Not so shocking

January 20, 2013
Houston Chronicle
Houston Chronicle

Electricity deregulation isn't working in Texas. Lawmakers should re-evaluate it.

Electric deregulation isn't working in Texas. More than a decade after approval by the Texas Legislature, "dereg" isn't delivering the savings to consumers that were so widely advertised by advocates at the high pitch of deregulation fever in the late 1990s.

State lawmakers need to give electricity deregulation in Texas a second look, asking the hard questions that a decade-plus of not-so-positive experience have brought for Houston electricity customers, among many others across the state.

As Hearst Newspapers' Eric Nalder reported in last Monday's Chronicle ("Hearst Investigation: Profit, risk rise in Texas under deregulation"), the free and virtually unregulated electricity market in many areas of our state seems to be working out best for utility CEOs, whose salaries have soared over the past 10 years or so, and for the shareholders whose bidding they do.

As Nalder reported, in 2000, just after the Legislature deregulated electric utilities, the average CEO's pay was $2.7 million. By 2011, average compensation had jumped some 175 percent to $7.5 million.

By contrast, the pay for CEOs of nonprofit utilities in Austin and San Antonio, operated under traditional regulations, was $345,000 and $820,000 per year respectively - a level of pay much more in line with traditional salaries in the industry. What's more, utility rates for customers in these two cities were below those in deregulated areas.

As far back as August 2002, Houston Chronicle readers were being warned of the shortcomings of electricity deregulation and urged to support re-regulation. The late Houston businessman and civic leader Howard Horne wrote in a Sunday Outlook piece ("Unplug deregulation in Texas," Sunday, Aug. 4, 2002): "It's time to end the failed deregulation experiment. In fact, with the demise of Enron it's a fair question: Who is for deregulation now?"

Ah, yes, Enron.

If we return to the time in Austin when the deregulation issue was being debated, we will find that the army of paid persuaders arm-twisting lawmakers was led by Ken Lay, Jeff Skilling and other "smartest guys in the room" from Houston-based Enron. With the benefit of hindsight, it's a fair question to ask if this debate was ever a fair one that even considered the interests of average Texans. As most readers will recall, Skilling and others from Enron ended up with federal prison sentences for their professional conduct. (Lay died before he could be sentenced.)

We'd reckon that the 1997-1999 conversations Lay, Skilling others conducted in Austin, and in newspaper editorial board meetings around the state, including ours, were never really about the interests of Texans. They were all about lining Enron's pockets as a middleman in a system that didn't really need one. For that reason alone, this topic requires a do-over by lawmakers in office now.

We note, too, that state deregulation was approved in the same go-go political atmosphere in the late '90s that led the Congress and the Clinton administration to abandon the Depression-era Glass Steagall Act, which kept a tight rein over banks, in favor of deregulating the banking system. As we now know, that decision ultimately came to grief, bringing financial ruin for many American homeowners and huge expense to taxpayers in the 2008 financial collapse.

And so we strongly encourage that this topic be reviewed and reconsidered by the Legislature.

Electricity pricing is a huge topic for budget-strapped Texas consumers, especially in a struggling economy. It is also a competitiveness issue of the first order for regions such as ours, whose prosperity turns on the performance of huge power users such as refineries and other heavy industry.

For those interested in learning more, Horne left a simply written guide to the intricacies of deregulation in his 2002 opinion piece that can be found on ( We particularly urge state lawmakers to check it out. A system of electricity pricing based largely on Enron methodology and argumentation is unacceptable.

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