Misconceptions about Deregulated and Regulated Electricity

In a recent editorial in the Houston Chronicle, a member of the Chronicle staff attempts to talk about some of the changes that need to happen with Texas electricity deregulation. Which is well and good, there a plenty of changes that could be made which would be beneficial to consumers all over Texas. A couple of those items are discussed in the article, such as a “reserve margin” that would help to prevent energy shortages if plants fail, which caused the rolling blackouts we recently experienced. Also beneficial would be instances where the PUC actually has more oversight and is more active in monitoring the goings on in the electricity market.

Where I start to question some points of the article is towards the second half, when the apparently unlisted author starts to actually editorialize. It starts to go off the deep end with this statement:

We notice, too, that promises of a new era of consumer choice have fallen short. Most consumers appear to be too timid to make changes in their service providers, perhaps out of fear that they do not know enough to make a good choice.

Well, where to start? Unless I’m mistaken the first part of that paragraph is basically saying that electricity deregulation is a bad idea because people are unwilling to educate themselves on the marketplace, or because they make a conscious decision not to explore the advantages that have been created by the deregulated electricity market. I’m sorry, but personally for me, this seems like a HORRIBLE reason to reverse deregulation. There are plenty of people who have happily taken advantage of the deregulated electricity market, and to take away those opportunities simply because half the population is unwilling to educate themselves or too “timid” to switch providers seems like ridiculous proposal. None of us feel sorry for people who pay sticker price on a car without haggling, nor do we feel sorry for those who choose not to shop using coupons, or don’t wait for things to go on sale. Taking away the opportunities of much of the population to shop for their provider and select one that works for them in favor of appeasing the lazier and uninformed part of the population who find it “too complicated” seems downright draconian, and at the very least Un-Texan.

That statement got one thing right, however, and that is that people still aren’t educated about how the Texas deregulated electricity market works. However, that’s a willful choice. There is plenty of information out there. TER partner Bounce Energy has done an entire series of articles about who the players are in the Texas marketplace, and what they do for the customer, from the Pole and Power guys, to the PUCT, ERCOT, and the Electricity Providers that send you your bill every month. The information is out there, people just need to do a little research to make an informed decision. But I find it disquieting that the two “incumbent” providers in the marketplace right now, the companies that used to be regulated, have some of the most expensive rates in Texas, and have consistently had some of the highest rates since deregulation. What makes anyone think that if we went back to regulated electricity with these companies that we’d be getting the cheapest prices possible? They’re not even competitive now. There’s nothing to say that we wouldn’t simply be trapped with the most expensive guys in Texas.

And we also notice that electric bills are higher in areas of Texas under deregulation. For example, rates in the deregulated Houston market are considerably higher than those in Austin and San Antonio, which are served by municipally owned utilities.

I also found this sentence to be completely uninformed and absolutely misleading. For starters, many of the rates available in deregulated markets right now ARE in fact cheaper than rates found in San Antonio and Austin. If you add up all the fees for electricity in Austin right now, the rate comes out to about 9 cents per kWh. Which is right around the market rate right now for electricity in the deregulated areas of Texas. Deregulated areas actually have cheaper plans than that right now. So electricity isn’t actually cheaper in Austin, like many people often claim as a fact. And on top of that, Austin customers don’t have the same options for green energy, access to reward programs, and promotions. And most importantly, Austin customers don’t have choice. They can’t tell their electricity provider Adios and switch to a new guy if they have a bad experience.

To expound on the notion of price comparison, lots of regions of Texas have different rates and pricing, even within the deregulated market. Dallas electricity is by far the cheapest. Houston has different electric rates than Corpus Christi, which by far has the most expensive electricity in Texas. So to point out two areas of Texas ALLEGEDLY are cheaper than other regions as support for regulated electricity isn’t even close to painting a fair and fully encompassing picture of the situation. A more accurate comparison would be to examine the major areas of Texas against other major cities all over the United States in terms of electricity choice and pricing, which you can look at here: A Comparison of Deregulated versus Regulated Electricity Rates.

Deregulated electricity in Texas is hardly a perfect system. There are plenty of areas for improvement and even some policies we could stand to repair. But to make claims about the system not working without taking time to examine the facts, and even worse, to support regulation simply because some people simply don’t want to educate themselves and take advantage of the marketplace, seems like an expensive exercise in shadow boxing. An exercise in shadow boxing with an uncertain outcome, because there’s no telling if regulating would even improve rates. It might simply just eliminate choice and the market incentive that currently keeps our prices low. The first and most important step is for people to educate themselves on how the marketplace works.

4 thoughts on “Misconceptions about Deregulated and Regulated Electricity

  1. I disagree. While deregulation offers customers choices, the choices offered may be bad. Deregulation has failed to improve service and lower prices as the proponents claimed it would. Your statements about Austin electricity rates currently being the market price in other areas may be true, but historically Austin’s energy rates are much, much less than the deregulated markets. A very inconvenient fact. Your argument is that when you have a bad experience with a city-owned utility that you cannot drop them and choose the other guys. The flip side to this argument is that if the utility fails to keep its customers satisfied it will have 1 million angry customers (voters). Private and public systems both work. Unfortunately, in Texas the private sector is failing to improve upon the public system it replaced.

    1. M-

      I think you’re overlooking some things in your analysis. For starters, comparing to Austin is a fools errand. Historically, it is cheaper, yes. It also has to be THE CHEAPEST electricity in the entire united states. It has a small-ish population, an entirely city-owned infrastructure, and a share of a nuclear plant that supplies them cheap energy. Comparing anyone to them is unfair because they’re LITERALLY the cheapest in the country. Meanwhile, the rest of Texas is still head and shoulders cheaper than most other areas, which is impressive considering the size of our state and the cost of our infrastructure upkeep. So for you to compare any other area to Austin as proof regulation works better, is akin to me pointing to how any other area in Texas is twice as cheap as any area in California and pointing at that it DOES work. It’s a flawed argument. The reasons Austin is cheaper have little to do with it being regulated. Additionally, when the areas of Texas were regulated, they were never city-owned utilities. They were still independent businesses. They just didn’t have competition, and the guys who billed you also managed the poles and lines. So they were never like Austin Energy to begin with, and never would be, to be honest. What would 1 million angry customers do in Austin? Vote out Power? Vote off electricity? Changes would be made, but that’s no different than any REP in deregulated areas that starts to fail and loses customers. Changes would be made, that’s how a free market and capitalism works.

      I just don’t agree that the deregulated system hasn’t improved things here. The biggest problem is that people don’t take advantage of their choices and the advantages the market has been created. They don’t shop around, they don’t try to learn the nuances of the system, many just stick with the big names they recognize, and they’re being fleeced for it. At least there are options, and companies that make strides to improve customer service, offer green energy plans, and reward programs.

  2. In any rate MONOPOLY is wrong. I can choose what is best for my self. You maybe serving to certain people’s interest but at the end of the day decision is not yours to make.

  3. I am in Australia and we recently deregulated in the past decade, all i can say is with internet people can compare options now – and I think that its brilliant to give people a choice. Its their own fault if a person doesn’t make use of their many resources.

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