NRG-Direct Energy deal worries advocates
NRG Energy, one of the biggest electricity sellers in Texas, said Friday that it bought Britishowned Direct Energy for $3.6 billion in cash, a move that if approved by regulators would further consolidate Texas’ retail electricity market under the banner of NRG, raising concerns that prices will rise.
Direct Energy, which is owned by U.K.-based Centrica, is the third-largest seller of electricity in Texas and controls about 10 percent of the market. The deal would add 3 million retail customers to NRG in the United States and Canada, nearly doubling its footprint, and would open a new market for retail natural gas sales in the East.
NRG, headquartered in Houston and Princeton, N.J., sells electricity under brand names such as Reliant Energy, Green Mountain Energy and Discount Power. It has been aggressively buying competitors in Texas, including low-cost provider Texans Energy in May and the retail power and natural gas business of Dallas-based Stream Energy last year.
NRG has been jockeying with Vistra Energy to be the No. 1 electricity seller in Texas. Irving-based Vistra last year bought Connecticut retail power seller Crius Energy — and its TriEagle Energy and Viridian Energy brands — for $378 million and assumption of $108 million in debt.
The combined company would control about 75 percent of the competitive Texas market, a figure based on estimates of market size from securities filings and company presentations.
The growing consolidation concerns some consumer advocates. The Texas Coalition for Affordable Power, a group of cities that buys power in the deregulated market, says the shrinking market for retail electricity is a sign that the two-decade deregulation effort might not be working as the Legislature intended.
“It is hard to claim that competition is vibrant if so much of the market will be controlled by just two firms,” general counsel Geoffrey Gay said.
And it’s difficult to see how pric
es wouldn’t go up, said Paul Paras, who heads marketing and operations for energy concierge company Real Simple Energy in Houston.
Not only would there be fewer electricity sellers that might be less inclined to offer enticing discounts, but the marketing might of two huge players could prove difficult for consumers to resist, he said. The providers would likely add new promotions such as gift cards, home security monitoring and remote-controlled thermostats to prevent customers from canceling as contracts expire.
“That stuff costs money and will escalate over time,” he said. The promotions are effective at keeping customers but also drive up prices, Paras said.
The cheapest power
plans in Texas are about 6 percent more expensive this year, according to data compiled by Real Simple Energy. A year ago, customers could buy a fixed-rate plan for about 8.5 cents per kilowatt hour, but now those plans cost slightly more than 9 cents per kilowatt hour.
The threat that regulators might halt NRG’s deal over claims of higher prices and less competition doesn’t concern CEO and President Mauricio Gutierrez.
“I’m not worried about that,” said Gutierrez in response to an analyst’s question Friday about shrinking competition. Texas is a highly competitive market with a low barrier for more competitors to enter, he said.
Texas has 91 retail electric providers, including 44 that registered with the Public Utility Commission since 2015, according to the agency that regulates the business. The providers offer leverage
to electricity customers looking for the best deal from contract to contract, PUC spokesman Andrew Barlow said.
“Competition is alive and well in the Texas retail electricity market,” he said.
If, however, regulators disagree and reject the sale or if it isn’t completed within a year, NRG has agreed to pay Centrica a termination fee of $180 million, the U.K. company said. Centrica, meanwhile, agreed to pay NRG a fee of $30 million if the British company withdraws from the deal. Centrica also agreed not to solicit any other offers but is permitted to consider unsolicited proposals, according to regulatory filings.
Centrica shares on Friday closed up 17 percent at $60.33 while NRG shares rose 3 percent to $34.19.