Texas Energy Deregulation: Is it working?

By admin • January 29th, 2009

Texas deregulated it’s electricity markets in January 2002. Since then there have been questions as to whether it was actually working or not. For the most part it seems, that people were questioning the efficiency of the markets because the rates in some areas of Texas were higher than others. It was cited that some areas of Texas use natural gas as the basic energy to create electricity. In 2002 as you can see from this chart of natural gas prices [Gas price chart], gas prices began spiking upwards in or about 2002. This led many Texas deregulation detractors to the conclusion that deregulation wasn’t working for Texas.

Keep in mind that Texas is a large state with a diverse and capable economy. It for instance houses something like 50+ of the Fortune 500 companies. Texas is a very competitive state. If Texas deregulation was not “working”, it would show up in sustained larger than normal profits for the electric industry as a whole. No one has yet, to my knowledge, made this assertion. There may be some truth in this at the moment. But the business cycle dictates that where “opportunities exist” in a marketplace, it will soon be over run with “profit seeking” companies. But soon, there will indeed be too many companies involved in the said marketplace, and they will begin to leave. Leaving the stronger, more capable companies. In the end, there will be fewer companies, in this case, fewer electric companies and they will have the lions share of the business.

As this happens, barriers to entry grow, and in the end, few companies could start-up and compete in this environment. In Texas we are probably still in the stage where companies are coming to the deregulated market. But, in time they will by their sheer numbers force the prices down as much as possible. In the end, Texas ends up with strong reliable companies, that have built reputations and trust in their respective communities. Barriers to entry will be high, and the margins of profit small.

If and when this happens, we can say that Texas has in fact benefitted from the PUC’s deregulation of electricity in Texas.

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Comments(4) Blog, News

Comments

By KG on January 29th, 2009 at 7:51 am

Only the retail portion of the Texas electric market is deregulated – it’s the wholesale generation portion that’s still a monopoly.

You mention “barriers” to entry in the retail market growing – they need to. A number of start up retail providers have gone under, leaving their customers with providers/rates of last resort. This happened because the PUC requires such a low level of capital to become an REP. A company enteres the market offering low rates to the consumer to get business but then doesn’t have enough operating capital to strategically hedge their purchases and not enough money to survive when the price they’re paying for their wholesale power is higher than what they’ve committed to charging their customers.

Deregulation hasn’t been successful (in Texas or anywhere else) – the Dallas Morning News ran a story last week saying that DFW has some of the highest rates in the country. http://www.dallasnews.com/sharedcontent/dws/bus/industries/energy/stories/121208dnbuselectricstudy.52ff2d91.html
And, in some states where deregulation legislation has been enacted previously, it’s being suspended. http://www.samhouston.net/news/deregulation/history.htm).

As a new administration comes into office with a mission to enact climate change legislation, the worry is real that keeping the lights on may become unaffordable for hardworking Americans. Controlling emissions is important, but with reasonable, sustainable legislation that doesn’t make electricity too expensive to generate where only the well to do can afford it. We cannot meet growing demand without continued coal generation and clean coal technology is only in development stages and will be costly to bring to fruition. The answers are complicated, but unreasonable climate change legislation will do nothing but raise rates and further stunt our economy.

By Shannon Z on February 2nd, 2009 at 1:47 am

Message to KG:

You stated By KG on January 29th, 2009 at 7:51 am

“Only the retail portion of the Texas electric market is deregulated – it’s the wholesale generation portion that’s still a monopoly.”

Maybe I am mis understanding you. But, we can get a small business, larger commercial business, manufacturing business, or industrial businesses “commercial” electric rates from one of many electric company providers. And yes, commercial electric users can and do choose the electricity providers in de regulated areas.

If any commercial class electricity user from Texas would like to get a quote please use this form:
http://www.cheaptexaselectricrates.com/contact-us/

If your company uses more than 500,000 kWh per year let us know, and we can get offers from many different companies at once. Why take the time to do it yourself?

Thank you
Shannon Z

By Eneru Voltaire on March 4th, 2010 at 7:51 am

Small and medium Enterprises seem to get the short end of the stick when it comes down to electricity deregulation. It was supposed to give consumers a choice and control over their Energy Provider but instead, Texas Electric Companies seem to sway more to the big businesses rather than SMEs

 

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