Celebrate Electricity Deregulation! Bake a Cake! But Hold the Candles. You'll Need Them.
While you were busy with all the holidays, another important reason for drinking heavily probably escaped your attention. This month marks 10 years of deregulation in Texas's retail electric market. Hey, put down that chair. No need for violence. This is the free market we're huzzahing here, Bub.
Actually, it was 1999 when the Texas Legislature passed the law deregulating retail electricity in much of the state. It was a couple more years before consumers could actually shop around from various power providers, creating a system intended to harness free-market competition to bring down rates.
Only it hasn't worked like that. In fact, average retail residential electric prices in Texas have been anywhere from 9 percent to 46 percent higher per year than the average U.S. price since deregulation -- at least until very recently, thanks to low natural gas prices.
You may be thinking that 10 years to get Texas's rates back below the U.S. average is not that bad, considering we're talking about government in action here. Well, yeah, except that, according to the Texas Coalition for Affordable Power, which tracks electricity prices, Texas had cheaper-than-average power rates before deregulation. Since then, electricity rates generally have been lower in parts of Texas that are still regulated.
And they're less in adjoining states ...
And in most other states with deregulated markets.
We asked Geoffrey Gay, TCAP's general counsel, why deregulation seems to not be working according to plan.
One part of the answer: Texas is filled with middlemen who neither generate nor transmit electricity but sell it, adding costs and complexity to a system so esoteric that even experts don't understand it. "The retail market is skewed, it's cumbersome," Gay said. "There's too many gotchas."
And because of the arcane way prices are calculated, power generators have little financial incentive to build new plants. Remember last year's rolling brownouts? Get ready for more next summer. All that natural gas that drillers have been sucking up from the shale and selling a rock-bottom (heh) prices also is slowing plans for green energy projects according to this report, though The Wall Street Journal wonders how much longer the gas glut can last as drillers struggle for profit.
Buzz asked Gay if it would be fair to compare Texas's electric deregulation to airline deregulation. You know: No matter what price you pay, someone else is paying less. You're never sure exactly what exactly all that stuff is on your bill, service is less reliable and big, over-leverage legacy companies seem to be not making any money.
Yes, he said, that sounds about right.
Other than that, though, deregulation has been peachy. Where's the party?