| Yes, please tell us.
Houston-based Riverway Power became the latest electric retailer to run into trouble when it filed for bankruptcy earlier this week. Unlike the three other retailers to hit the skids in the last month — National Power, PreBuy Electric and E-tricity — Riverway’s customers aren’t being moved to other providers….. at least not yet.
In bankruptcy filings Riverway asked the court to let it cancel contracts with 4,978 of its 6,500 retail customers, namely those of fixed-rate contract, “… because they are unprofitable to the Debtor.” They include a list of all the customers, but only their names and no other details, such as address.
While Riverway’s customers haven’t been switched to the provider of last resort yet, it does share something in common with one of the other companies: both Riverway and National Power were run at one point by Houston resident Zahed Lateef.
The web site for Amvensys Technologies of Bangalore, India — Riverway’s largest creditor, BTW — lists Lateef as a managing director and says he founded National Power but sold his interest in the business in 2007.
The bankruptcy filings also outline what lead to the company’s woes, a narrative that seems similar to that of the other three companies:
| Oh, what a tangled … well, you get the picture.
Since May 12, 2008, the Debtor has purchased electric energy from Fulcrum Power Marketing, L.L.C. (“Fulcrum”) which is a power marketer and “QSE” or qualified scheduling entity. Additionally, the Debtor on occasion has been required to buy power directly from ERCOT or Electric Reliability Council of Texas.
On or about May 19 and 24, there was an unexpected high spike in the power usage by the Debtor’s retail customers. This spike in usage coincided with a substantial increase in the cost of electrical energy and resulted in a demand by ERCOT for the Debtor to make an additional security deposit to it by June 3, 2008, which, if not paid, would result in ERCOT’s transfer of all of the Debtor’s customer to another service provider. The Debtor filed Chapter 11 to prevent the transfer of its customers and the loss of its business.
The Debtor’s contracts with approximately 4,978 of its retail customers are no longer profitable contracts in light of the unprecedented increases in the cost of electrical power. Accordingly the Debtor seeks to terminate these unprofitable contracts and reject them as of the date of the filing of the Bankruptcy, June 3, 2008.
So Riverway had to buy a lot of power on the spot market, which in the last two months has gone crazy, and was unable to come up with the means to expand its line of credit with ERCOT. The board of ERCOT will meet today at 2 p.m. to consider changes to rules that should tame the price spikes, so stay tuned for updates on that later.
The current ERCOT wholesale market rules make life particularly difficult for small retailers, according to a number of those companies. Larry Kelly, chief operating officer of retailer Texas Power told us Thursday companies like his, which don’t offer fixed rates and thus don’t hedge against steep power increases, says the big jumps may be the fault of market manipulation. His company isn’t in danger of default, he says, but he doesn’t like ERCOT rules that require his company keep collateral with ERCOT worth 3X his purchases.
But Jeffrey Mayer, Chief Executive Officer for retailer MXenergy said it’s higher credit standards that are needed, not lower ones. Too many companies have lured away customers with low prices that they couldn’t guarantee when wholesale rates climbed.
“Marketers should be indifferent to price movements if they hedge properly,” Mayer said. “In energy markets you’ve got to be prepared for the coldest winter and the hottest summer or you’re dead. Texas has had the benefit of several mild summers recently. I think we could see a shake out here that is not going to be pleasant, but it was predictable.”
Were you a Riverway customer or with one of the other providers? Tell us about your experience.