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Electricity Deregulation in Texas–High Cost Problems and One Solution

The effect of deregulation has been harmful to Texans of all social backgrounds and economic levels across the state. It has turned the idea of competition on its head—people have a choice now, but it’s not cheaper. Essentially, deregulation has replaced forcing people to buy cheaply from public sources with forcing people to pay higher prices from a private company of their choosing.

Today, the state average cost for residential electricity is 12.86 cents per kilowatt-hour (kWh), according to the most recent data from the U.S. Department of Energy.

Whether or not residential electricity bills in Texas are actually higher now than before deregulation, and whether or not most Texans have access to and actually use the state’s PowerToChoose website are questions that have been debated. But some harmful effects of deregulation on Texans are undeniable.

Electricity deregulation is the state action of allowing private companies to sell electricity. The Texas retail electric industry became deregulated in most parts of the state in January 2002.

When it was introduced in Texas in the mid 1990s, the stated goal of electricity deregulation was for Texans to benefit from lower electricity prices. Low prices would result from private electricity sellers (Retail Electric Providers/REPs) competing for customers. Residents could choose which company to buy from on the state’s website, PowerToChoose.com.

“To convince lawmakers and the public of deregulation’s merits, Enron and its allies promised that restructuring would offer Texans lower prices and consumer choice. In 1996, (one Enron executive) told the Fort Worth Star-Telegram that the statewide average of about 6 cents per kilowatt-hour was an ‘absurdly high’ price for electricity. ‘There’s nothing in this market that suggests we won’t see the same savings of 30 to 40 percent we’ve already seen elsewhere,’ he said,” wrote Forrest Wilder in a 2006 Texas Observer article entitled, “Overrated: Deregulation was supposed to lower Texans’ electric bills”.

Here are some of the problems with electricity deregulation in Texas:

Problem 1: Among states in which residents use about as much electricity in their homes each month as those in Texas do:

  • Texans pay more per kWh of electricity than residents of any other state;
  • Texas residential electricity rates are higher than every other state, except Florida, by 3.1 cents to 6.6 cents per kWh. Texas rates are 1.5 cents higher per kWh than in Florida.

For example, Texas homes use an average of 1,161 kWh of electricity each month. Similarly, residents of Georgia use an average of 1,158 kWh of electricity each month. However, the average retail price of electricity in Georgia is about 8.91 cents per kWh, while the price in Texas is about 12.86 cents per kWh.

All of the above is based upon the most recent figures available from the U.S. Department of Energy’s “U.S. Average Monthly Bill” tables available online.

Problem 2: Texans (whether of higher or lower income status) living in areas where electricity deregulation took effect pay more for their electricity than their fellow Texans who live in areas where electricity is provided by an investor-owned utility, a city, or a co-op.

For example, based on price rates posted on each entity’s website, Texas’ residential monthly average 1,161 kWh of electricity costs from about $52 to $132 for those who receive their electricity from non-private providers like, Xcel Energy in Amarillo, the City of Austin and Pedernales Co-op.

However, based on the rates offered on the websites of some of the private companies listed on the PowerToChoose, the cost for Texans who must buy from a private company (people who live in areas like Garland, Houston, Waco and McAllen) might pay anywhere from $154 to $232 for the same amount of residential electricity.

Problem 3: Aside from high prices, consumers have complained of ill treatment by power companies in the deregulated market. The Ft.Worth Star Telegram recently reported that complaints against three of the four recently failed electric companies jumped about 2,400 percent, from about 20 complaints at the beginning of the year to 508 in May.

Problem 4: Under current state law, political subdivisions, like counties, schools and hospital districts can easily aggregate power needs to get the cheapest rates for their buildings, but cities cannot easily aggregate so that individuals can get the cheapest rates for their homes.

One method of easing the problems described above would be to amend state law to allow cities to more easily aggregate residents’ electricity purchases. This could be achieved with Opt-Out aggregation. Opt-Out aggregation allows a city to pool the power needs of its residents and buy electricity under a single contract from an REP, without the affirmative approval of each resident (what Texas law currently requires). Under Opt-Out aggregation, any residents could notify the city if they did not want to participate.

Opt-Out aggregation has worked well in the deregulated markets of both California and Ohio. California allows for Opt-Out aggregation across the board. Ohio, on the other hand, allows each city to choose whether or not to adopt Opt-Out residential electricity aggregation in a resolution by the city council. The city of Kent Ohio, in a draft of a resolution adopting Opt-Out aggregation, recognized the Ohio Consumer’s Council’s labeling of Opt-Out as the “jewel” of Ohio electric deregulation.

Although, in May, TXU took voluntary action to reduce penalties and payments for low-income Texans and Texans aged 62 or older, the Texas competitive electricity market leader’s approach does not address the problems stated above. All Texans, not just those over age 62 and those who have low incomes, deserve to pay truly competitive electricity prices.