Smith: Regulation would lower prices and boost efficiency

January 18, 2014
Houston Chronicle
Tom "Smitty" Smith

About $22 billion is what deregulation of electricity has cost Texans over the last 11 years. Families in Texas paid an average $4,500 for electricity in 2012 – $288 more than they would have paid if electricity had remained regulated by the state, according to a recent study.

Before deregulation, Texas' average electricity prices were 6.4 percent below the national average. Since deregulation, prices are 8.5 percent above the national average.

How did we get in this expensive mess?

Back in the 1990s, the cohort that ran Enron Corp. and a bunch of their buddies decided they could make billions if the electricity market were deregulated. They claimed that competition would result in lower prices – and as ideas go, it was about as bad as Enron's business plan.

But the Legislature, wooed by an all-star team of lobbyists, went along with it. Now, after 11 years, it's clear that deregulating the sale of electricity didn't work.

All you have to do is look at the data: In 2012, prices in areas that regulated the sale of electricity were 18.6 percent lower than in deregulated areas.

Some parts of deregulation made sense.

In 1995, we deregulated electrical power generation, and that worked well. Old, inefficient power plants have been retired. Low-cost, renewable energy has been developed, and new, computerized methods for reducing production of unneeded power have been developed and work splendidly.

As a result of competition, the wholesale cost of generating electricity has gone down.

But deregulating the sale of electricity was a bad idea.

While deregulation can generate competition and, thus, better service, prices and efficiency of operations, that doesn't happen when it comes to sales of electricity for a few reasons.

Generally, people don't comparison shop for electricity because it's too hard to navigate extraordinarily complex contracts to find out if there's a difference between what suppliers offer. And there are often pricey fees for cancelling to go with another provider.

It costs more to "sell" electricity than to provide a service. The costs were far lower before deregulation when there was just one electric company and you called and they connected and billed you and those costs were examined and only allowed if they were "reasonable."

Since deregulation, the "retail companies" spend a lot of money on ads, promotions, special deals and high salaries at many levels within the company. A lot of money is spent – and wasted – yet, in the end, the electricity that comes out of the plug is the same.

If the state re-regulated the sale of electricity, we could also increase the amount of energy efficiency. Many studies have been done that show this would save considerable energy at peak times of consumption.

The electricity retailers have generally opposed regulation because it reduces sales and profits.

Some claim deregulation has led to consumer choice, and, yes, you can buy "green" energy or time-of-use plans from some power companies. But you can also get those programs from many of the regulated utilities in Texas.

Meanwhile, deregulation has led to significant abuses.

Many companies offer low teaser rates to lure new customers and then try to up-sell customers into higher-cost, longer-term contracts. Companies market pre-paid products to the elderly, credit-challenged households and students and low-income families based on fears of higher future rates. With new customers on the hook, the companies charge a premium price and saddle consumers with lots of fees.

I would like to challenge the candidates running for office in Texas to rethink their competition-solves-every-problem mantra and take a second look at the facts.

It's time to comprehensively re-evaluate deregulation in the sale of electricity and for candidates to be pro-consumer for a change.

Smith is director of Public Citizen's Texas office. Public Citizen is a nonprofit consumer and environmental organization.

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