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LEAD-IN BY HOST DAVID STILES: Throughout the country, people are watching the Texas energy deregulation model to see how successful it is in lowering electricity costs for consumers. Renee Feltz examines a Houston area development that may raise the prices on electricity bills of the city's residential users.

STORY: On Monday, Houston based Reliant Energy will formalize steps taken by the company over the past two years to separate its retail services from its transmission and distribution operations.

Director of Corporate Communication for Reliant Resources, Sandy Fruhman explains the different operations housed under what will now be two separate companies

"In the Houston area, Center Point Energy the regulated compnay will continue to operate and maintain the electricity transmission and distriubution system, where as Reliant Resources, which will actually be operating under Reliant Energy name as its brand name... is the competive retailer prvider that atially provides customer service and markets electricity and related sevivces to Houston-area customers."

Reliant is the main electricity provider in the Houston area - sending mostly coal-generated energy into over 1.5 million homes and small businesses.

Only 5 percent of residential consumers in Houston have switched to other electricity providers that are able to charge lower prices.

Under the state deregulation model, Reliant is required to charge a benchmark price called "the price to beat," while other companies are allowed to set prices below this set amount. The price to beat is determined by the Public Utilities Commission, or PUC, with the help of Reliant.

For the next five years, the company can submit petitions to the PUC to raise the price to beat every six months.

Texas Ratepayers Organized to Save Energy, dislikes this practice. Coordinator Carol Berdarsky, explains why:

"The information that the company has to give to the commission in order to justify raising the fuel factor is ten consecutive days of increased natural gas prices, which is not a very high standard to meet becaue gas prices fluctuate all the time. And since they can raise the fuel factor twice a year, I'm sure that there's somebody out there in all the companies looking for the best ten days in any six month period to justify a fuel increase."

The Texas-based chapter of Consumer's Union argues allowing Reliant to help the PUC set the price to beat based on volatile market prices results in a quasi-deregulated market that does not benefit consumers. Researcher Janee Breismeister says if the ten days selected by Reliant are not representative of the market average for gas throughout the year, consumers still end up paying a higher cost.

Of the two companies Reliant is splitting into, Reliant Resources will be the one helping the PUC to set the price to beat. Reliant Resources is also viewed by investors as the least stable of the two entities. This has the Consumer's rights union worried:

"There's a concern for us from a consumer standpoint, that if the investment community beleives that is Reliant Resources is a risky proposition, then that translates into higher costs for consumers."

In addition to fluctuations in natural gas prices, Reliant Resources can use its companies financial stability as reason to petition the commission to raise the price to beat.

"If things get really bad for Reliant, and the compnay is in very bad financial straits ... where do they get the money to sell themselves out? They go to the PUC and they envoke this clause in the law and they increase rates in Houston."

Renee Feltz, KPFT News Houston

E-mail Renee Feltz at chickpea_@ziplip.com .