Texas electric rates among highest in nation

AUSTIN, TEXAS Under electricity deregulation, Texans have paid some of the highest rates in the nation - a reversal of at least a decade of relatively cheap electricity under the state's old regulated system.

That's the conclusion of a national utility expert, who also reports that those in deregulated states typically have had larger rate increases than customers in states still under regulation. Separate academic reports likewise show, after making adjustments for inflation and other factors, that electricity prices in Texas have gone up since 1996, while those in regulated states have gone down; and that in general terms, electricity prices in the United States have not fallen under competition.

"Deregulation isn't working in the way that most people had hoped," said Kenneth Rose, a senior fellow at Michigan State University who did the study for Virginia regulators. "Evidence that we're gathering - at least as we had originally thought it would work - is not bearing out from the customer perspective."

The studies are made possible because some states have opted to end regulation while others have maintained it. In effect, this mix of markets has allowed experts to make head-to-head comparisons that help answer a basic question: Is deregulation saving money for consumers?

And the growing academic consensus, said Rose, is no.

For his report, Rose took nationwide utility data from the U.S. Energy Department and calculated pricing trends for different states. His analysis shows that from 1990 through 2000, Texans paid less than the national average for electricity.

Then in 2001, as the Public Utility Commission began allowing utilities to keep excess earnings in preparation for deregulation, Texans paid roughly $89 per month for electricity. That was about 3.2 percent higher than the national average of $86.20.

In 2002, the first year of deregulation in Texas, rates dipped below the national average - as a 6 percent rate cut was mandated that year by the Texas Legislature.

In 2004, the typical Texas residential customer paid an average of $96.00 per month, compared with the national average of $89.40.

The available data for Rose's analysis go only through 2004, although the he said initial information from 2005 indicates that the pricing gap between regulated and unregulated areas continues.

That would fall in line with another recent review conducted by the Office of Public Utility Counsel - a separate agency from the PUC - that indicates that Texans, on average, paid the 11th highest rates in the nation in 2005. Clarence Johnson, an analyst with the office, said utilities are also increasing rates this year.

Utility experts have posited several reasons for what at least three researchers have termed the "failure of U.S. electricity restructuring."

For instance, Seth Blumstock and Jay Apt, in a report prepared for the Carnegie Mellon Electricity Industry Center, note that the U.S. transmission system was not designed to handle the volume of transactions needed under deregulation; that several new institutions required under deregulation have resulted in higher industry costs; and that increased market uncertainty under deregulation has increased capital costs.

But that conclusion and others are rejected by TXU spokesman Chris Schein, who says Texas is on the right track. He said a recent study by the Public Utility Commission has found evidence of savings under the state's deregulation law, and that Rose, in his August report, did not specifically examine the features of the Texas market.

"The PUC has already done the analysis, and if we were (still) in regulation, we would have seen more (price) increases," he said.

He said that even if average residential rates are higher in Texas, that doesn't mean that consumers cannot shop around for better deals. Comparing Texas to other markets is like comparing "apples to tires," he said.

Other researchers have examined the effect of deregulation nationwide: MIT professor Paul Joskow, in an August report, found that residential prices in states without retail competition declined about 8 percent between 1996 and 2004. By contrast, under the same conditions, rates in Texas have increased about 2.5 percent over the same period.

Blumstock and Apt, in their Carnegie Mellon report, state that "our research shows that there is no evidence that restructuring has produced any measurable benefit to consumers or to the systems that have restructured."

Rose, in his report for Virginia regulators, lists Texas and 15 other states with full retail deregulation, meaning residential and business customers can choose their suppliers. Two states, Oregon and Nevada, have partial retail deregulation that allow only large commercial customers to choose.

He also said that several states, most notably California and Montana, are trying to "put the genie back into the bottle" by going back to regulation.

That's impossible for most states because their electricity systems are interconnected. When they moved to deregulation, key portions of their system came under the jurisdiction of the Federal Energy Regulatory Commission.

Texas has a separate electric grid, so it "has that (re-regulation) option more available," Rose said.

Fort Worth Star-Telegram

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