Report: Texas Deregulation Law to Blame for Soaring Power Prices, Transmission Troubles

A decade after Texas lawmakers passed sweeping legislation to deregulate the Lone Star State’s retail electricity market, a report by a coalition of 103 municipalities and other political subdivisions shows that Texas power prices have soared well above the national average—and more than in any other deregulated state. The report also alleges serious abuses in the wholesale power market and reduced profits for businesses as a result of deregulation.

The report, titled “The History of Electric Deregulation in Texas” (PDF), was released to members of the Texas Legislature on Monday and was commissioned by the Cities Aggregation Power Project (CAPP), a nonprofit group that pools Texas cities’ electric power needs in order to negotiate lower, more stable prices through bulk purchasing. Based on several years of data compiled by the U.S. Energy Information Administration, it compares residential rates in Texas with residential rates in other states; it compares prices in regulated states against prices in deregulated states; and it looks at the impact of natural gas on prices.

The state’s deregulation law—or Senate Bill 7—was signed into law by then-Governor George W. Bush on June 18, 1999, as a solution to high electric prices in the state. According to CAPP’s report, the number of electric providers has increased under the law—but so have prices paid by ratepayers. “Since the restructured market opened, prices have soared well above the national average. In fact, energy prices have increased in Texas by a greater percentage than they have increased in other deregulated states,” the group said in a press release.

The report also disputes that the high prices paid in Texas relative to prices paid in other states are mainly because of the state’s reliance on natural gas to generate power. About half of the state’s generation comes from gas-fired plants. “Even when considering natural gas, residents paid more under retail competition than they have paid in systems that never deregulated. Likewise, average residential prices have increased by a greater percentage in gas-dependent states with deregulation than they have in gas-dependent states without deregulation,” the report said. It also asserts that under deregulation, Texans have paid more for electricity and have seen steeper rate increases than have residents of a neighboring regulated state that uses a similar fuel mix to power its generators.

Among the report’s other key findings are that:

• Although electricity rates are up everywhere, in general, rates have increased more steeply in deregulated states.
• Enron played a key role in the deregulation of the Texas electric market. “Some of the current problems with the market structure can be attributed, at least indirectly, to the considerable political influence of Enron during the late 1990s,” the group said.
• Texas is at the nation’s forefront in the development of renewable energy, and some of those gains can be attributed to the deregulation law. But, said the group, “the aggressive build-out of wind power in West Texas will drive up transmission costs for all Texans and create new electric reliability challenges.”
• The state’s grid owner, The Electric Reliability Council of Texas (ERCOT), “continues to have serious problems managing the system.” The report said that a major market overhaul by ERCOT remains years behind schedule and is approximately 900% over initial cost projections.
• The Texas transmission system was built to support the old monopoly system—not the dynamic deregulated market. “There is not enough transmission capacity, and power cannot flow smoothly. This makes it easier for power producers to exploit transmission bottlenecks and system constraints to manipulate market prices,” it said.

Source: Cities Aggregation Power Project