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Texas Power to Focus Growth in ERCOT Market, Inorganic Growth Not Targeted

July 26, 2011
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Texas Power will focus on growth "in our own backyard" in the near future, and does not expect any near-term inorganic growth at current customer valuations, David Chase, General Manager of Texas Power, told Matters yesterday.

Speaking with Matters on a variety of topics in the Texas market, including the success of choice in lowering retail rates, Chase said that growth is on Texas Power's mind, but that it would be "smart growth."

Texas Power currently serves about 25,000 customers across ERCOT.

Chase noted that recent acquisitions, such as NRG-Green Mountain and Constellation-StarTex, have valued customers at $1,000 per ESI ID, which Chase said requires too long of a payback period for Texas Power to consider acquisitions at those prices. Chase said that should valuations per ESI ID drop below $500, Texas Power may become more active in inorganic growth.

Chase also said that while Texas Power is aware of new markets such as Pennsylvania, it will continue to focus growth in ERCOT for the near term. Chase noted that with about half of residential customers remaining with a former affiliated REP, there is still a "huge potential" for growth in the ERCORT mass market.

With current wholesale market conditions, the ERCOT market is as ripe as it has ever been for growth, Chase added, with Texas Power recently lowering its fixed pricing to further position itself for customer wins (see 7/19). Chase said that Texas Power's strategy is based on the combination of its low pricing (among the lowest if not the lowest fixed rate), low complaint rate (lowest complaint rate on PUCT scorecard), and "strong name" presented to customers shopping via Power to Choose who may be unfamiliar with providers.

Chase also said that Texas Power will be closely following the potential expansion of choice to additional parts of the Sharyland service area (see 7/14). Texas Power is also one of three residential providers at Nueces Electric Cooperative, where declines in wholesale pricing have made REP offers much more competitive with the co-op's rate versus several years ago.

Chase also reported that Texas Power has started a pilot marketing/affinity agreement with the City of Arlington called Power Up Arlington. Under the agreement, Texas Power offers enrolling customers a $25 bill credit, and also donates an amount to the city per kilowatt-hour served.

In exchange, the City publicizes Texas Power through water bill inserts and other city communications.

Chase expects to seek similar marketing agreements with other municipalities should be pilot be successful. Chase noted that the Arlington pilot was approved by Jay Doegey, who serves as city attorney, and who also runs the Texas Coalition for Affordable Power aggregation.

Chase touted the success of customer choice in lowering retail rates to prices below those seen prior to the start of competition, with all-in fixed rates as low as 8 cents per kWh, and all-in variable rates in the 5 cent range.

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