Open Pedernales co-op to retail competition

The

recent announcement of a settlement in the breach of contract dispute between the LCRA and Guadalupe Valley Electric Cooperative provides no comfort to other LCRA wholesale electric customers, like the Pedernales Electric Cooperative, that will bear the cost. As a Pedernales co-op board director, I am concerned that a settlement of the Guadalupe complaint will serve as the model to settle similar lawsuits against the LCRA and raise electric rates to our 200,000 memberowners. In my view, the complaints of some LCRA wholesale electric customers reveal inherent flaws in the LCRA’s business strategy for surviving in the competitive Texas electric market.

In 2008, the LCRA offered revisions to its wholesale power supply agreement that gave wholesale customers that agreed to the new contract terms the flexibility to purchase some of their power from other suppliers — load reduction — among other things. At first blush, this was an important innovation for the LCRA. It allows wholesale customers to shop around for lower prices and has produced significant savings for some consumers. Additionally, the LCRA agreed to cooperate with its customers in the development of “Progressive Power” programs that promote energy efficiency and encourage retail customers to adopt decentralized generation sources, such as rooftop solar, fuel cells and advanced battery storage technologies.

As the recent legal disputes illustrate, load reduction is a less than ideal way to let wholesale customers take advantage of the competitive market. It pits all LCRA customers against one another. By reducing the amount of their load served by the LCRA, wholesale customers shift costs to those that don’t exercise this option.

Earlier this year, the Guadalupe co-op and several other wholesale customers notified the LCRA of a breach of the wholesale power agreement and said they intended to terminate the contract.

Settling the disputes with the Guadalupe co-op and other customers that have not agreed to the revised contract would raise fresh questions for the Pedernales co-op and other customers that have. Regardless of the impact on Pedernales of the current disputes and their resolution, load reduction and other provisions of the wholesale power contract remain problematic. For this reason and the appeal of retail open access, I believe that it is in the interest of Ped- ernales’ member-owners to begin the transition to full retail competition. Under the retail competition regime in Texas, Pedernales could decide to be one of the suppliers from which our members could choose to purchase electricity, or we could decide to exit that business. In either case, Pedernales would continue to deliver the electricity our members purchase from whichever supplier they may choose.

The telephone and computer industries provide examples of how technological innovation and competition transform businesses forever.

The incumbent market leaders either attempted to exercise their formidable market power to maintain their monopoly positions or underestimated the significance of the innovations that ultimately resulted in the development of the cellphone, the personal computer and the Internet. In the end, they had to adapt to the new technologies and competitive markets to survive.

In the electric industry, wholesale and retail competition and technological innovation are driving the introduction of new products and services, and decentralization similar to that of the telephone and computer industries. New jobs, business opportunities and whole new industries have emerged as a result of innovation and market structures that encouraged competition.

I believe it is time for the Pedernales co-op to open its system to retail competition and provide our memberowners access to new choices for their electricity supplier and related products and services, including the decentralized technologies that enable consumers to produce and sell electricity into the market.

The steady pace of cost reductions in solar energy technology, for example, is making small, on-site solar installations increasingly affordable.

These new technologies and the competitive market structures that allow them to flourish will lead to increased energy security and democratization of our energy supply, giving rise to new businesses and jobs in the communities we serve.

Hopefully, the adoption of retail competition by the PEC would be seen as an opportunity for the LCRA to hone its business strategy and open a new era at that great public power organization, which has been and will continue to be a vital part of the energy picture in Central Texas.