New Study from the Texas Coalition for Affordable Power: $15.5 Billion in Excess Electric Costs under Texas Electric Deregulation

Coalitions Representing More Than 150 Cities Send Letter Calling for Action by Texas Legislature.

AUSTIN, Texas–Excessive electricity prices under electric deregulation have cost Texans an additional $15.5 billion, according to a comprehensive new report on the deregulated market.

Judged in terms of increases in average electricity prices, the deregulated market in Texas has been one of the nation’s poorest performing, according to the report. It also cites evidence that Texans in deregulated areas consistently pay more for electricity than Texans in areas exempted from deregulation.

Citing the findings, the chairman of the two city coalitions that commissioned the report distributed a letter to state lawmakers this week calling for important reforms. The coalitions that commissioned the study, the Steering Committee of Cities Served by Oncor and the Texas Coalition for Affordable Power, represent more than 150 cities and political subdivisions in Texas with more than 3.5 million residents.

“This report shows that it’s time to fix deregulation,” said Jay Doegey, who chairs both coalitions. “We support electric competition — but competition that works for Texas residents and businesses. Years of electricity prices above the national average needlessly have cost Texans billions of dollars. These high prices have taken a toll on personal finances and the state’s economy. It’s money that could have been used for other priorities.”

The report, delivered this month to all members of the Texas Legislature, documents recent declines in electric prices in Texas (currently average residential prices are slightly below the national average), but found no evidence that those declines have compensated for years of inefficiency in the market. Judged in terms of changes in the average price of electricity, the deregulated market in Texas has performed worse than residential electricity markets in most other states — including most states with deregulation, the report shows.

Key findings include:

  • In terms of increases in average residential electricity prices between 1999 and 2010, Texas ranks ninth nationally, fourth among 15 states with electric deregulation and third among 22 states with a reliance on natural gas to fuel generation plants.
  • Since the Texas electric deregulation law took effect, Texas residential consumers have paid more than $11 billion in excess costs resulting from electricity prices above the national average. Prior to the adoption of the deregulation law, Texans consistently paid below the national average.
  • All classes of Texas electricity consumers — that is, residential, commercial and industrial — would have saved $15.5 billion had prices remained at the national average since the beginning of retail electric deregulation. In the ten years leading up to the deregulation law, all groups of Texas consumers collectively paid $17.6 billion less than the national average.
  • For every year there is data to make a comparison, residential consumers in areas of Texas with retail electric deregulation (such as Houston and Dallas) have paid average electricity prices higher than residential consumers living in areas of the state outside deregulation (such as San Antonio and Austin). Texans outside deregulation consistently pay below the national average, while Texans inside deregulation consistently pay above it.
  • Recent declines in the price of electricity in Texas relate largely to changes in the commodity cost of natural gas, which is used to fuel many generation plants. However, data cited by the report show that the declines in average electricity prices have been less pronounced in deregulated areas, as compared to areas of Texas outside deregulation. This suggests that the deregulated market in Texas is much less nimble in its response to changing conditions, as compared to areas of the state exempt from deregulation.

Based on these findings, the city coalitions recommend the following action:

  • The Texas Legislature should reject proposals to create new “streamlined” or “one-way” ratemaking rules. Such regulatory gimmicks will increase electricity prices in Texas and contribute to bloated utility spending. Texas utility lobbyists are currently pressing for such changes.
  • Regulators should be given authority to assess higher fines for anti-competitive activities in the wholesale electricity spot market. A loophole that allows relatively small generators to engage in anti-competitive behavior should be closed.
  • Electric generation companies that bid their power into the wholesale spot market at excessive prices should be promptly identified after they submit their bids. Such disclosures will discourage anti-competitive bidding practices. Texans ultimately must pay for this electricity and have a right to know where their money is going.
  • Retail electric providers should be required to offer standardized fixed-rate products among their selection of other electricity products. This will make it easier for Texas residential consumers in deregulated areas to make apples-to-apples price comparisons when shopping for electricity.

The Story of ERCOT is based on months of research, including a review of journalistic accounts, regulatory documents, academic studies and data from the United States Energy Information Administration. It includes separate findings relating to the Electric Reliability Council of Texas, which is the organization that manages the state’s power grid. Those findings were detailed in an earlier press release.

The Story of ERCOT is available for download at www.tcaptx.com.

Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=6623921&lang=en

Contacts

for the Texas Coalition for Affordable Power
R.A. “Jake” Dyer, 512-322-5898

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