Sept. 5, 2001, 11:47AM

Shell Energy to pull plug in Texas

Won't compete in deregulation

By LAURA GOLDBERG Copyright 2001 Houston Chronicle

Shell Energy Services, which was expected to be a formidable competitor in Texas, is pulling out of the state's electricity market before it even opens to competition.

Shell Energy, which is also leaving Ohio where it has 30,000 power customers, said it is abandoning retail electricity because the pace of deregulation across the United States has "slowed substantially."

"As a result, it is unlikely that Shell Energy will be able to reach adequate size nationwide to be profitable in electricity in a reasonable length of time," it said in a statement.

Texas deregulates its power market Jan. 1, although a pilot program allowing a limited number of consumers to choose their electricity providers started July 31.

A consumer group that's been closely monitoring the change to deregulation said Shell's move bodes ill for the state, while several other providers stressed that they plan to stay put in Texas.

"We're disappointed to see competitors jumping out of the market rather than into the market," said Janee Briesemeister, a senior policy analyst with Consumers Union in Austin. "Having fewer competitors will make it more difficult for consumers to see any savings under deregulation."

In Texas and other states, actions such as Shell's indicate it may be time to re-evaluate whether deregulation plans need to be altered, she said.

Max Yzaguirre, chairman of the state Public Utility Commission, said deregulation will go forward in Texas as planned. He called Shell's exit a matter of corporate strategy that had little to do with what's going on in Texas.

A Shell Energy spokeswoman said glitches in computer systems needed for deregulation as well as the pilot and run by the Electric Reliability Council of Texas didn't contribute to the company's exit.

In Houston, Shell had been one of six providers offering residential consumers an alternative to Reliant HL&P during the pilot.

Almost 114,000 residential customers statewide signed up with alternative providers for the pilot. Over 40,000 of them chose Shell, the company said. Most of Shell's customers are in Houston.

According to the PUC, only slightly more than 100 of Shell's statewide customers are actually receiving power from it. The others were still waiting for service to start.

None of the 100 is expected to face power outages, and all who selected Shell will be able to select other providers or stick with their utility company. Shell said it will keep supplying power until customers can be switched.

About 10 states offer residential consumers the chance to pick their power providers, and several others are slated to do so next year.

But in the wake of California's energy woes, several other states have put their plans on hold or slowed them.

Even in states where there is choice, consumers don't always have real options because there are few or no competitors.

In many states, incumbent utilities charge capped rates as part of a built-in transition periods, and would-be competitors find the rates too low.

But deregulation supporters nationwide have been looking to Texas to offer a model for others.

"Texas has the potential of being a very successful deregulation structure," said Jeff Dietert, an energy company analyst at Simmons & Co. International in Houston.

Dietert said he would be surprised to see other providers here follow Shell's lead.

And NewPower Co., Green Mountain Energy, TXU Energy Services and First Choice Power, all of which are marketing in Houston, said Tuesday they are sticking around.

Reliant Energy Retail Services, which is seeking customers outside Houston, also plans to stay the course.

"The Texas market has been extremely successful for us, and we are not going anywhere," said Gillan Taddune, Green Mountain's vice president and general manager of its Texas region.

TXU continues to see great opportunities in Texas, spokesman Christopher Schein said.

"Here at TXU, we're in it for the long haul," he said.

Shell's departure will cause Texas consumers to be more skeptical about claims made by new entrants, said Waters Davis, president of Reliant Energy Retail Services.

They may wonder, he said: "If you can't trust Shell, who can you trust?"

Shell Energy, a unit of Houston-based Shell Oil Co., said it plans to focus its efforts on natural gas markets in Georgia and Ohio.

The restructuring could result in some job cuts, said Shell Energy spokeswoman Patricia Creduer. Shell Energy has about 95 employees in Houston and another five or so in Atlanta.

Alan Raymond, Shell Energy's president and chief executive, said in a written statement: "Volatile energy prices and an uncertain economic environment over the past few months have caused legislators, regulators, generators and marketers to reconsider their deregulation situations and strategies."

http://www.chron.com/cs/CDA/printstory.hts/front/1035281

-- Martin Thompson (mthom1927@aol.com), September 05, 2001