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Deregulation +10 Years: Texas Electricity Rates Are Up, Not Down
Fort Worth Star Telegram ^ | 2006.03.20 | R.A. Dyer

Posted on 03/20/2006 3:00:56 PM PST by B-Chan

AUSTIN - Under electricity deregulation, Texans have paid some of the highest rates in the nation -- a reversal of at least a decade of relatively cheap electricity under the state's old regulated system.

That's the conclusion of a national utility expert, who also reports that those in deregulated states typically have had larger rate increases than customers in states still under regulation. Separate academic reports likewise show, after making adjustments for inflation and other factors, that electricity prices in Texas have gone up since 1996, while those in regulated states have gone down; and that in general terms, electricity prices in the United States have not fallen under competition.

"Deregulation isn't working in the way that most people had hoped," said Kenneth Rose, a senior fellow at Michigan State University who did the study for Virginia regulators. "Evidence that we're gathering -- at least as we had originally thought it would work -- is not bearing out from the customer perspective."

The studies are made possible because some states have opted to end regulation while others have maintained it. In effect, this mix of markets has allowed experts to make head-to-head comparisons that help answer a basic question: Is deregulation saving money for consumers?

And the growing academic consensus, said Rose, is no.

For his report, Rose took nationwide utility data from the U.S. Energy Department and calculated pricing trends for different states. His analysis shows that from 1990 through 2000, Texans paid less than the national average for electricity.

Then in 2001, as the Public Utility Commission began allowing utilities to keep excess earnings in preparation for deregulation, Texans paid roughly $89 per month for electricity. That was about 3.2 percent higher than the national average of $86.20.

In 2002, the first year of deregulation in Texas, rates dipped below the national average -- as a 6 percent rate cut was mandated that year by the Texas Legislature.

In 2004, the typical Texas residential customer paid an average of $96.00 per month, compared with the national average of $89.40.

The available data for Rose's analysis go only through 2004, although the he said initial information from 2005 indicates that the pricing gap between regulated and unregulated areas continues.

That would fall in line with another recent review conducted by the Office of Public Utility Counsel -- a separate agency from the PUC -- that indicates that Texans, on average, paid the 11th highest rates in the nation in 2005.

Clarence Johnson, an analyst with the office, said utilities are also increasing rates this year.

Utility experts have posited several reasons for what at least three researchers have termed the "failure of U.S. electricity restructuring."

For instance, Seth Blumstock and Jay Apt, in a report prepared for the Carnegie Mellon Electricity Industry Center, note that the U.S. transmission system was not designed to handle the volume of transactions needed under deregulation; that several new institutions required under deregulation have resulted in higher industry costs; and that increased market uncertainty under deregulation has increased capital costs.

But that conclusion and others are rejected by TXU spokesman Chris Schein, who says Texas is on the right track. He said a recent study by the Public Utility Commission has found evidence of savings under the state's deregulation law, and that Rose, in his August report, did not specifically examine the features of the Texas market.

"The PUC has already done the analysis, and if we were [still] in regulation, we would have seen more [price] increases," he said.

He said that even if average residential rates are higher in Texas, that doesn't mean that consumers cannot shop around for better deals. Comparing Texas to other markets is like comparing "apples to tires," he said.

Other researchers have examined the effect of deregulation nationwide:

MIT professor Paul Joskow, in an August report, found that residential prices in states without retail competition declined about 8 percent between 1996 and 2004. By contrast, under the same conditions, rates in Texas have increased about 2.5 percent over the same period.

Blumstock and Apt, in their Carnegie Mellon report, state that "our research shows that there is no evidence that restructuring has produced any measurable benefit to consumers or to the systems that have restructured."

Rose, in his report for Virginia regulators, lists Texas and 15 other states with full retail deregulation, meaning residential and business customers can choose their suppliers. Two states, Oregon and Nevada, have partial retail deregulation that allow only large commercial customers to choose.

He also said that several states, most notably California and Montana, are trying to "put the genie back into the bottle" by going back to regulation.

That's impossible for most states because their electricity systems are interconnected. When they moved to deregulation, key portions of their system came under the jurisdiction of the Federal Energy Regulatory Commission.

