As a deregulated state, Texans are paying more for their electricity than their bordering regulated neighbors. Is this beneficial to customers or the power barons?
By Matt Keyser, Managing Editor
Illustration by Shabbir Degani
Deregulating electric utilities in Texas was supposed to help residents save money, not eat away at their pocket books. But in an average month in which they consume 2,000 kilowatt hours of electricity, residents of surrounding states pay anywhere from $62 to $78 less than Texas homeowners. On an annual basis, that’s an extra burden of more than $700.
In 1999, when Senate Bill 7 was signed into law by then-Gov. George W. Bush, Texas became one of the first deregulated states in the United States. Supporters said the new law would foster competition among utility companies and mean lower prices for residential consumers after it took effect in 2002.
Six years later, those lower prices remain elusive.
“Consumers [aren’t] going to save any money,” said Tyson Slocum, research director for Public Citizen’s energy program.
Slocum published his The Slocum Report in May 2007, and it showed 14 states with deregulated markets at that time were paying 52 percent higher rates for electric power than those with regulated markets.
“The market isn’t competitive,” said Tim Morstad, associate state director of AARP, formerly known as the American Association for Retired Persons. “There’s a 200-pound gorilla dominating.”
In North Central Texas, that 200-pound gorilla is TXU Energy.
In 2007, Kohlberg Kravis Roberts, in partnership with Texas Pacifi c Group, bought out TXU for $45 billion. About 80 percent, or $36 billion, of the purchase price was leveraged debt.
“[Old] TXU made out extremely well,” said Morstad. “[They’ve] made billions that couldn’t be made under regulation.”
With the new TXU promising lower prices, the question raised is: How will the new TXU pay off $36 billion in debt while lowering prices for consumers?
“To make profi ts [and attract customers] we have to offer better values,” said Sophia Stoler, a TXU spokesperson. “We offer benefi ts through innovation, products, and choice.”
Stoler said the reason Texans are paying more for electricity than the four surrounding states (New Mexico, Oklahoma, Arkansas, and Louisiana), all who remain regulated markets, is that Texas utilities are largely dependant on natural gas for power generation.
Louisiana, like Texas, is heavily dependant on natural gas. But Louisiana residents continue to pay less for electricity in their regulated market.
When asked how TXU will lower its rates while paying off $36 billion in debt, AARP’s Morstad said TXU’s customers can expect bigger bills.
“[It will] come from the consumers one way or another,” Morstad said. “Money doesn’t grow on trees.”
Texas consumers are now beginning to notice the extra money they’re paying in a deregulated electric market that is increasingly fueled and controlled by natural gas prices, Public Citizen’s Slocum said.
“Natural gas is almost always [more expensive] than coal,” Slocum said. “Coal and nuclear power are sold into a market with a price set by natural gas.”
At the beginning of the 2007 legislative session in Austin, there was a public outcry for reformation of Texas’ deregulated electric energy markets. But no changes were approved by state lawmakers, and that means that no reformation is likely to occur before 2009, if then.
“Several serious proposals were considered, yet the Legislature failed to get anything done,” said AARP’s Morstad. “[The state] would be wise to adopt signifi cant reforms to bring electric prices down.”
In 2001, a year before Texas’ electric utilities were free to establish their rates without regulatory oversight, the average monthly residential electric bill was $89. That was still higher than the national average of $86.20.
By the end of 2007, the average monthly electric bill for a Texas resident was $249.60.
One North Texas resident who gets his electricity from Green Mountain Energy, paid 15.6 cents per kilowatt hour in months running from June through October last year.
In 2007, the average price for a Texas resident was 12.86 cents per kilowatt hour, well above the 9.4 cents paid by Louisiana residents and the U.S. average of 10.65 cents.
Several deregulated states are reforming their electric markets. Of the 22 states that attempted deregulation, nine have suspended or restricted deregulation. Some of the others are considering reforms.
Virginia has re-regulated its market, something that some critics of deregulation say is nearly impossible. In some states, they say, it may be easier to capture lightning in a bottle.
“There are huge logistical and fi nancial challenges associated with re-regulation,” Public Citizen’s Slocum said in an e-mail. “The change [from deregulation] to regulation would signifi cantly reduce [the companies’] future profi ts.”
AARP’s Morstad said disagreements between Texas’ deregulated utilities and many of their unhappy customers may simmer for years.
“I can’t say I’m optimistic of rates getting any better [anytime soon],” Morstad added.
All isn’t lost for Texas residents, however.
Consumers hoping to save at least some money can visit the Web site www.powertochoose. com. That site shows all rates of all the power companies throughout Texas. It gives consumers the opportunity to discover the lowest electric rates available – even if they’re only one or two cents less per kilowatt hour.
Consumers should remain alert, though. Some of the lowest rates are variable – meaning they may be low now, but could skyrocket later.