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Report: Electricity Prices Fall in Deregulated Areas, but Problems Continue

A report analyzing Texas electricity prices finds that there are lingering problems in the state's decade-old competitive electricity market.

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Texans living in the deregulated electricity market are paying lower power prices than the average American. But they are still paying more on average than Texans living in areas outside of deregulation, according to a report released Thursday that argues problems linger in the state’s competitive energy market more than a decade after it was created.

The Texas Coalition for Affordable Power, a group of cities and other local governments, analyzed U.S. Energy Information Administration data on residential prices stretching back to 2002, the first year most Texans were allowed to choose their electricity provider under deregulation. The coalition's report concludes that trends identified in the data indicate problems in the deregulated system are only slowly improving. Meanwhile, lawmakers and advocates of deregulation say the system is working well, while one group questioned the data the coalition analyzed.

The report found that power in deregulated areas — a swath covering about 85 percent of the state — cost about 11.75 cents per kilowatt-hour in 2012, dipping below the national average of 11.88 cents.  The gap between those prices narrowed each year since 2006, as power in deregulated Texas got cheaper.

But those residents, according to the report, still pay more than Texans whose power comes from electric cooperatives or city-owned utilities that are exempted from deregulation, such as in San Antonio and Austin. Average prices in those areas hovered below 10 cents per kilowatt-hour in 2012. Texans in deregulated areas would have saved a collective $22 billion — about $4,500 per customer — since 2002 had prices under deregulation matched those outside of competitive markets, the report said.

The report said the trends suggest that the deregulated market is improving, but it may still be plagued by inefficiency, customer confusion and relatively high prices charged by legacy electricity providers.

“This is another good news-bad news story for electricity consumers in Texas,” Randy Moravec, executive director of the group, said in a press release. “This analysis shows there’s still plenty of room for improvement under our deregulation law.”

Observers have suggested that the spike in natural gas prices shortly after deregulation, followed by a dramatic decline, have also shaped the pricing trends. Many competitive providers were locked into high-cost contracts for gas for years after the price drop and only now are recovering, they say. The consumer group acknowledged that factor but said it alone did not account for the broader trend.  

The coalition made a similar argument last September when it released an analysis of consumer complaints filed with the Public Utility Commission. That report showed that complaints have declined in recent years after a post-deregulation spike.

State Sen. Troy Fraser, R-Horseshoe Bay, who in 1999 co-authored legislation that paved the way for deregulation, said the new report’s findings were not surprising, and the trend signaled that the forces of competition and tweaks to the energy market are working. 

“The market’s maturing. This is what we intended it to to do,” he said. “I think the market is performing well."

Fraser also pointed to natural gas prices as an initial obstacle to cheaper power, and he said Texas had struggled at first to rein in market manipulation from providers. But he said new policies, including a new pricing mechanism and the addition of an independent market monitor, have gradually smoothed out some of the hiccups.

“They’re very accurate in what they’ve reported,” Fraser said of the coalition’s analysis. “But we need to concentrate on the market we’re in.”

Meanwhile, John Fainter, president and CEO of the Association of Electric Companies of Texas, agreed that the market is maturing, but he took issue with the report’s use of federal data, which is based on the wholesale price formula rather than on competitive offers. 

Each month, his group analyzes competitive prices using offers posted on a PUC website called Power to Choose, which allows consumers to compare companies’ prices and complaint history. This month, the group said average one-year, fixed offers ranged from 9.7 cents per kilowatt-hour to 10.8 cents, depending on the region. That report did not compare the prices to those in noncompetitive markets.   

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