Deregulation of Electricity in Texas: are consumers better off?

It's been over 13 years after Texas electricity markets opened to competition, but has deregulation benefited Texas consumers? The results are mixed, according to the report released by Texas Coalition for Affordable Power (TCAP) on August 12, 2015. We took a closer look at the report in order to explain what it means.

The TCAP report: what does it say?

The TCAP is a coalition of cities and other local governments that purchase electricity in the deregulated market for their own governmental use and lobby for policies that promote affordable energy. They compared electricity prices amongst regulated and deregulated zones throughout Texas from just after markets opened in 2002 until 2013 (the latest year with available data), and found:

• Current prices in deregulated zones are now consistently below the national average
• However, average residential electricity rates in deregulated areas were higher than average prices outside deregulation for every year from 2002 through 2013 (data for 2014 & 2015 is not yet available)
• The TCAP also found that Texas utility prices (for Oncor and CenterPoint Energy) have also increased considerably beyond inflation from 2002 to 2013

So, are Texans better off after deregulation?

While Texas is often held up as a model example of a competitive electricity market, no system is perfect and the process of deregulation has not been without a few bumps along the way. The results of the TCAP indicate that the process of deregulation has been a bit of a mixed bag for power consumers in Texas.

Following deregulation in 2002 until 2013, Texas electricity prices were the 18th cheapest nationally, according to the analysis. However, the TCAP analysis asserts that customers in regulated zones were relatively better off than Texans in deregulated areas, estimating that Texas households in deregulated areas have paid about $4,800 in "lost savings" over 2002-2013 compared to households in areas in Texas not open to competition.

That being said, the TCAP does see signs that the differences in pricing between regulated and deregulated areas is getting smaller; several recent surveys of prices throughout Texas show offers in competitive zones that match or beat prices in areas not opened to deregulation in Texas.

The challenge for Texans in deregulated zones, however, is finding these offers. Between minimum usage fees, changing prices, and an often overwhelming number of contract options, the Texas electricity market can be difficult to navigate and compare offers. Confusion about service and rate options has been one reason for why customers have paid higher rates in deregulated areas, though this has been evolving over time. With more experience shopping for energy, customers are getting used to comparing offers, assisted by state efforts such as the website www.powertochoose.org.

Shopping for Energy?Save yourself time and confusion by calling us at 832-460-0233 for advice about shopping for electricity and to find the lowest power rates available in your area

Another explanation for higher rates in deregulated areas lies in the rising costs of delivering electricity. TCAP's analysis found that Texas's two largest utility companies, Oncor and Centerpoint Energy (whose charges are regulated by the Texas Public Utilities Commission) have risen considerably during the time period studied, and represent an increased proportion of customer bills. Average transmission and distribution (T & D) charges in the Centerpoint Energy service territory went from about $24.61 on a typical monthly bill in 2003 to about $43.94 on the same bill in 2015. The trend was similar in the Oncor service territory: T & D charges rose to $38.59 in 2015 from about $23.01 in 2003.

Why such a dramatic increase? Delivering electricity is an expensive business. Texas has grown rapidly in the past 12 years, and utilities have had to make numerous investments in large-scale transmission projects to ensure capacity to meet up with demand. ERCOT utilities also have also spent about $7 billion in the Competitive Renewable Energy Zone (CREZ) program, which links wind projects to transmission infrastructure, and some utilities have invested in smart meter projects to improve energy efficiency. What's more, increases in delivery prices are not only limited to the big utilities; the TCAP acknowledged that several municipal utilities have implemented rate increases in the past few years.

So what does this all mean for the average power consumer in Texas? Even though the impacts on the customer's wallets might be mixed, electricity market competition isn't going anywhere soon. While it takes a bit of time to search and compare plans, many good deals can be found, and even the TCAP suggests that the market is becoming more favourable to customers.