Electric Deregulation Has Become a Big Success in Texas

Wednesday January 18, 2012
Posted at 14:55

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After a decade of weathering the storm of residential electric deregulation in Texas, consumers in the state’s competitive markets are finally seeing the promise of deregulation — a lot of power, a lot of choice and cheap electricity rates.

Although deregulation in Texas has been a roller coaster at times, retail electric providers are able to offer cheap electricity in Houston and other competitive markets in the state for less than the national average due to private investment in natural gas plants, diversified electric generation and an independent electric grid.

The Roller Coaster of Deregulation and Natural Gas Prices

After the state’s monopolistic utilities were deregulated and broken up in 2002, private investors, not consumers, put up tens of billions of dollars for new electricity generation, mostly for natural gas plants. The new plants were cheaper to build and didn’t come with the opposition of coal or nuclear plants, operated about a third more efficiently than existing plants and burned clean.

Investors hit the lottery during the early years of deregulation when enormous gas fields were discovered in places like the Barnett Shale. The huge supply has ultimately led to lower natural gas prices, which play a key role in the ability of energy providers to offer cheap electricity rates.

But electric rates haven’t always been so low. Hurricane Katrina, power congestion due to poor grid management and other issues caused natural gas prices to soar in 2007, to five times the price of natural gas in 2002, when deregulation began. In summer 2008, natural gas prices peaked, doubling from 2007 levels, causing electric rates to range from 13 to 27 cents per kilowatt hour. By comparison, the national average was about 10 cents per kilowatt hour.

Now, however, gas prices have fallen again and electric rates have fallen with them. Since their peak in 2008, electric rates have fallen about 28 percent, according to industry data. In 2010, the average U.S. electric rate was 11.58 cents per kilowatt hour. That same year, there were 33 offers in North Texas alone for electric rates less than 11.58 cents per kilowatt hour, according to the state’s Public Utility Commission.

As of the writing of this post, the Power to Choose website at www.powertochoose.com, lists more than 57 offers of one-year fixed-rate plans from alternative retail electric companies for less than 10 cents per kilowatt hour.

Deregulation Encouraged Development of Wind Power

Texas has a more expensive mix of fuels for electricity generation than other states, primarily because it relies heavily on natural gas over coal and nuclear — coal and nuclear provided almost 65 percent of electricity nationally, but just 53 percent for the Electric Reliability Council of Texas (ERCOT), which is responsible for operating the state’s electric grid and managing its deregulated market.

However, wind power — another benefit of deregulation — is playing a more important role in generating electricity for Texas consumers, a move that ironically is helping lower electric rates by replacing natural gas. As a result of deregulation, Texas, which would come in as number six on the list of highest energy producing countries if it were an independent nation, now gets 8 percent of its energy from wind and is a global leader in wind power development.

An Independent Electric Grid Has Meant More Progress

Less regulation and oversight of an independent grid that can respond quickly to market fluctuations and investment has helped pave the way for Texas to receive the major benefits of deregulation. In most states, grid operators face major obstacles in terms of making changes; multiple public utility commissions — and a federal agency — provide layers of oversight, which can delay progress. But that isn’t the case in Texas.

Legislators in Austin have been fairly quiet about electricity regulation in the state, except for a few years ago when electric rates were sky high and again in February when record freezes lead to rolling blackouts and calls for energy conservation.

“We have a postage-stamp process for electricity,” said Mark Armentrout, head of the Texas Institute, a sustainable-technology research firm based at the University of Texas at Dallas, and former ERCOT board member, in an interview with the Fort Worth Star-Telegram.

As a result of a hands-off approach to energy deregulation, Texas has been able to increase energy production and infrastructure relatively easily. Since 1999, the state has added 45,000 megawatts of new electricity generation, while decommissioning 136 older, less energy-efficient plants and has begun a $5 billion transmission expansion for growing wind power generation according to ERCOT. And the state has been recognized for providing increased options for consumers: for the fifth consecutive year, Texas has been identified as the competitive retail market leader in ABACCUS, the Annual Baseline Assessment of Choice in Canada and the United States, which gauges competition in electricity.

Sources

How Electricity Deregulation Has Paid Off For Texas,” The Fort Worth Star-Telegram, March 28, 2011.

Blown Away: Wind Power Makes Electricity Cheaper in Texas,” The Wall Street Journal, Aug. 10, 2009.

Deregulation Jolts Texas Electric Bills,” The Wall Street Journal, July 17, 2008.

Competitive Electricity Markets Spur Consumer-Focused Innovations,” Distributed Energy Financial Group, November 30, 2011.

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