Texas Stories Tell Clear Story: Deregulation is Dangerous for Customers

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Like a perpetually leaking faucet keeping you up at night, stories about the perils of the deregulated market continue to flow out of the Lone Star State.  These stories have seriously questioned whether consumers have access to affordable and reliable power in the U.S’s largest deregulated market.

Surprisingly, none other than the bastion of print capitalism, the Wall Street Journal (Journal), has written numerous stories exposing the affordability and reliability issues confronting consumers not only in Texas but also in other state deregulated markets.

The Journal first reported the inequities facing the 60% of Texans in the deregulated market on February 24.   With an astute assertion that “none of this was supposed to happen under deregulation,” the article proceeds to note that “from 2004 through 2019, the annual rate for electricity from Texas’ traditional utilities was 8% lower, on average, while the rates of retail providers averaged 13% higher than the nationwide rate…”

Of course, this analysis by the Journal comes as no surprise to us.  Why?  Because for almost four years, we’ve been discussing how the consumer is the ultimate loser in the deregulated marketplace. In July 2017, we asserted that “…deregulated hasn’t worked for consumers. In state after state with deregulated electricity markets, prices are higher than in states with traditional markets…Reliability emergencies can be directly tied to supply constraints caused by deregulation.”

Our “white paper” in 2017 ultimately led us to get engaged in opposing an attempt in 2019 to deregulate the Florida electric utility marketplace.  And guess who was leading the charge in Florida? You guessed it, the folks from Texas who were foaming at the mouth to talk about the financial windfall Texans were receiving in the deregulated market.

By July 2019,  we pointed out that Texas’ deregulated marketplace might not be that great for the average ratepayer.  Why?  Well, on July 2, 2019, amid an unbearable summer, sizzler electricity prices spiked 25 fold to $920.48/hour.   These prices were predictable given that the Electric Reliability Council of Texas predicted the reserve margin – the amount of power available – the amount needed – at 7.5% when the preferred margin was 13.5%.  No wonder the Texas PUC Chairman called the situation “very scary.” It was very scary because it looked like Texans in the deregulated market would have anything but affordable and reliable power.

Fast forward to the week of February 14 and the Polar Vortex that gripped the state.  Winter Storm Uri rudely introduced Texas ratepayers to just how unaffordable and unreliable electricity can be in the deregulated marketplace, prompting the Journal to ask whether any ratepayer has genuinely realized the promises of a deregulated marketplace.

What did the Journal find?  On March 8, the paper found that “..in nearly every state that [retail energy companies] have charged more than their incumbent utilities in each of the five years from 2015 through 2019.”   In 2019 alone, “…consumers paid $3.1 billion more in D.C. and the 13 [deregulated] states together, the biggest single-year difference ever over what they would have paid their utilities.”

Whether it’s $3.1 billion over one year or $25 billion over ten years (Texas), what the Texas blackout in February illustrated was that the consumer is ultimately left “holding the bag” in the deregulated marketplace when it comes to affordability and reliability of electric power.