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TXU: Power To Choose Offer Listings Distorting Market; Direct: PTC Encourages Bad Behavior, Stifles Innovation

April 26, 2016

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Copyright 2010-16
Reporting by Paul Ring •

The offer-based shopping function on the Texas Power to Choose site distorts the market, TXU Energy said in comments to the Public Utility Commission of Texas, while Direct Energy said that the shopping function encourages bad behavior and stifles innovation, and both REPs recommended, in separately filed comments, that the shopping function be removed from the site

TXU noted that, "The competitive retail electric landscape is vastly different than it was when PTC and its forerunner Texas Electric Choice shopping functions were created. At market open, the concept of retail choice was new and unfamiliar to customers, and private options did not exist to compare offers. Today, more than 90% of residential customers have made an observable choice of their retail electric provider, and in the 12 months ending March 2016 ERCOT processed 3.7 million choice transactions, which represents more than half of the approximately 7 million customers in the competitive market. REPs collectively invest millions of dollars annually to raise brand awareness and seek new innovations and value propositions that resonate with customer needs. Competition among private online shopping sites continues to grow as well, with more than two dozen vying to help customers shop for electricity plans today. For these reasons PTC is no longer necessary to support customer choice and the retail electricity market. Indeed, the persistence of the issues that have led to the opening of this project suggests that PTC actually distorts the normal forces of competition in the retail electricity market."

"PTC represents significant subsidization of retail shopping activities and, as subsidization often does, yields perverse outcomes," TXU continued. "Significant funds have been spent training customers to rely on PTC as their go-to retail shopping site, and REPs are able to leverage PTC as a no-cost channel to attract customers. While this was beneficial in the early days of the retail electricity market when the Commission sought to encourage customers to shop and REPs to enter the market, in today's mature retail electricity market the stakes and incentives inherent in PTC's shopping function drive REPs to pursue extreme strategies in order to beat out other offers to the top of the list. Many REP offers on the first two pages of PTC do not even cover TDU charges at the default 1000 kWh level. Indeed, the offers that rise to the top of PTC are often highly dependent on complex rate structures that, while valid, erode the usefulness of the average price disclosure utilized by PTC to rank offers. And, as noted by Commissioners at the February 11 Open Meeting, the Commission's insignia on PTC only worsens the risk of customer confusion, as many customers may assume that offers listed on PTC have been somehow 'approved' or otherwise vetted by the Commission."

"TXU Energy wholly supports the Commission's goal of informed customer choice. TXU Energy also believes that as long as PTC supports an offer-based shopping function there will be an incentive for REPs to optimize their offers to its parameters, and taken to certain logical extremes this can inhibit rather than inform customer choices. There are few, if any, formatting options that could mitigate the incentives created by the PTC subsidy. Moreover, as evidenced by the wide spectrum of opinions voiced in this project and its predecessor, the Commission will never be able to refine PTC to the point that it meets all stakeholder needs and wants. Therefore, given the availability of online shopping comparison tools provided competitively by REPs and other private entities, TXU Energy believes that now is an appropriate time for the Commission to sunset the PTC shopping function and reallocate its resources to more appropriate oversight and education activities that are neither duplicative nor distortive of market outcomes," TXU said

Direct Energy similarly noted that under an "unavoidable flaw" with a standardized site such as Power to Choose -- "the offers are structured to exploit the site instead of the site being flexible enough to highlight those offers that are truly the most beneficial."

"After years of refinements to the site and a great deal of thought on how to fix this problem, no solution has yet been found to prevent PTC-friendly deals," Direct Energy said.

"Meanwhile, REPs with legitimate, straightforward deals on the shopping portal -- and perhaps those offerings that reduce electric bills and benefit the ERCOT grid the most through reduced usage -- are constructively punished for not playing the misleading games because the legitimate deals are relegated to screen shots far down the list," Direct Energy said

"The commission (admittedly) will never catch up with market's ability to circumvent the latest 'fix.' The race to the bottom promotes bad behaviors," Direct Energy said

"As innovation continues, even more complex offer structures and bundles will appear that cannot fit within the shopping function of the Power to Choose. Stifling innovation is the end result, because those beneficial offerings will again appear far down the list," Direct Energy said

"Plans that bundle the electricity commodity with smart thermostats, weatherization, HVAC check-ups, protection plans and other tools to reduce usage should appear at the top of the list. These products benefit all customers in ERCOT by reducing overall electric consumption. Many of these products may carry a slightly higher per-kwh charge, but overall bills may be lower - and that is the ultimate goal for the consumer. The shopping site, however, has no capability to display overall electric costs. The posting of products on the Power to Choose shopping site is effectively limited to energy-only products, and this acts as an impediment to smart energy use and energy efficiency. Consumers' dependence on the Power to Choose shopping site may have the consequence of eliminating those products from being pursued," Direct Energy said

TXU noted that the choice education program required under PURA § 39.902, under which Power to Choose originated, specifically provides that, "The educational program may not duplicate customer information efforts undertaken by retail electric providers or other private entities."

"[T]here exists a strong argument that PTC undeniably does just that," TXU said

TXU said that Power to Choose itself should still retain its education function, such as answering questions about retail choice for new customers and emphasizing complaint information about REPs, and perhaps even provide links to REPs and private online shopping services (as these are explicitly encouraged in PURA § 39.902(c)), "but it should no longer subsidize market participants that rely upon (and in some instances abuse) its existence for their business model to work."

"While there may be some changes to the shopping function that could mitigate the prevalence of complex offers on PTC, none of them can fully solve the incentive problem created by the subsidy inherent in PTC's existence, and therefore retirement is both the most effective and the lowest cost solution," TXU said

The NRG Energy companies and Champion Energy Services were among retail providers opposing removal of the shopping function from Power to Choose, under the argument that an "unbiased" site is needed. While Power to Choose does not endorse any specific REP over others or require pay-to-play, the site clearly has a "bias" to certain product types (defaulting the view to fixed rates), and may become further "biased" if certain product restrictions and/or standard product offerings are adopted as advocated by some stakeholders. While whether such bias is appropriate and a necessary customer protection is debatable, the inaccurate description of the site as unbiased needs to stop, in favor of recognition that the site is already giving a preference to certain product types.

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