Texas has a separate electric grid, so it "has that [re-regulation] option more available," Rose said.


TOPICS: Business/Economy; Government; Miscellaneous; News/Current Events; US: Texas
KEYWORDS: bills; deregulation; economy; electricity; freemarket; market; marketfailure; power; publicutility; regulation; texas
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By the numbers

$108.40: The average utility bill for a typical Texan.

$94.80: The average utility bill for a typical electricity consumer in the United States.

40th: The ranking of Texas among the 50 states and Washington, D.C., on the affordability of electricity.

SOURCE: Office of public utility counsel, based on 2005 figures

1 posted on 03/20/2006 3:00:59 PM PST by B-Chan
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To: B-Chan

Part of Texas's problem is the ERCOT grid. Very expensive.


2 posted on 03/20/2006 3:02:45 PM PST by MeanWestTexan (Many at FR would respond to Christ "Darn right, I'll cast the first stone!")
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To: B-Chan

I don't take Fort Worth Star Telegram but I'll bet their rates have gone up in the last ten years. Who's investigating that scandal?


3 posted on 03/20/2006 3:03:58 PM PST by FreePaul
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To: B-Chan
$94.80: The average utility bill for a typical electricity consumer in the United States.

Really? Then I'm well above average.

4 posted on 03/20/2006 3:07:07 PM PST by bad company ("Any damned fool can write a plan. It's the execution that gets you all screwed up." - James F. Hol.)
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To: B-Chan

Well, Texans don't typically have rolling blackouts either. Those states with regulated utilities typically have to get some of their electricity from states like Texas.


5 posted on 03/20/2006 3:08:36 PM PST by VRWCmember
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To: FreePaul
I don't take Fort Worth Star Telegram but I'll bet their rates have gone up in the last ten years. Who's investigating that scandal?

Apples and oranges. One does not need a subscription to the Startlegram to live.

There was a good reason the electric utilities used to be regulated. It was called "the public interest". The traditional Christian term was "commonweal". You should look it up.

6 posted on 03/20/2006 3:11:00 PM PST by B-Chan (Catholic. Monarchist. Texan. Any questions?)
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To: bad company

"Really? Then I'm well above average."

Yeah, I'd take $94.80 in a heartbeat.


7 posted on 03/20/2006 3:14:46 PM PST by Buck W. (John Kerry: The Emir of Absurdistan.)
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To: VRWCmember

Typically? Out of all 50 states, how many regulate electricity rates and are forced to buy power from Texas? 2? 12? 24?

You claim that the deregulation of electric utilities in Texas is connected to the lack of blackouts here. Please post some support for this contention.

Got any evidence? Any numbers? I posted hard data in my article. I have yet to see any evidence posted in refutation of these data.


8 posted on 03/20/2006 3:15:42 PM PST by B-Chan (Catholic. Monarchist. Texan. Any questions?)
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To: B-Chan
You claim that the deregulation of electric utilities in Texas is connected to the lack of blackouts here. Please post some support for this contention.

I'm not claiming the deregulation of electric utilities is connected to the lack of blackouts. I merely pointed out that Texas is a provider of electricity to many other states that have regulated their utilities, some of which have experienced some rather widely publicized rolling blackouts (or Gray-outs in one rather infamous example).

As for the hard data, yes rates have gone up, but they were going up every year before regulation as well. I haven't looked at the source behind this story in the Startlegram, but it sounds like the study was conducted by an organization that might have an agenda.

9 posted on 03/20/2006 3:21:52 PM PST by VRWCmember
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To: B-Chan
One does not need a subscription to the Startlegram to live.

Nor does one need electricity to live. It is convenient but not necessary. Maybe the state should just find out what the poorest person can pay for electricity and set the rate at that. Some would consider that to be "in the public interest."

10 posted on 03/20/2006 3:22:54 PM PST by FreePaul
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To: B-Chan
I posted hard data in my article. I have yet to see any evidence posted in refutation of these data.

