Some of Texas poorest power customers may find themselves tangled up in new regulations that allow electric companies to shunt them to a high-priced provider of last resort.
Some of Texas poorest power customers may find themselves tangled up in new regulations that allow electric companies to shunt them to a high-priced provider of last resort.
Mark Graham

Power Sharks

For Dallas homeowners and apartment dwellers, the dawn of electricity deregulation on January 1 will bring an immediate 6 percent rate cut and the chance to sign up a company besides TXU that can beat the former monopoly by a few dollars a month.

But for the working poor and shaky billpayers whose ranks could swell with rising unemployment, the marketplace could have something else in store.

Pimp-high rates--and even predatory providers like the ones already at work in the credit and telephone businesses--are in the offing under the system being installed by state regulators in Austin, consumer advocates say.

"The people who need a break the most will have to pay the most," says Randy Chapman of the Austin-based Texas Legal Services Center. "The analogy I like to use is, imagine if you got all the drunk drivers together and let the market set their insurance rate. You can imagine what it would be."

At issue is the treatment of customers who utilities do not want, and it is covered by an obscure element of deregulation known as the provider of last resort, or POLR. When the Legislature passed deregulation in 1999, it wanted to ensure that nobody could be disconnected for late payments or unpaid balances. So it authorized the Texas Public Utility Commission to designate a utility as the POLR. If your company doesn't want you anymore or it decides it wants out of the market, it will send you to the POLR. Which is no place to be.

In the Houston area, for instance, TXU negotiated a contract with the state to become the POLR for that area. For those unlucky enough to become its customers, rates will be 50 percent higher than the rate charged by Houston's former monopoly, Reliant Energy.

In the Dallas area, which is split into two zones, state utility regulators are considering installing two companies as POLR providers, Reliant Energy in one and American Electric Power in the other. The proposed rates for those will be about 20 percent higher than what TXU will charge.

"Just as we can pick our provider, the providers can pick us," says Kimberly Olsen, with ACORN, a community organizing group in Dallas. "We're setting up a system unique to Texas where all the undesirable customers are funneled to a provider of last resort." Olsen, who is organizing to take people to Austin for an October 15 hearing on the Dallas POLR contracts, says the system is apt to be the toughest on the working poor, because people on state assistance will be eligible for 10 percent rate discounts when deregulation begins.

Brett Perlman, a PUC commissioner who voted to approve the POLR contract for the Houston area, says he disputes the notion that poor people will end up with POLR providers. "I've been out to a number of community groups in South Dallas interested in [deregulation], and they're very savvy customers. Second, POLR services were designed to be temporary services if your provider goes out of business and for those customers disconnected for nonpayment."

He says the Houston contract was negotiated last winter, when electric rates were climbing because of the cost of generating fuels such as natural gas. Fuel prices have declined since then, the state is able to negotiate lower rates for the Dallas-area POLR companies and is likely to revise the Houston-area one.

Chris Schein, a TXU spokesman, says POLR providers need to charge more because they have no way to plan how many customers they will be serving in a given time period. If a company goes out of the market--as Shell Energy did during a Texas pilot project--and dumps 40,000 customers onto the POLR, it will be forced to buy power at higher prices on the spot market.

As for existing residential customers in Dallas, which TXU will continue to dominate after deregulation, he says the company plans to do everything it can to keep customers, not lose them to another utility. "Every utility is going to do it differently," he says. "All you need to do is work out a payment plan and work with us to avoid being migrated over to the POLR."

TXU disconnects about one percent of its 2.5 million residential customers for nonpayment each month, according to state statistics. And under deregulation, those will go to the POLR, which will be allowed to request a two-month deposit and impose a set of fees that Chapman says "even the banks couldn't think of."

Danielle Jaussaud, PUC director of market analysis, testified before the commission last month that the POLR "is expected to serve a disproportionate percentage of bad credit customers, and its exposure to credit risk is expected to be high." Under state rules now in place, the POLR can demand two months of payment in advance and disconnect service if it isn't paid within 10 days.

Of course, if the customer had that much money in hand, he never would have been disconnected and bumped to the POLR in the first place.

So consumer advocates, regulators and utilities alike predict a new species of company is likely to emerge. "There's a danger of a class of provider coming into the market just to make money off this class of customer," says Carol Biedrzycki, executive director of Texas Ratepayers Organization to Save Energy. "They'll be like pimps charging rates you have no business charging. There will be predatory pricing for people who have few options available to them."

Schein, with TXU, says no doubt there will be companies that try to price themselves into the market using things such as week-to-week payments. "You see it in telephone service, cars, furniture, credit," he says.

Perlman says the unregulated marketplace already has sparked "phone sharks." "One of our jobs will be to see that doesn't happen" with an even more essential service such as electricity, he says. "There will be companies trying to design products such as prepaying for power at the grocery story or paying week to week, whatever a budget can afford," he says. "These could be priced competitively with what other people in the market are paying, perhaps less."

In the real world, rent-to-own, payday loans and pay-by-the-week plans aimed at the poor and uneducated typically come with predatory prices and sky-high hidden fees. There's no reason to think unregulated power providers will have bigger hearts.


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