TXU's Jim Burke: July and August Could Be An "Issue" for Some REPs Due to Higher ERCOT Caps, Cites Margin Pressure

Texas retail electric providers will be challenged to preserve margin in a rising cost environment, and July and August could be an "issue" for certain retail electric providers, TXU Energy CEO Jim Burke said during an earnings call yesterday.

Burke said that the market is starting to see power prices turn higher in 2013, from peakier July and August pricing due to the increased wholesale market price cap, as well as from increased TDU charges

"The whole retail marketplace is going to be looking at how does it maintain margin in a rising cost environment, both wholesale and wires," Burke said.

Burke reiterated that TXU would continue with its more conservative approach by hedging further out than some of its competitors.

"July and August could be an issue going forward for some of the market participants," Burke said.

Asked if the cost pressures mean that investors should think about margins coming in on the low end of the 5-10% range, Burke said that while he's not sure a decline to the low end of that range is in the immediate future, "I think that's where the market is trending towards."

"There's clearly some [REPs] that are working on the very low end of that range. We're going to try and be on the upper end for as long as we can, but that's the way the competitive market unfolds; customers have more choices now than they've ever had," Burke said.

"Our strategy has been a premium brand approach, and that's why we spend as much time on the service and the functionality that we provide customers," Burke said.