Is consumer protection lacking in Texas retail electric power market?

Michael Giberson

The Dallas Morning News has published an in-depth story detailing the apparent lack of effort put into consumer protection issues in the restructured retail power market in Texas. The story focuses on the prepaid end of the business, which mostly services customers lacking established credit and unable to post a deposit.  Rates tend to be much higher, cutoffs happen more quickly, and complaints are more numerous than for standard retail service.

Retail electric power providers have to be licensed by the state – yes, even in competition-crazy Texas – and there is some question about how diligent the state has been about policing the parties to whom they grant licenses.  (“Consumers filed 54,356 complaints against electric providers from July 2002 to May 2009. PUC staff found rule violations in 11 percent of those and made only 34 attempts to seek sanctions.”)  Still, the story provides relatively little evidence of company rule violations that imposed hardships on consumers.  Mostly, the story illustrates the hardships that come with poverty, a difficulty in paying for power service being among those hardships.

The two customer hardship cases described in the story – a heart patient who relied upon an oxygen machine, a paraplegic – both lost power after failing to make payments.  The article mentions that the heart patient’s power retailer was Freedom Power – subject of many, many customer complaints and perhaps not qualified to hold a license under state standards – but the article doesn’t link the heart patient’s troubles to any shady practices.  The paraplegic customer’s power company was among the five companies bankrupted by high wholesale power prices, but he only lost power after he failed to pay a deposit to the new company to which he had been assigned by the state’s transitioning policies.

The article quotes Texas PUC chairman Barry Smitherman as saying, “prepaids, like any other provider, must abide by the disconnection rules despite any difficulties it might pose… you have to understand there are going to be periods of time when you are going to be giving power away.”  But retail power providers ought not to be made into part-time charitable institutions when customers are unable to pay bills.  If a consumer fails to pay a bill, the consumer should expect to lose service.

Maybe actual charitable institutions should devise a low cost service for Texans unable to pay for the power they use, or maybe local government could fund the service.  Forcing retailers to take the risk that they’ll be required to “give power away” adds to the costs of serving the prepaid market and pushes up rates for other prepaid customers.

No doubt there are problems in the retail power market in Texas – it would be surprising to have no problems in such a large industry with so many participants operating under relatively new rules.  But this news article mixes in stories about the hardship of being poor with problems of PUC licensing review, various other regulatory policy discussions, and numerous but not-well-detailed customer complaints. With 54,356 complaints filed over the past seven years, couldn’t the Dallas Morning News come up with at least a case or two of real consumer hardship caused by shady power retailer practices?

Reform of the state’s consumer protection rules can’t do much about poverty, the problem is larger than utility rules can deal with, but the rules can and should help protect consumers from bad operators.  If existing rules are inadequate, they ought to be changed.  The story doesn’t inform us of how consumers have been harmed by existing failures of the rules or even the failure of the PUC to enforce existing rules.

The story is just the first of a two-part series.  Maybe the real substance is in part two.


4 thoughts on “Is consumer protection lacking in Texas retail electric power market?

  1. I see this as a problem of supply and demand for news. People are not willing to pay enough to fund journalism by people who actually understand the issues they are investigating (as this reporter seems to have misunderstood) and so they get news in the form of the blind leading the blind (to mix a metaphor.) Fortunately, we have the occasional TTU Prof willing to set the record straight. I guess that’s a cross-subsidy from the education to the journalism sector.

  2. Tom, “set the record straight” may be too generous. I’m mostly just complaining. Funny thing is when I first read the story I thought, “wow, that is a lot of information and they really brought in a lot of voices and different perspectives,” and started to post highly complimentary remarks.

    Just, as I worked out what I was trying to say, it increasingly dawned on me that there was a serious disconnect between the implied story (bad consumer protection practices at the PUCT resulting in sometimes serious harms to consumers) and the reported stories (it is difficult to get by when you are poor; not paying electric bills can lead to loss of power; PUC appears lax in enforcing some power retailer licensing requirements; some Texas politicians want more consumer protection authority).

    So the content of my remarks changed as I edited.

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