July 1, 2010
AARP Bulletin
Thomas Korosec
Texas rates have skyrocketed since deregulation
The electric utility that powers John T. Johnson III's home in Arlington had not heard "a squeak" from him in decades.
The 62-year-old self-employed food broker said that changed in early 2006 with the arrival of a $369 monthly electric bill—about $100 more than a year earlier.
"We hadn't even reached the height of the summer yet," Johnson said, marveling at how far and fast the price of electricity had risen for his 3,100-square-foot home.
Johnson began studying whether consumers were benefiting after deregulation came to Texas' electric market in 2002.
"We have it much worse on what we pay for a kilowatt of electricity," said Johnson, who has expressed his views in newspaper opinion pieces and in letters and conversations with elected and appointed officials in Austin.
According to the U.S. Department of Energy, Texas ranks 17th among the states for the highest average price of electricity—11.7 cents per kilowatt hour. In 1999, before deregulation, Texas tied with Louisiana for 30th, at 7.1 cents per kilowatt hour.
Texas and Louisiana produce energy by roughly the same mix of natural gas, coal and nuclear power. But today, as Louisiana continues to regulate prices, customers there pay about 8.7 cents per kilowatt hour, 26 percent less than Texans.
A Texan's average monthly residential bill is $150; in Louisiana, a customer with comparable usage would pay $39 less, or $111.
John Fainter Jr., president and CEO of the Association of Electric Companies of Texas, an industry group, took issue with claims that prices have climbed under deregulation. Citing federal data, he said Texas' rank among the states has not changed since the end of 2001 and the last fully regulated price. "A person who elects to shop can find electricity at a price lower than the last regulated rate," he said.
Fainter also said it is not accurate to compare Texas' prices to Louisiana's because Texas' population and economy are growing faster. He said the new power plants to keep pace are typically more expensive to construct and operate and are environmentally cleaner than older facilities.
Johnson said he has helped members of his church and family find lower-priced power providers in a system that gives customers some choices. To lower his bill, he shut down a backyard pond and an extra refrigerator. But he said it's impossible to conserve your way out of high bills because of Texas' higher rates.
"Under deregulation we've gone from being a lower-cost state to a higher-cost state," said Tim Morstad, associate state director of advocacy for AARP Texas.
The problem with Texas' deregulated market is how prices are set at the wholesale level, Morstad said.
"What if all gas stations had to buy gasoline from the same wholesaler and that wholesaler is padding their prices?" he said. In Texas' deregulated electricity system, 40 or so retailers buy power from a wholesale market that can price electricity four times higher than the cost to generate it. The prices that the retailers pass on have been tough on middle-class budgets, and devastating to the poor and those on low fixed incomes, even with utility bill assistance programs.
The legislature, which approved deregulation, has repeatedly declined to reform the market, said Texas Rep. Sylvester Turner, D-Houston. Last year the industry successfully lobbied against a bill that would have lowered residential rates, he said.
Turner said consumers should contact their state legislators and let them know that deregulation is not working. "You don't want to miss providing your input because in this upcoming session this issue will be front and center," he said. "I can assure you the industry and their consultants and lobbyists are already gearing up for it."
For more information and to find out what you can do to lower electric prices in Texas, visit the AARP Texas page on utilities.
Here are some tips to purchasing power in Texas: