Texas Retail Electric Rates Remain Higher Than Neighboring States

Michael Giberson

Over the weekend the Fort Worth Star-Telegram published a long story detailing views on outcomes in the restructured Texas retail power market.  The newspaper story might be read as a kind of rejoinder to the view Lynne expressed as she announced the availability of the book on the Texas power market that she edited with Andy Kleit.

This morning Lynne said the book “explores how Texas’s groundbreaking program of electricity restructuring has become a model for truly competitive energy markets in the United States.” I wonder what it meant by the word “model”; I’m not aware of any other state that has chosen to follow the Texas path (at least none so far). In any case, for Texas to become a model, an analyst will have to overcome the perception that the Texas approach has simply caused the state to shift from being a low cost producer to a high cost producer.

Lynne also said: “The authors contend that restructuring in Texas has been successful because the industry is free from federal oversight within the state; because new investments in electricity supply have been encouraged to insure that increased demand for power is met; because restructuring has spurred the growth of more efficient electricity technologies and business models; because the markets integrate wholesale and retail competition; and because the operation of the transmission grid has been changed to maximize its efficiency.”  The Star-Telegram story is no simple-minded hit piece, and it perhaps reveals some of the depth of the reporting that it provides a bit of commentary on each of these five points.

[ASIDE: I’m not sure I’d claim, as the last of the five points does, that “operation of the [ERCOT] transmission grid has been changed to maximize its efficiency.” ERCOT’s zonal congestion management has contributed to additional costs, which are ultimately paid for by consumers. But, as market monitor Dan Jones is quoted as saying in the newspaper story, “Further improvements in ERCOT operation of the power grid next year should make the system more efficient.”]

2 thoughts on “Texas Retail Electric Rates Remain Higher Than Neighboring States

  1. I’ve commented here before that Texas benefitted from initial conditions that contributed to local claims that it did deregulation right. I’ve never felt that Texas was a good example for anybody to follow, except that it went ahead with retail access. Texas stubbornly implemented a zonal congestion management scheme late enough that they should have known better. I’ve long suspected that the stranded-cost implementation was highly flawed, that retail customers paid way too much. This suspicion was supported by the eyebrow-raising sale price of TXU, though I’ve never analyzed it in detail.

  2. D.O.U.G: I also suspect that stranded-cost implementation was flawed – probably just about everywhere it was done. Has anyone done a careful study of the post-restructuring value of “stranded” assets? I suspect significantly less value was stranded by restructuring than utilities claimed at the time.

    Admittedly, there was a great deal of uncertainty on how things would play out. Utilities sought the “no regrets” price, and I think most of them have no regrets.

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