DATELINE: 30 November 2005
Reliant official steps down amid woes
Deregulation squeezing retail power companies
By Tom Fowler
Copyright 2005 Houston Chronicle
The head of Reliant Energy's retail electricity business has stepped down from his post as the company and its Texas competitors find themselves sailing through rough waters.
Jim Robb, a former consultant with McKinsey & Co. who joined the company in 2003, resigned on Nov. 23, according to the company. He will continue to be available as a consultant to Reliant until Jan. 1. No replacement has been named.
"Robb made a significant contribution to our business strategy and leading us into the retail market," company spokeswoman Pat Hammond said.
When reached at his Houston home, Robb declined to elaborate on his departure.
While the deregulation of Texas' power markets has been lucrative for power plant operators and those that own and operate the power grid, rising natural gas prices are squeezing companies that sell power to homeowners and businesses.
Reliant and Dallas-based TXU have said they expect to lose money in the Texas retail market for the foreseeable future. Another smaller retailer, Utility Choice Electric, transferred its customers to other retailers when it defaulted on payments to its wholesale power supplier this month.
"It's certainly not an industry for the faint of heart," said Phil Tonge, president of retailer Direct Energy in a recent interview.
The law that opened much of the state to competition among power providers allowed the incumbent power companies, such as TXU and Reliant, to pass rising power plant fuel costs on to their customers. More than half of Texas' power comes from gas-fired plants, so natural gas prices, in effect, set power prices.
The price of natural gas has doubled in the past year, leading companies to pass those costs on to customers through higher bills. But under pressure from state regulators, TXU, Reliant and other companies are not immediately passing on those full costs. Instead they are increasing bills incrementally over the next six months.
This all but assures losses, the companies said.
John Wilder, chairman and CEO of TXU Corp., the state's largest power provider, has repeatedly said his company's retail business is losing money but may make a small profit sometime next year.
In a conference call earlier this month, Reliant said the compromise with regulators means a loss of about $100 million in the coming quarter.
Following that call, credit rating agency Standard & Poor's placed Reliant's debt on a negative watch, meaning it is in danger of moving even lower than its current B+ rating, which is below investment grade.
"The retail business, as currently structured in Texas, provides little margin for the regional electricity providers," S&P analyst Arleen Spangler wrote. Earlier this month, Utility Choice Electric, a Houston-based retailer, told its Texas customers it could no longer serve them after it defaulted on payments to its wholesale power provider. Calpine Corp. has sued the company for $16 million in back payments, according to Bloomberg.
And Green Mountain Energy, an Austin-based retailer of power from renewable sources, laid off workers this fall when changing laws led it to leave Ohio, its largest market.
Higher electric bills are leading more consumers to start investigating what their options are for cheaper power, Direct Energy's Tonge said.
"I don't know if it has led to higher switching rates yet," he said.
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