As Texas’ power industry deregulation progresses, promising lower bills and open markets, residential developers are bracing for equipment costs that could raise the price of new homes by as much as $2,000.
Developers contend that TXU Corp. is trying to recoup potential losses by thrusting costs for electric wires, transformers and utility poles on them.
Industry and company officials said any changes are meant to encourage equitable pricing practices among new homeowners and current owners.
Uncertain of what awaits them, residential developers such as John Papagolis say they are worried about “costs we can’t even identify yet, and that makes it hard to price our product.”
“My concern as a developer,” he said, “is that we don’t fully understand what’s occurred or the impact of what’s occurred.”
Last year, TXU committed up to $3,200 toward equipment per residential lot; this year the allowance dropped 30 percent, to $2,445. This allocation is known as a tariff.
Additional installation costs, if any, would first be absorbed by developers but eventually reach builders and homeowners, area developers said. Owning the equipment no longer guarantees that TXU will be the energy provider, just the conduit to the new homes.
Developers said they are worried their costs will grow as deregulation continues.
“What they are telling us is they are going to evaluate each project on its own merit,” said Ken Mitchell, director of land acquisition for Ashton Woods Homes in Dallas. “In many cases they come back and say, `That’s not enough money, therefore we will charge you the difference in cost.’ “
Under deregulation, Oncor Group, a division of TXU Corp., will maintain the transmission lines in North Texas, no matter which company is supplying the juice.
It will charge power providers — including TXU’s affiliate — about 2 cents per kilowatt hour on residential bills.
Developers say they fear utility companies such as TXU have scaled back their financial commitment toward installation because they cannot count on recovering their investment.
“There is never a logical, rational explanation of any cost,” Mitchell said. “The only thing we can do is add it to the price of the house.”
The change is not related to deregulation, TXU officials said. Rather, the cost to equip the average home has dropped, company spokesman Chris Schein said.
Calling the timing a “coincidence,” Schein said, “this has been wrongly attributed to deregulation. This change would have occurred one way or the other.”
“We have been able to lower our costs to buy the line and install it, so as we were able to lower our costs, that decreased the allowance.”
Terry Hadley, spokesman for the state Public Utility Commission, said both arguments have merit, but it’s too early to attribute cost to deregulation until the changes are played out further.
“It sounds like something is evolving, and hopefully both parties can work this kind of thing out,” Hadley said.
The commission has guided Texas through telecommunications deregulation and helped open the electricity business to competition on Jan. 1.
Wires and other equipment related to power transport pricing still come under commission regulation; supplying power does not.
“If they [developers] are concerned about what TXU is doing regarding the tariff, they can file an appeal with the commission,” Hadley said. “That has not been done so far.”
It’s a statewide issue. In southwest Texas, American Electric Power-Central Power and Light officials said they have had to meet with developers who are concerned about their $1,084 installation allowance.
“In a lot of cases, $1,084 will cover the cost of the entire residential lot,” company spokesman David Hooper said. “It would be mainly for the larger lots that require more equipment and more expenses per customer.”
Officials at Houston-based Reliant Energy said they don’t give an installation allowance the way TXU or AEP-CPL does. Rather, they use an intricate formula that factors in the amount of work, equipment needed and the lot size, spokeswoman Alica Dixon said.
Developers say deregulation is just one component of a utility installation juggling act that could change the new-home market.
“It’s been a tumultuous time over the last year trying to figure out who’s on first,” said David Howell, Ashton Woods’ development director.
Developers concede that it’s still too early to gauge deregulation’s impact.
“I hope in the end it’s best for the customer to have competition,” Papagolis said. “If it isn’t, then we’ve gone through this for nothing.
“If they [developers] are concerned about what TXU is doing regarding the tariff, they can file an appeal with the commission. That has not been done so far.”
