, is the hottest month of the year; September is not even normally the second hottest month of the year. According to information supplied to me by ERCOT, over the last eight summers (2000 through 2007), September peak electricity dem and (a good proxy for air conditioning usage, and therefore heat) was less than either August, July, or June, for four of the last eight summers; in fact, for one summer (2003), September was the coolest of the five summer months. (And, as you can see on the accompanying charts, temperatures since mid August of this year have been below normal.) Don’t get me wrong, September in Texas doesn’t feel like Colorado. However, it is fair to say that once we get through August, the summer is just about over. 

There is no question that certain classes of customers should be protected from disconnections during critical summer months and this summer several REPs have “stepped up” to do so. While many customers accept their responsibility and pay off the deferred amounts after receiving the benefits of the program, any proposed mandated solution to the summer disconnection issue must not allow the deferred payment customer to avoid paying their bills. A rule on this problem should be specific in the populations that it is meant to protect, and should require that participants in the plans meet their obligations. Therefore, I propose that the Commission open a rulemaking to address these issues and do so in a deliberate and orderly fashion.

 

 

 

No Disconnect Moratorium

PUCT meeting today rejected calls for a disconnect moratorium citing sufficient existing customer protections.

PUCT Enforcement Alert!

It appears the Commission is in the initial stages of pursuing enforcement investigations against several REPs who appear to be violating 25.479(c)(1)(O), which requires that customer bills contain a “notification of any changes in the customer’s prices or charges due to the operation of a variable rate feature previously disclosed by the REP in the customer’s terms of service document.”
 
It appears several REPs have been advised by Commission staff that they appear to be in violation.  We all know what comes next.
 
I’d encourage all REPs offering variable rate products to ensure that your bills are compliant with this disclosure requirement.
 
The Commission is experiencing a flood of customer billing complaints (high bill) and have latched on to this “slam dunk” violation.
 

Dominion Energy Acquires Cirro

REP amendment filed by Cirro today…
 
 

Do Disconnect Moratoriums Actually Help Customers?

With the recent calls for the imposition of a disconnect moratorium, I thought it useful to present the other side of such moratoriums.
 
With statements like the following:  Moratorium on power cutoffs urged: Turner urges seniors to run air conditioners, not worry about paying the bills”, one has to ask the question, ”who’s going to help these people pay the resulting bills that accrue?”
 
While high bills are creating financial burdens for many people, I have not seen the media or legislators calling on gas retailers (like convenience stores) to voluntarily reduce the price of gasoline, or provide credit cards for people who need to purchase gas for their cars and who rely on their cars to get to their jobs and doctors appointments. Rather, our calls for gas price relief focus on the entities that are getting rich on the high prices, the large producers.   
 
Why are we not similarly focused with respect to electricity?  It’s easy to ask retailer electric providers to absorb the bad debt that will inevitably follow a disconnect moratorium.  While a moratorium may provide temporary relief to customers, it will not necessarily prevent any deaths nor will it change the total amount that must be paid to the retailer.  Disconnect moratoria do not even provide customers with assistance funds.   While it is popular to talk about “heat-related deaths” what isn’t generally discussed is whether electricity, or the lack thereof, has caused the heat-related death.  While it is true that air-conditioning can prevent many heat-related deaths, it is often the case that those who have died had no air-conditioning in their residence in the first place.  Even in the news storied referenced above, it was noted that “Turner’s news conference was held on the porch of 87-year-old Evelyn Maxey, whose four-bedroom, wood-frame house has no air conditioning.  ‘It’s too hot,’ Maxey said. ‘Most of the time I leave here and go up the (Acres Homes Multi-Service) Center. By the time I get cool, around by 4 or 5 o’clock, then I open up my doors and put my fans on.’”
 
Disconnect moratoria do not help customers, they merely allow customers to dig themselves into a hole, from which many of them will not be emerge.  In the end, the customers will likely end up without power and will owe their retailer a large bill.  While these customers may be able to establish service with a different REP by paying a deposit (that costs less money than the amount they owe to the retailer that disconnected them), in the end, it’s all of us who pay.  Why?  If REPs are continually asked to cover the bad debt expense created by these types of moratoria, they do so by raising the rates that all of us pay.  Rates are high enough.  Wouldn’t it be better if sufficient assistance funds were available to help customers pay their bills?  Some may argue that many retailers are part of corporations that are reaping huge profits from their generation operations, so why not make them absorb retail losses?  Well, many retailers don’t own or control generating assets, so they aren’t making money from that side of the business.  They have to rely on profits from the retail business to survive.  And, as we have seen from the earnings announcements in recent weeks, the retail side of the business in Texas is a money-losing proposition.  By forcing retailers to absorb even more losses by the imposition of disconnect moratoria, all that will happen is we will further shrink the field of retail competitors to the large corporations that have the funds to own generating assets and can absorb losses from their retail operations.  Is that the kind of competition we want?
 
Instead of calling for disconnect moratoria (which won’t necessarily prevent any deaths), why aren’t there more calls to fund the “one-time bill payment assistance program” that was created by the Texas Legislature.  The “one-time bill payment assistance fund” is one of the stated purposes of the System Benefit Fund (SBF), yet the Texas Legislature has failed to allocate funds for this purpose, opting instead to use the excess SBF funds for general revenue purposes.  The SBF also funds the low-income discount and energy efficiency programs and provides customer education funding for the Public Utility Commission of Texas. Funding the one-time bill payment assistance program program would not increase customer bills because customers are already paying the System Benefit Fund fee as part of their retail rate.  It would merely allocate the SBF receipts for their stated purposes.

