Has Electric Deregulation Worked? Some Say Yes
by: Jack Williams, April 18, 2007 5:04:00 am
Critics of deregulation say if it truly worked, consumers would have seen significantly lower electricity prices by now, with stiff competition among providers. Instead they say, prices have gone up since the change. But Bill Peacock, who's with the Texas Public Policy Foundation in Austin, says other factors have contributed to higher prices.
"We also have a lot higher natural gas prices which makes up for a significant portion of Texas generation. You factor that in, a 200-percent rise in natural gas and average electricity prices only 25-30 percent higher than five years ago, and I'd say its working."
Until January 1st of this year, incumbent power providers, Reliant Energy here in Houston and TXU in Dallas, were forced to set what was called the "price to beat" in those markets, allowing start-up providers to undercut those prices and attract new customers. Now that component is gone, which has further spurred competition. Both Reliant and TXU have recently announced lower rate planes, with other providers set to lower prices soon.
"The prices have really significantly dropped beginning I'd say really about October of last year is when they started heading down. Part of that is because they'd gone up going into the summer months which always happens and they always come down in the fall and winter but the other part of that is the price to beat went away and the markets are responding. The number of plans has multiplied significantly since last summer or so and the prices have dropped."
Despite the increased competition, Reliant and TXU still have a significant advantage when it comes to sheer numbers of customers. Analysts refer to it as consumer stickiness, where customers are reluctant to switch from traditional providers despite lower prices elsewhere. This is Houston-based energy analyst Alan Lammey.
"I think that there are a lot of folks out there who are still very unsure of how the whole process is working. They feel very content and comfortable with who they've always had and probably then you're going to have some folks out of there who also just out of sheer laziness are not going to switch."
He says many consumers are unclear that companies like Reliant and TXU are simply electricity providers and that Centerpoint Energy is the utility that supplies all the power in Houston. Rice University Economic Professor Peter Hartley is a critic of deregulation and says too much emphasis has been placed on retail competition and not enough on wholesale competition.
"The wholesale market is not sufficiently competitive that drives prices down toward costs at the wholesale level. No amount of competition at the retail level is going to help because all the retailers are buying from the same wholesale pool."
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