DeregReport2012Texans have paid billions of dollars in added costs under the state’s electric deregulation law, according to a new report. And while prices have declined in recent years, the resulting savings has not outweighed years of electricity prices above the national average, according to the report.

Deregulated Electricity in Texas: A History of Retail Competition also reveals that Texans in deregulated areas consistently have paid more for power than Texans outside deregulation. It shows that many big electric companies — after spending years arguing against market intervention — now clamor for price supports.

Commissioned by the Texas Coalition for Affordable Power, a coalition of cities, Deregulated Electricity in Texas includes in-depth information about the grid operator, the wind industry, and energy pricing.  Its detailed year-by-year chronology provides important context with which to judge the successes and failures of deregulation in Texas.

“Electric prices have come down in recent years — and that’s good news — but there’s still more work to be done,” said Jay Doegey, TCAP board president. “Shopping for electricity should be easier. Regulators should have more tools to guard against anti-competitive activities. This report shows reform is needed.”

The 1999 deregulation law opened most of Texas to electric competition, meaning that residential and business customers in many areas can now choose among different electric providers.  TCAP, the sponsor of the new report, is a nonprofit coalition of more than 165 municipalities and other political subdivisions that purchase electricity in the deregulated market. The coalition derives no profit from selling power.

Deregulated Electricity in Texas shows that while the new market resulted in more choices for Texans, it also was followed by years of electricity prices above the national average. And while residential prices in Texas have declined recently, the resulting savings has not outweighed the more than $10 billion in added residential costs from paying above the national average for many years.

The report shows that Texans paying average prices in deregulated areas could have saved thousands of dollars had they instead paid average prices available in area of Texas exempt from deregulation. Overall, residential electricity prices in Texas continue to be higher than residential prices in adjoining states.

Troublingly, the report also shows that some industry insiders now favor regulatory changes meant to increase energy prices — including a move to a “capacity market” that will add an extra layer of costs onto power transactions. This is a bad idea, said TCAP executive director Randy Moravec. “Policymakers should pursue reforms that enhance competition and keep electricity affordable — not regulatory manipulation that increases costs,” he said.

Deregulated Electricity in Texas updates a similar report released in 2009. The new report includes a number of important findings, including:

  • During the 10 years prior to the adoption of the deregulation law, residential electricity consumers in Texas paid prices 6.4 percent below the national average. In the most recent 10 years under deregulation, residential consumers paid prices 8.5 percent above the national average.
  • Complaints from electric customers have declined in recent years, after peaks in 2003 and 2009. However, the overall annual complaint rate was lower prior to deregulation.
  • Although electric prices remained high for many years under deregulation, the state’s projected reserves for generation capacity has declined. This has led to reliability concerns.
  • Deregulation-related charges known as stranded costs will add nearly $7 billion to consumer bills. Texans will continue paying these charges for years to come.

Deregulated Electricity in Texas also includes a number of suggested reforms, including the creation of standard offer products to make electricity shopping easier. The report cautions against the creation of a “capacity market” that would layer additional costs onto energy bills and calls for giving state officials more tools to protect the competitive market.

Download Deregulated Electricity in Texas (13.6mb PDF)

ABOUT the Texas Coalition for Affordable Power

TCAP is a coalition of more than 165 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.