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The competitive texas energy retail market

Competition is steering utilities in Texas toward innovative ways of connecting with and retaining customers.

Texas is home to one of—if not the—most competitive retail energy markets in the world. A little more than a decade ago, consumers in Texas could select from less than a dozen electricity providers offering just 11 products. The electric choice in the Electric Reliability Council of Texas (ERCOT) has stepped up its game and, currently, the number of providers stands at just under 90. Between them they offer hundreds of products, each aiming to meet a wide range of consumer needs and preferences. Products range from variable to fixed rates over different terms to fully prepaid/pay as you go. Some include time of use (free nights and weekends) and from 100 percent renewable to various “shades of green.” Most offer some type of rewards program, and several are introducing bundled solutions that include a programmable thermostat with the purchase of a multi-month energy contract.

With customers spoiled for choice, the rate of consumer churn in Texas is considerably higher than other markets in North America, and indeed most of the world. The proliferation of electricity comparison sites of various levels of sophistication further fuels high switching rates. However, consumers’ choices currently remain largely price-driven. The business challenge for retail providers and for other energy providers around the world (including regulated utilities), is how to extend and enrich product and service offers to create a stickier, more durable and valuable consumer relationship not wholly-focused on price and thus subject to frequent, and costly, churn.

Developing that new consumer relationship means finding a way to get beyond the meter. As the domestic energy landscape evolves to incorporate solar and other distributed energy sources, smarter home energy management systems and the greater adoption of electric vehicles, utilities need to find ways to extend the value proposition to support and extend consumers’ choices as they adopt new energy technologies and other home services.

By doing so, utilities are able to increase their overall addressable customer universe beyond the competitive market. In addition, the extended life expectancy for offers that include solar or EV charging could help reduce churn, reduce cost of customer acquisition and increase the ability of utilities to sell additional products and services during the life of the contract.

But, crucially, developing new offers and services that will engage consumers and help establish a new relationship requires a step-change in how utilities can make sense of their customer data and use it to create more personalized products and services. And consumers seem open to this—Accenture research shows that half of consumers would be willing to share personal information about themselves and their families in exchange for more personalized services. 

Effectively extracting customer insights from available data could, for example, empower utilities to offer new, tailored “on the outside,” smartly managed “on the inside” consumer tariffs in much the same way as mobile providers do for data today. However, the capabilities to achieve that are a long way from where most utilities currently find themselves. Rapidly acquiring them will require a shift in mindset. Collaborating with others (or making strategic acquisitions) for fast access to new technologies and digital know-how will be vital. A willingness to iteratively test, fail fast and quickly incorporate lessons learned will be equally essential.

Providers in a highly competitive environment like Texas are avidly exploring new options. For example, Texas power company MP2 Energy is currently partnering with solar provider SolarCity to provide solar electricity to customers at a lower rate than utility power, and without local incentives. In similarly competitive markets, such as Australia, new approaches are also gaining ground fast. However, as all markets become subject to new competition and shifting regulatory requirements, utilities should keep a close eye on developments and determine a path forward for building new and stronger relationships with their consumers—and do it now.