Exit, Voice, and Lp&l

For many years Lubbock, Texas was the largest or among the largest cities with dual, competing electric utilities. If a consumer was unhappy with utility A, all it took was a phone call and about three days and the consumer would be hooked up to utility B. Standard economic theory suggests that such an arrangement would be unsustainable, but by most accounts electric rates stayed low and customer service was high. Some of this story is laid out in a 1981 Reason magazine article, “Two utilities are better than one.”

The official history once posted on municipal utility Lubbock Power & Light’s website claimed, “All electric customers in Lubbock have benefited from the decision of those early pioneers to begin retail competition.” It is true. A decade ago rising gas prices caught the city by surprise, LP&L tried to raise its rates noticeably higher than competitor Xcel, and consumers simply switched. Rather than simply stick consumers with the bill for their own lack of management savvy, the city and LP&L were forced into a complicated and unpleasant set of deals that diminished management’s role but kept rates low. Consumer exit protected the power consumer’s pocketbook.

Then, a couple of years ago, city powers that be decided two utilities were more trouble than one, LP&L bought out competitor Xcel in the city limits of Lubbock, and the town’s electric service was monopolized for the first time since September 1917. I blogged about the change, and a few locals objected, but the transaction sailed through without much difficulty.

Fast forward to today. The city council has recently approved a rate increase, implemented right before the summer began and accompanied by a massive billing snafu the first month, and now rather than LP&L being one of the cheapest in Texas it has rates near the state average.  Consumers, who no longer have exit as an easy option, are finding “voice” to be a frustrating experience.

Once you could call the competitor, and a few days later you’d be out. Now you can call your city council member, and when that turns out to be less than satisfying, start grumbling about recall petitions and lamenting the loss of the good old days. But pay your bills on time, or at least make billing arrangements in time, or get cut off.

As one Tech student remarked, “Maybe there is a lesson about competition in there.”

[NOTE: I’m not taking a stand for or against the rate increase. Perhaps it is needed given the circumstances, even though consolidation of the two utilities was supposed to yield cost savings, etc. etc. However, had the city still be in competition mode, I suspect the management plan would have been much different.]