Retail Electric Power in Texas: Growing Pains or Just Pain?

Michael Giberson

EnergyBizInsider, Examining Texas:

Like everything else in Texas, energy prices are getting big. But is it the cause of deregulation or other factors such as the price of underlying fuels?

 

This is the question that the Governor’s Competiveness Council took up. … It acknowledges that prices have risen there the last few years but it says that this has been a function of shedding the last remnants of regulation along with high energy demand and rising natural gas prices.

“Our retail market is the most successful retail market in the world,” says Barry Smitherman, chairman of the state’s Public Utility Commission, whose comments appeared in the council’s report. “We have 25 retail electric providers fighting against each other every day for your business. Natural gas prices have increased 400 percent while electricity costs have risen just 30 percent.” …

While imperfect, the system is working. In 2006, Texas consumers in areas subject to competition could choose from 17 providers that offered as many as 36 different rate plans. Now, those customers can pick from roughly 28 suppliers that provide nearly 100 rate options. The new opportunities have meant that roughly 70 percent of commercial and industrial customers have switched providers since 2000 while about 40 percent of residential customers have shopped around.

“You can’t grab consumers by the throat and force them to shop; you also can’t allow their inertia to stifle the development of decentralized market processes that benefit so many other consumers as well as innovative producers,” says Lynne Kiesling, economics professor at Northwestern University. “So the institutional design challenge is to reduce the information costs and switching costs that create the inertia.”

I have to object to this claim by this Ms. Kiesling, whoever she is, by reminding her that you can in fact, metaphorically speaking, “grab consumers by the throat and force them to shop.” Isn’t that the normal course of business in traditionally regulated retail power and natural gas areas? Typically, the state utility commission blesses a single company in each region and woe to any consumer who wants to buy from someone else. The state will use taxpayer resources to stamp out any attempts to flee the local monopoly.

Similarly, when transitioning to competitive retail market structures, the state can help consumers overcome the costs that create inertia. For example, when Georgia moved to more competitive retail natural gas markets a decade ago, after a transition period which allowed consumers to shop, the state simply assigned the customers that hadn’t switched to one of the competitive retail suppliers. Analysis of the early results were generally favorable.

UPDATE: NewsWatch: Energy reports it gets complaints about retail deregulation in Texas every time electricity is discussed. Tom Fowler links to a 2005 story he did in the Houston Chronicle comparing deregulated and regulated rates, and provides links to another blog for another viewpoint.


2 thoughts on “Retail Electric Power in Texas: Growing Pains or Just Pain?

  1. Mr. Giberson (whoever you are),

    I believe you have actually reinforced the point made by Ms. Kiesling (whoever she is).

    “You can’t grab consumers by the throat and force them to shop; ..”. However, the government can and does “grab consumers by the throat and force them” NOT to shop. The government (regulators) assumed this power; and, demonstrated the ability and willingness to exercise this power.

  2. Hee hee! Yep, Ed, that’s the point exactly :-). Although I don’t remember when and where exactly I said “grab them by the throat”. I have to ask Ken where he got that!

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