Let's not pull the plug on electrical deregulation
Let's not pull the plug on electrical deregulation
By Mitchell Schnurman
Ft. Worth Star-Telegram
If Texas got a do-over on electric deregulation, would you vote yea or nay?
This sounds like an academic question, given that dereg started phasing in a decade ago. But it should be the starting point for any discussion of what’s next, because the answer determines how far we’re willing to go now.
Just about everybody wants more consumer protections, and they’re already on the way. One prominent group, the Cities Aggregation Power Project, wants to go much further and has taken its case to the Legislature and the public.
CAPP, which buys electricity in bulk for city governments, proposes that Luminant and NRG be forced to sell some of their power plants, in the hope that will lead to lower wholesale prices. CAPP also wants cities to have the authority to become the default electric buyer for their residents, arguing that volume buying would bring more clout.
Both ideas would change the playing field and disrupt the marketplace.
If dereg is a disaster, a major overhaul makes sense. But if you believe, as I do, that the competitive market is working — that, on balance, Texas has gained much more than it’s lost — why gum up the great experiment now?
No one, not even the strongest advocate, would argue that the path to competition has been a smooth one. At times, consumers have been punished by price spikes, market abuses, failed retailers and switching scams. And I’ve been dinged, too, despite my best efforts to be a smart consumer.
It’s irritating and sometimes expensive. But take a long view, and many of the problems seem more like growing pains than systemic flaws. This isn’t unusual in transitions from regulation to competition, and we shouldn’t be discouraged by the fact that trade-offs are part of the deal.
Every debate about deregulation seems to start and end with residential prices. Critics say we’re being gouged, while the industry says consumers are doing well during a volatile time for commodities.
While the issue can be argued credibly both ways, consumers have a right to be disappointed. For years Texas residents paid less than the national average for electricity, and now they pay more.
That’s the bottom line for many people, but it’s not the whole story. I’d argue that Texans are getting a lot more, too.
The goal of dereg wasn’t only to cut monthly rates, although it was a priority. The idea was also to unleash the free market, and let the money, creativity and competition flow.
On that score, there’s no question that Texas has come a long way.
In the past decade, investors poured $36 billion into new power plants in the state, a testament to the lure of deregulation. From 2000 to 2008, the state added six times more generating capacity than in the 1990s.
Plant construction is likely to grow more in the next decade, given the number of proposals approved or under review. Texas even has two nuclear plants on the drawing board.
In a regulated market, investment money doesn’t flow like that.
Dereg also ushered in new standards on efficiency and renewable energy. Texas has never been a beacon for green initiatives, but it’s become the nation’s runaway leader in wind power. Wind accounts for 10 percent of the installed capacity in Texas’ grid, and it generated 5 percent of the state’s power in 2008.
For the past five years, utilities have achieved more gains in efficiency than the state mandated, and the bar keeps rising. In 2009, utilities must offset 20 percent of their load growth through efficiency.
Last week, Oncor unveiled new incentives for solar power, offering to pay up to a third of the costs for a residential solar unit. Smart meters are coming to North Texas, too, and they hold the promise of big savings.
Could all this have happened without dereg? In theory, sure. In reality, no way.
Under regulation, utilities were afraid of risk and consumed with controlling costs, because every expense had to be set into the rate base. Proposals for major investments would lead to public rate cases that could drag on and on.
By comparison, the industry moves at light speed today.
That may be good for business, but CAPP says that somebody has to look out for consumers. It proposes that others be allowed to participate in complaints about market abuse, so additional voices can be heard at Public Utility Commission proceedings.
That sounds reasonable, but would it bog down the system and embroil generators in one legal challenge after another?
The state already added a market monitor, whose job is to correct market abuses. The state grid, ERCOT, is adding capacity and technology to reduce price spikes.
If they can’t do the job, maybe we can let others pile on. But on balance, the system is proving to be responsive.
On Friday, the PUC adopted rules that require electric retailers to disclose more details about their rate plans. Other PUC changes are in the works to require faster switching, stronger financial qualifications for retailers and more reasonable rates for residents who lose service and end up with the provider of last resort.
These initiatives grew out of last summer’s electricity fiasco, which cried out for a strong government response. A handful of small retailers failed after commodity prices soared, and their consumers were dropped into the market at the worst possible time — with electric rates spiking and peak loads looming.
It was painful for those involved, but consider the larger context: More than 5.2 million households have used competitive electric power, and 38,000 have been dumped onto the provider of last resort.
That’s not perfect, but it’s pretty good. And one decade in, you can say at least as much about Texas dereg.