Bill Payment Trouble…

 

Found the following story of interest in light of the recent calls for a summer disconnect moratorium….
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Power shutoffs soar as more residents can’t pay bills

With winter drawing closer, Congress looks at ways to boost energy assistance

By RICHARD SIMON Los Angeles Times, Aug. 9, 2008, 6:22PM

WASHINGTON — Utility shutoffs for customers behind on their energy bills are increasing around the United States, reaching 50 percent or more in some hard-hit areas, as the effects of rising prices and a sagging economy are beginning to drag down more vulnerable consumers….

 

Looks Like First Choice Power is For Sale…


PNM Resources Announces Second Quarter Results, Steps to Strengthen Financial Position

Volatile Texas market affects First Choice Power
Non-cash impairment charges of $140.7 million impact GAAP earnings
Dividend reduced, earnings guidance provided

ALBUQUERQUE, N.M., Aug 11, 2008 /PRNewswire-FirstCall via COMTEX News Network/ — PNM Resources (NYSE: PNM) today reported unaudited 2008 second quarter consolidated GAAP losses of $143.5 million, or $1.76 per diluted share, compared with earnings of $20.2 million, or $0.26 per diluted share, during the same period in 2007. Unaudited, consolidated quarterly ongoing losses were $7.4 million, or $0.09 per diluted share, compared with earnings of $15.1 million, or $0.19 per diluted share in 2007. Reconciliations of GAAP to non-GAAP measures are shown in the attached schedules 1-11.

GAAP earnings include non-cash impairment charges totaling $140.7 million, after income tax impacts. The charges, which are the result of the annual review of the fair market value of intangible assets, primarily goodwill, were recorded at three subsidiaries – PNM, TNMP and First Choice Power. The charges do not impact liquidity or the rate bases of PNM and TNMP. EnergyCo has decided not to pursue expansion of the Twin Oaks Power facility, which also resulted in an impairment charge.

Quarterly earnings also were affected by the performance of First Choice Power and the impact of volatile prices and higher purchased power costs within the Electric Reliability Council of Texas market.

“Excluding the impairment charges, we saw improved performance at PNM in June as new electric rates and the emergency fuel clause went into effect,” said Jeff Sterba, PNM Resources chairman and CEO. “Our baseload power plants continue to show better availability and TNMP had a solid quarter. Our disappointing second quarter and year-to-date results also are associated with First Choice Power, which struggled in the Texas market, given volatile natural gas and wholesale power prices.

“After a comprehensive review of our overall business, we have decided to pursue strategic alternatives for First Choice Power,” Sterba said. “We remain committed to the Texas market structure and believe in the First Choice Power business model. However, given the challenges we face in restoring financial health to our PNM utility subsidiary, we believe First Choice Power could have more value to another market participant.

“Considering the pending sale of the gas business, our First Choice Power strategy and as we work to restore the PNM utility to financial health, the PNM Resources Board of Directors has reduced the indicated annual dividend payment to $0.50 per share, from $0.92 per share,” Sterba said. “While this was not an easy decision to make, it is a prudent step to improve our liquidity and set a new foundation for long-term value creation.”

 
Patricia Dolese
Regulatory Compliance Services
512-275-6442 (office)
512-656-3185 (mobile)
866-929-2860 (fax)
 

Brief Summary of Staff Disclosure Proposal

From staff’s cover memo: 

 

 As proposed, the draft:

·         Allows four types of products (all include recurring TDU charges):

Guaranteed fixed– price and term cannot change; minimum 6 month term;

Limited fixed–term cannot change, price can change based on TDU charges, ERCOT Admin or TRE fee, and law or rule change; minimum 6 month term;

Variable- A retail product for which price may vary according to a method determined by the REP; may be month to month or longer term; and

Indexed—must have a pre-defined pricing formula that is based on publicly available indices or elements; may be month to month or longer term.

·         Clarifies that price, pricing methodology and contract period cannot change even with 45 day advanced notice for guaranteed or limited fixed price contracts or variable and indexed contracts with contract periods exceeding 31 days.  

·         Adds clarifying questions to the Electricity Facts Label to provide a clearer understanding of the contract terms.

·         Removes fuel mix disclosures.  Requires only the renewable energy mix to be disclosed on the EFL.  Moves emissions and fuel mix calculations to a separate document available upon request.

·         Requires REPs to list the customer protections that  small commercial customers are waiving and to inform the customer that the customer have the right to choose a product from a REP that does not require a waiver of these rights; and 

·         Requires customer to submit reasonable proof of moving to another location to  avoid termination penalties for ending the contract early.”

 
Also noted by a quick review:
  • provisions for contract expiration notices
  • provisions for contract renewals
  • requiring submission on a quarterly basis to the PUCT of all TOS/EFLs marketed/used by a REP
  • identifies some examples of FUMDA activities
  • Lengthens the time a TOS must be maintained (to 4 years after end of contract)
  • Requires retention of EFL calculation methodologies for 4 years after end of contract
  • Requires proration of early termination fees after three quarters of the term has expired as long as customer is current in payment of all charges

Staff’s Disclosure Rule Draft for Publication is now available…

Staff has filed their draft rule for publication (docket 35768).  There have been some significant changes from the strawman that was last seen.  A summary of key changes will follow soon.  The rule will be discussed at next week’s open meeting.

State Senator Files Disconnect Moratorium Petition…

State Senator Juan Hinojosa filed a petition to adopt an emergency rule to suspend disconnection of electric service (by both REPs and regulated providers) due to extreme and persistent heat.  Filing (docket 35973)  is not yet available for viewing online, but I would expect the PUCT to discuss at next week’s Open Meeting.