Deregulation of the Texas electricity market
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Electricity deregulation in Texas was the result of the coming into force of Texas Senate Bill 7 on January 1, 2002. According to the law, deregulation is to be phased in over several years.
As a result, most Texas power customers can choose their electricity service from a wide variety of "Retail Electrical Providers" (or REPs) The "local wires" utility in the area still maintains the power lines, only the companies generating electricity were affected.
Since 2002, approximately 85% of commercial and industrial customers in Texas had switched power providers at least once.
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[edit] Background
The state of Texas is the largest electricity market in the United States; Texas also ranks as the 11th largest worldwide market, falling between Great Britain and Spain in terms of annual consumption.
[edit] System
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The law designated the Energy Reliability Council of Texas or ERCOT would have the authority to oversee grid reliablility and opertaions so as to ensure no particular buyer or seller would gain an unfair advantage in the marketplace [gaming] www.ece.iastate.edu/ece-homepage/seminars/information-infrastructure-ins/market-design-and-gaming-in-co.html (See Agencies and Influence: Another Special Case--ERCOT (The Tangled Web Redux) Christy Woodward Kaupert in Texas Politics Today.
"Aggregators" are legal entities that join together two or more customers for the purpose of purchasing electricity at reduced rates. Although there are almost 200 aggregators registered with the Public Utility Commission, perhaps only 25 or so are still active in terms of acquiring and managing customers.
[edit] The "price to beat"
Included within SB7 was a regulated rate concept governing the pricing behavior of the ex-utility providers known as the "Price To Beat" or PTB.
The PTB serves as a target against which potential entrants to the market in an area compete. For example, a PTB price that is fixed at the actual wholesale procurement price of electricity does not give potential entrants a margin upon which to compete against incumbent utilities.
During 2005, the "Price To Beat" became a ceiling or cap on rates charged by the firms prior to deregulation. From 1 January 2007, these incumbent firms will be allowed to charge their customers with rates that are not subject to regulatory oversight.
[edit] Entry of new firms
Since 2002, other companies such as Constellation Energy and FPL Group have entered the ERCOT market for the purpose of gaining market share.
More than 60 startup firms have been formed specifically for the Texas electricity market, split almost equally among commercial-usage focused firms and residential-usage firms.
[edit] Results
The primary claim of pro-deregulation supporters was one of lower electric rates. Since electrical deregulation was implemented in Texas in 2002, the residential rate for electricity has been increased seven times, leaving the current Price To Beat at around 15 cents per kilowatt (as of July 26, 2006, www.powertochoose.org). The average American rate is about 10 cents per kilowatt, similar to that of the few regions in Texas which chose not to deregulate; for example, Austin residents only pay 10 cents per kilowatt. While it is true that residents of some Texas regions have access to over a dozen different competitors, those competitors offer only a small discount from the Price To Beat; for example, the lowest cost provider in North-Central Texas charges 12.9 cents per kilowatt (as of July 26, 2006, www.powertochoose.org).
Using the Austin rate of 10 cents per kilowatt as a model of still-regulated pricing, the citizens of Texas in deregulated markets pay a premium of 29% above what would be their likely rate had Texas never experimented with deregulation. Regarding the expectation of lower rates, deregulation has been a failure. And it should be pointed out that this same failed result has repeated itself in every application of residential electrical deregulation in America since the movement started in the 1990's. In fact, many states are now putting their plan to deregulate on hold because lower rates have yet to be achieved in any of the deregulated states.
If environmental impact is the test for success, then the results are a mixture of good and bad. Flush with profits from the 29% premium being charged to Texas residents in deregulated markets, producers like TXU are proposing eleven new coal-fired powerplants which, compared to natural gas-fired powerplants, produce more pollution but higher profits (coal is cheaper than natural gas on a per-produced-kilowatt basis). With the help of Governor of Texas Rick Perry, these eleven proposed plants are on a "fast track" process for permits in an effort to be grandfathered in under more leniant EPA pollution rules which expire soon. Because the Dallas/Fort Worth region already has smog problem which requires yearly automobile pollution checks, many public organizations and city mayors are objecting to the TXU plan. On the positive side, the ballooning profits from Texas electrical providers has drawn considerable investment by wind-turbine companies. In fact, Texas surpassed California in wind energy production in July of 2006.
However, if energy efficiency is the test for success, then deregulation has been a success. As electric bills have quickly ballooned due to skyrocketing rates, residents are proactively trying to reduce their electrical usage by: using more moderate thermostat settings, installing insulation, installing solar screens, and other such activities. So as with all utilities, usage decreases as the price rapidly elevates as it has in Texas since deregulation set in.
[edit] Sourced needing to be integrated
http://www.senate.state.tx.us/75r/senate/commit/c850/c850_78.htm http://www.ercot.com/mktparticipants/docs/UpdatedCertifiedCRs%20020206.xls http://www.puc.state.tx.us/nrelease/2001/120701.cfm
