Competition Drives Texas Energy Rates Down

Restructured electricity markets in Texas have encouraged competition that has led to lower electricity prices for residential consumers, according to a new study by the Texas Public Policy Foundation’s Center for Economic Freedom. The study, Prices, Reliability, and Consumer Choice in the Texas Electricity Market, shows that past reliance on U.S. Energy Information Administration (EIA) state-level data has significantly understated the reduction of competitive residential electricity prices with retail restructuring.

Using market data, the study finds that residential electricity rates in Texas have fallen well below the national average since competitive markets were established in 2001. Monopoly rates in now-competitive areas of Texas averaged 9.98 cents per kilowatt hour (kWh) in 2001, which were 15.8 percent above the national average. Today, the average competitive electricity rate of 11.01 cents per kWh is 8.71 percent below the national average, and the average of the 15 lowest offers, 9.27 cent per kWh, is 23.13 below the national average.  Adjusted for inflation, the average competitive price is 9.46 percent below the average 2001 monopoly rate, the average of the 15 lowest prices is 24.39 percent lower, and the lowest average price is 30.5 percent lower – staggering evidence that competition has driven electricity prices lower for consumers.

Competition has also created significant choice in electric suppliers for consumers in Texas. Consumers can now choose from 138 residential plans offered by 29 energy service providers and can buy electricity today for as much as 30.51 percent below what they paid in 2001, according to the study. In addition, the 2009 Annual Baseline Assessment of Choice in Canada and the United States (ABACCUS) report gave Texas its highest-possible ranking, finding that Texans enjoy a wide array of competitive choices matched by no other state in the nation. The link between competition and lower prices is clear – for example a recent ABC Good Morning America segment highlighted saving opportunities found by shopping around in Texas for a new energy supplier.

Texas has become a strong example of how competitive markets thrive when they are allowed to develop naturally. Fourteen years have passed since Texas began wholesale market restructuring, eight years since retail level competition was introduced, and three years since retail rate caps were eliminated. In a recent presentation, Bill Peacock of the Texas Public Policy Foundation outlined lessons learned during Texas’ transition to competition. Other states with electric markets in transition can look to Texas as a great example for getting the rules right, educating customers on choice, and allowing the market time to work.