New Rules for Texas Electric Deregulation

In August of this year, state regulators have tightened the reigns on guidelines and rules for Texas electric retailers that deeply benefits the consumers and makes retailers face stricter financial standards to remain in operation. From the implementation of these new rules, Texas electric customers will be allowed a 14-day minimum notice before their contracts expire. Additionally, the Texas Public Utility Commission reduced the time it takes to change electric providers from up to 45 days to no more than 7.

Texas regulators decided to make these deregulatory changes in a direct response to problems stemming from last summer's loss of several electric companies after the wholesale power markets spiked. Loss of such companies caused Texas consumers to switch to plans with other electric providers, sometimes at significantly higher rates. It is worth mentioning that this occurred during some of the hottest weeks of 2008.

The New Rules

In order to remain in compliance with the new industry standards, electric retailers will now be required to maintain at least $1 million in equity. Additionally, they will also be required to show proof of investment grade debt ratings or that they hold at least $500,000 letters of credit. (Before, it was just $100,000.)

The changes don't come to just financials, either. The new rules also stem into the management branch of the electric companies. It is now required that company management have a specified amount of experience (in years) in the industry. To tighten the rules even further, regulators have mandated that someone on the Texas electric company staff must also have experience in both risk management and commodity hedging.

These requirements are based on the fact that many of the companies that went out of business in 2008 relied too heavily on a balancing market. The Texas power industry, though relatively small, can be quite volatile with drastic jumps. These businesses lost when they posted collateral based on the market which jumped causing the capital requirement to spike as well. It was a challenge that a handful of electric companies simply were unable to meet.

What Customers Will Note

The new rules for Texas deregulation will not only affect customer rights and companies from being sucked into the virtual black hole of a fluctuating market; it will affect the wording on their contracts and bills as well. Part of the new rules requires that the contract expiration be clearly explained and identified. The rules also require companies to clearly spell out fees, costs, and electric rates right on the monthly bill.

Though some Texas electric companies won't have to do much, as a few have already adopted such tactics before the rules became official, others will have plenty of work before them. The standardized communication will help consumers become better customers and improve their ability to compare one electric company to another.

What the Texas Public Utility Commission Does

The Texas Public Utility Commission (PUC) is responsible for regulating terms and rates for intrastate transmission services and distribution in relation to customer choice. It also monitors and oversees the market, fees, and industry standards. The PUC is also responsible for protecting the consumer through the adoption and enforcement of retail competition and renewable energy rules.