He said a recent study by the Public Utility Commission has found evidence of savings under the state's deregulation law, and that Rose, in his August report, did not specifically examine the features of the Texas market.
From the article itself, there is a claim that Rose's study did not specifically examine the features of the Texas market, thereby implying that the analysis is flawed at best.
11 posted on 03/20/2006 3:25:48 PM PST by VRWCmember
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To: B-Chan
There was a good reason the electric utilities used to be regulated. It was called "the public interest".

And there is also a good reason for deregulating; it is called production efficiency and competition. It almost always leads to better quality, higher production, and more consumer choice.

12 posted on 03/20/2006 3:27:40 PM PST by VRWCmember
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To: FreePaul

The basic differences between you and I:

1. You prefer an efficient society to a Christian society.

2. I post data to support my claims.


13 posted on 03/20/2006 3:32:11 PM PST by B-Chan (Catholic. Monarchist. Texan. Any questions?)
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To: VRWCmember

I'm still waiting to see some data in refutation of the data I posted. Any data. Any data at all.


14 posted on 03/20/2006 3:33:22 PM PST by B-Chan (Catholic. Monarchist. Texan. Any questions?)
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To: B-Chan

Does anyone know long it took for this whole telephone thing to shake out?

25 years or so?


15 posted on 03/20/2006 3:34:59 PM PST by pollyannaish
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To: B-Chan

The "data" you posted is meaningless. The "average utility bill" figures don't give the KWH purchased for that amount. If you post that it would help. I am not aware of any evidence that electricity has a religious preference.


16 posted on 03/20/2006 3:44:35 PM PST by FreePaul
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To: VRWCmember
I'm not claiming the deregulation of electric utilities is connected to the lack of blackouts. I merely pointed out that Texas is a provider of electricity to many other states that have regulated their utilities, some of which have experienced some rather widely publicized rolling blackouts...

You implied without evidence that some states have a shortage of electric power due to utility rate regulation. If so, then please tell us: how many states does Texas supply with electricity? Are all of the importing states regulators of electic utility rates? If not, what percentage are? And what linkage, if any, is there between Texas' deregulation of rates and its provenance of electric power to other states? I see no answers to these questions in anything posted so far.

As for the hard data, yes rates have gone up, but they were going up every year before regulation as well.

Evidence? Please cite.

I haven't looked at the source behind this story in the Startlegram, but it sounds like the study was conducted by an organization that might have an agenda.

The basic data used in the study cited in the article I posted came from the State of Texas. I see no reason to doubt the accuracy of the facts cited in the story based upon their source.

Every organization, from the U.S. government on down, has an agenda. Objectivity is a myth. The best that a thinking person can do is to examine the evidence from all sources, judge each source for its trustworthiness, and make a decision as to whose biased version of the truth is likely to be closest to reality.

Until I see evidence refuting the data cited in the story, I have to come down on the side of the article's author. Again: if anyone has better evidence, please post it. Otherwise, the claim stands.

17 posted on 03/20/2006 3:45:21 PM PST by B-Chan (Catholic. Monarchist. Texan. Any questions?)
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To: B-Chan

Often regulators do not work in the public interest, but serve the interests of the reigning party. Further, many utility companies engage in rent-seeking by deliberately raising the regulatory burden. Also, the "public interest" or "commonweal" is not necessarily best served by the lowest possible retail price for power. What would be the incentive for additional capital investment under such a regulatory regime?


18 posted on 03/20/2006 3:46:12 PM PST by oblomov (Join the FR Folding@Home Team (#36120) keyword: folding@home)
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To: B-Chan
More comments on this article and actual data from Texas Freepers are cross referenced on Free Republic at Texas' electrical rates among the highest
19 posted on 03/20/2006 3:50:27 PM PST by Unmarked Package
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To: B-Chan
It may well be that Texas' rates have increased faster than the national average, but this article doesn't provide enough evidence to draw that conclusion. It would've been nice to see whether these academics controlled for such things as size and number of homes, volatility in demand, local industry characteristics, etc.

Without further evidence, I'd say the jury's still out on this one.

20 posted on 03/20/2006 3:51:21 PM PST by NittanyLion
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