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Texas Electricity Prices Are Falling, but That Doesn't Mean Deregulation Lowering Them

Texas Electricity Prices Are Falling, but That Doesn't Mean Deregulation Lowering Them
Peter Ryan

The deregulation of the electricity market has been a mixed bag for Texans. On the bright side, we paid less for power last year than the national average. The architects of the energy-only market (primarily electricity generators) would call this a coup -- proof that consumer choice and the free market have driven prices down.

But that's only true if you don't examine power prices in the 15 percent of Texas that lies outside the deregulated market. And it's only true if you don't look at more than a decade of prices that have exceeded that national average. The Texas Coalition for Affordable Power, a group of cities and governments that collectively negotiate with power companies, did that very thing, and what its report reveals about deregulation isn't terribly flattering.

Its analysis shows that in areas exempt from deregulation, like Austin and San Antonio, which have their own municipal utilities, power prices have remained lower -- often far lower -- than those in the deregulated market. In 2012, despite seeing the lowest prices this market had given us so far, they still remained on average some 18.6 percent higher than those in regulated areas. It was only last year, in fact, that the deregulated market finally posted lower prices below the national average.

This has been a fundamental shift in Texas, where before the state boasted some of the lowest electricity prices in the country.

The cost of these higher prices is depressingly huge. TCAP crunched the numbers and found that if we had paid as much as those Texans outside of the deregulated market, we'd have saved $22 billion since 2002. That's about $4,500 for the average customer. In 2012 alone, the best year so far, we still could have saved $1.5 billion.

Still, prices in the deregulated market have fallen steadily since 2008, due to low natural gas prices, which usually peg the price for electricity. The irony is that this boon for rate-paying Texans is seen as a fundamental flaw in the market that needs rectifying. Power generators say the low prices make it difficult, if not impossible, to justify the construction of new power plants to keep up with growing demand.

Texas regulators seem to be leaning toward a fix: Forcing Texans to pay more. In the last year or so, they've already ratcheted up the spot price of electricity to combat the ills of low prices. Perversely, whatever savings the deregulated market is finally realizing may vanish if generators get their wish.


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