Previously, I posted Part 1 of my look into TCAP’s (Texas Coalition for Affordable Power) history of deregulated electricity in the state of Texas, including a quick explanation of who TCAP is as an organization. To be honest, I could go page by page and pick apart much of what this “history” is claiming as fact, but I don’t think anyone wants to invest the time to read a 12 part rebuttal of this document by me. In the first part of this series, I explained who TCAP is and raised some questions about some statements and questions from their document’s Executive Summary Page.
Today I’m going to going to take a critical look at their “Major Findings” section of the document. Or at the very least, the first portion of their Major Findings section.
Now, before we begin, it is extremely vital to understand that almost all of the data TCAP & Recharge Texas are using is from the United States Energy Information Agency or EIA. And it is vital to keep this in mind because EIA information is only measured at the State level. It simply compares Texas on a state by state basis with other states. Which means it lumps regulated and deregulated areas together. Additionally, it doesn’t take into account people who don’t take advantage of the choice in deregulated areas and willingly pay rates as high as 50-60% premiums above market. So it isn’t comparing the available rates customers can achieve, just what people ARE paying. And almost half of all Texans in deregulated areas are still with their incumbent providers, often paying much higher rates than the market average. As a result, it paints a flawed picture of the rates and savings available through deregulation. Using any EIA information as a measuring stick is akin to saying the price of food is skyrocketing and making a key part of the metric people who dine every day at 4 star restaurants.
So lets jump right into things.
1.) DESPITE RECENT PRICE DECLINES, TEXANS HAVE LOST GROUND RELATIVE TO CONSUMERS ELSEWHERE.
Although average electricity prices in Texas have declined since a peak in 2008, they nonetheless remain higher than average electric rates charged in adjoining states. Relative to electricity prices nationwide, Texans also have lost ground during the first 10 years of deregulation. For the 10 years prior to the law, Texans paid average prices 6.4 percent below the national average. In the 10 years after deregulation, Texans paid rates 8.72 percent above the national average.
Here is our first encounter with flawed EIA data. And as I mentioned above, the reason is because the data they’re using can’t create an accurate picture of the available rates that have been made available to customers, only a snapshot of what people are paying. But the thing is, in a deregulated market it is incumbent on the consumer to shop around the market and find the best deal, and unfortunately a lot of people don’t do that. This isn’t the first time Recharge Texas has been caught using this imperfect data. Check out the graph below:
Look at red bar, which is the metric TCAP uses to classify electric rates in Texas and compare it to the rest of the country. Look the disparity of the average rates paid by Texans as a whole and rates available in deregulated areas (orange bars), and keep in mind that the red TCAP rate includes both regulated and deregulated areas of Texas. Also remember that some areas of Texas with regulated electricity are the most expensive in the state. Now, take that disparity in those rates and multiply it over the course of 10 years, and you can begin to see how TCAP’s usage of EIA data to view the Texas market paints an inaccurate and incomplete picture. And that picture happens to be unflattering to deregulation, or at least it is the way TCAP is tacitly blaming deregulation.
2.) CHOICES INCREASED, BUT SO HAS CUSTOMER DISSATISFACTION
As the number of electric providers has increased, so has the complexity of electric contracts. The number of discrete billing charges also has grown. Complaints from electricity customers have been much greater during deregulation, as compared to those filed with the Public Utility Commission prior to deregulation.
Yes, the complexity has increased. That was a given and stated from the start of deregulation in 2002, and was part of the accepted cost of doing business. Complaining about it now serves no purpose except to muddy the water. Additionally, suggesting that the rise in complaints is a result of dissatisfaction is stating an opinion as a fact, which is poor journalism and unethical. Once again, this isn’t the first time TCAP and Recharge Texas has attempted to definitively state that increased complaints is a sign of dissatisfaction. I have responded extensively about the possible implications of increases in complaints here. I’d argue that the rise in complaints is a sign deregulation is WORKING. TCAP and Recharge Texas’s continued insistence to claim speak for everyone that it is a sign of dissatisfaction is baseless and unethical.
Just to summarize the increase in complaints can mean many things. For starters, people now have a reason to file complaints BECAUSE they have electric choice. And they’re actively participating in the market, and market participation is a sign of a healthy market. Additionally, the Internet has exploded since deregulation was implemented, and now people have smart phones and internet access everywhere they go, making the ability to file complaints faster and easier than it ever was before during regulation. People can file online, and during regulation people had to commit to waiting on hold for a representative. And lets not forget that the Texas population has increased by almost 20% since 2002, and more people (particularly ones unfamiliar with a deregulated electricity market) mean more complaints. Of course, this is never once mentioned or taken into consideration in TCAP’s history of deregulation.
Oh, and by the way, the 2011 J.D. Power & Associates survey said that Texan’s satisfaction with deregulated electricity was at an all time high.
3.) MARKET POWER ABUSE REMAINS A CONCERN
Although the Texas Legislature adopted a helpful reform in 2011, abuse in the wholesale power market remains a concern. Alleged abuses have contributed to the financial failure of at least one market participant. One major electric company profited by about $4 million from alleged anti-competitive activities — even after paying a punitive settlement in the case.
Market abuse is always a potential problem and exists in every major market in the world. See, The New York Stock Exchange. Fortunately, as Texas gets more familiar and comfortable with the market, reforms are being made, fines are being assessed, and the PUC is gaining more and more power. Abuse will always be a concern. But Texas has done a great job of tightening the ship and making improvements and policing things.
4.) POWER RESERVES HAVE DWINDLED
Texas had the highest generation reserve margins in the nation prior to the implementation of the deregulation law. Texas now has among the lowest. This has led to serious reliability challenges for the state’s power grid.
This is one of the more laughable pejoratives TCAP has leveled at the feet of deregulation. As I mentioned earlier, the state of Texas has grown it’s population almost 20% since 2002. 20%. That is unprecedented growth in a microscopic amount of time as people seek refuge from a poor national economy in a strong Texas state economy. Yet TCAP makes no mention of this in their analysis as to why power reseves have dwindled, which I find laughably shocking seeing how the two are obviously tied together. You know, more people means more energy usage. TCAP should be embarassed and ashamed for this omission.
It’s one thing to take it upon yourself to write a history of deregulated electricity in Texas. But to knowingly use flawed data, and to omit any facts of viewpoints from consideration that point things away from deregulation is just wrong.
Of course, I’m not finished. I’ve highlighted the first 4 “Major Findings,” but am going to stop here before this gets too long to read. There’s still 4 more “Major Findings” to examine, along with the history’s “recommendations” and some analysis of the different graphs and data TCAP is attempting to use to support their case.
Till my next entry.