Bold Reform: A 15 Year Look-back on Electric Competition in Texas

By: Ned Ross, Director of Corporate and Regulatory Affairs for Texas, Direct Energy 

 

Does this sound familiar to you? That dilemma confronted Texas lawmakers in the late 1990s – now 20 years ago – as they questioned how electric service was being delivered.  The monopoly utilities, which charged Texans high electric rates were struggling to add new power supplies at a reasonable cost.  Rates would continue to rise if another method of serving your home or business electricity wasn’t found.

 

As is often the case with historic moments, a confluence of brilliant minds, determination, and courage led Texas out of the one-size-fits-all prison and into open competition.  Texas Senate Bill 7 passed in 1999 after considerable research and work by David Sibley, Steve Wolens, Pat Wood, and many others.  What has resulted is the world’s best competitive electricity market, but as with most leaps of faith, none of us knew the Texas market would become the leading model other states and foreign nations looked to emulate.

 

Earlier this year, Texas celebrated the15th anniversary of its efforts to create a competitive retail electricity market. The short documentary film captures not only the complex legislative efforts, but it also honors those that participated in the strategic bill crafting process. How do we know today if the competitive model is really working well?  For years many consultants were paid to spit out numbers to prove that monopolies or competitors have lower prices. But these reports glossed over real prices and made inaccurate assumptions[1]. A true price comparison has been nearly impossible because of the complex market dynamics. Variables like timing for entering into a supply contract, the type of product to be purchased, and the monthly usage are among the difficulties of comparing competitive rates and monopoly rates.

 

Enter Rice University’s James. A. Baker III Institute for Public Policy, a collective of more great minds that found conclusive evidence that the competitive electricity market is working…and working well!  Dr. Kenneth Medlock and Peter Hartley studied 15 years of retail competition for homes and businesses, by looking at both open and closed areas and by structuring the economic analysis to ask if choice is driving competitive outcomes.]  And the result: competition is working, driving efficiency and pushing down prices. Dr. Medlock and his team looked at pricing trends over the entire 15-year period and compared them to the wholesale purchase prices for power.  Those trends could not have been more clear and instructive.

Electricity Reform in Texas – A Retrospective from Texas Monthly on Vimeo.

 

Competitive areas like Houston, Dallas-Fort Worth, Corpus Christi, and the Rio Grande Valley are tracking in lock step with the underlying wholesale power supply prices, and the prices consumers pay are dropping faster than that supply price.  Huh?  What this means is that competitors continue to lower costs to serve you.  Competitors are reducing costs and margins to win your business.  At the same time, the ongoing closed markets in Austin, San Antonio, and other areas are showing flat to increasing rates.  Why the difference?

 

Without competition, electric providers have nothing to out-perform.  If your electric rates are set by a small group of individuals, like a city council, then just keep them happy and all goes swimmingly and profitably.  Pretty simple.  But if there are 40 competitors who all want to earn your business, as my company does today, they must innovate, seek efficiencies, lower costs, and provide superior service to win and retain customers.  My company has invested millions in new technologies for your home and developed an industry-leading bill that not only is easy to understand, but also helps you save money.

 

The Rice University Study shows competitors continuously lowering costs to serve customers. In fact, the study only relied upon data from the Public Utility Commission of Texas (PUCT) because of its consistency over 15 years.

 

Today, Texas enjoys the benefits of one of the most competitive electricity markets in the world – more jobs, economic growth and a cleaner, smarter future. Let’s continue to spread the word. Remind your friends, family, and next door neighbors that they can shop around for an electricity provider and most importantly, can exercise their Choice to Choose!  Check out DirectEnergy.com for the latest electricity plans.