Parks Associates Blog

Wednesday, January 30, 2008

Texas Energy Deregulation Has Led to This?

[Note: this entry was updated on February 11, 2008]

Great column in The Dallas Morning News by Steve Blow the other day. Steve reminds us of where deregulation of the retail energy markets has led Texas consumers.

"But the numbers don't lie. And if deregulation is such a wonderful thing, let's just compare electricity bills with our neighboring states. Here's the bill for a home using 2,000 kilowatt-hours:
• Oklahoma: $171.60
• Arkansas: $174.60
• New Mexico: $179.80
• Louisiana: $188.00
• Texas: $249.60 [this figure was highlighted by me]."

If you look at the average retail price of electricity paid by consumers, Texas consumers were paying 16% more per kilowatt hour than the national average as of year-end 2006 (10.34 cents to 8.9 cents); this from the Energy Information Agency. The Dallas Morning News has a good article on January 19 that explains that the rise in natural gas prices since 2002 (prices paid by consumers have risen 74% since 2002 - the year that deregulation took hold) is the main culprit. So, even though the wholesale market was deregulated, there hasn't been any wiggle room for the providers to actually lower prices. This is the logical explanation, but the angry consumer inside me feels like something just isn't right here. And, perhaps consumers are as much as fault as anything, since the Morning News says that 61% of Texas consumers are still sticking with the incumbent - TXU. No wonder a number of investors - among them Kohlberg Kravis Roberts & Co., Texas Pacific Group, etc. - decided that a purchase of TXU Corp. in late 2007 made sense. The utilities are going to continue to basically print money if consumers don't take a larger role in choosing alternative (and lower-cost) providers.


Anonymous artintx said...

I dont think it's the deregulation that has done this. They're aren't enough independents out there yet to make a difference in pricing. It's still the incumbents (Reliant, TXU, etc.) that are still charging bloated rates. This is still in it's early stages. Give it time just like the telecommunications industry.

1:24 PM  
Blogger Kurt Scherf said...

Thanks for the comment. I will be the first to admit that I'm no expert on the energy business. However, one of the arguments that I've heard from critics of the Texas deregulation is that although the retail markets were opened to competition, nothing was done to ensure that the wholesale rates could decrease. So, even though I've got more retail providers from which to choose, they're all basically stuck paying the same rate to the companies generating the electricity. Is that a fair read of the situation?

If this is the case, this is going to wind up being like the Telecom deregulation of 1996. You had a bunch of upstart CLECs entering the market who were forced to lease the incumbents' networks at rates high enough to squelch any real possibility of them building sustainable businesses.

I'd welcome additional comments on this subject.


10:00 AM  

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