Recently, the Texas Coalition for Affordable Power (TCAP) released a snapshot report that compares the rates of energy deregulation in Texas against areas that currently are not energy deregulated. (TCAP is a non-profit organization that negotiates with the appropriate entities for better electricity-buying deals.)
What the report revealed is that residents living in energy deregulated areas like Houston and Dallas now have the option to choose from many different competitive electricity plans. These plans or offers include rates that are lower than what residents in energy regulated areas of the state pay. In addition, the amount or number of low rated electricity options offered by retail energy providers in deregulated areas is rapidly growing.
Both of these findings prove that customers in deregulated areas of Texas who shop around for power are starting to see energy savings.
Residential Energy in Texas
Texas is a unique state when it comes to energy. This is due to the fact that depending on where a resident lives within the state, they might receive their electricity or power a little bit differently from residents living in another city or county. The reason for this is because particular areas offer energy plans via: deregulation, or regulation.
Energy Deregulation: The state passed energy deregulation laws in 2002. Energy deregulation separates the utility, or the delivery of energy from the supply of energy, which is handled by retail energy providers. What this means for residents of Texas is that while they typically do not have a choice about the utility that provides rates and services, the choice is theirs when it comes to their retail energy provider.
Energy deregulation has opened up the supply of electricity to competition. A retail energy provider that wants to succeed in the market must provide plans and incentives that offer customer savings. Otherwise, there is nothing to stop that customer from switching to another retail energy provider with better rates.
Energy Regulation: When energy deregulation laws were put into effect, they didn’t, and still don’t, apply to every resident within the state. These areas within the state do not offer customers the option to choose a retail energy provider. They must purchase all elements of their energy (delivery, supply, etc.) from a utility.
For example, some areas of Texas including, San Antonio and Austin are currently served by municipally-owned utilities or electric cooperatives. Other cities and towns within Texas fall outside regions where the state’s power grid can provide service. These areas are powered by an organization called the Electric Reliability Council of Texas (ERCOT).
ERCOT is primarily responsible for managing the availably of electricity to 24 million Texans. They are an independent system operator for the state, with 550 generation units connected to over 43,000 miles of transmission lines. The organization also administers retail switching for areas that are deregulated and is governed by a board of directors that abide by laws set forth by the Public Utility Commission and the Texas Legislature.
The fact that the state provides energy services in multiple ways provides an interesting opportunity that isn’t available in other states. Analyzing and comparing each of the different ways in which residents purchase energy provides a lot of information and important insight into the industry.
Major Impacts of Energy Deregulation
The report produced investigates energy rates as they are provided to different residents of Texas every year from 2002 to 2014. These findings highlight important energy information including:
- Areas exempt from deregulation, on average, have paid lower residential electric rates compared to deregulated areas of the state. At the moment, it is unclear whether or not this trend will continue past 2014.
- Per household, residents living in deregulated regions would have saved a little more than $5,100 from 2002 to 2014 if they paid the same average rates as residents living in regulated areas. However, since 2011, the difference between residents living in areas of energy deregulation and residents living in areas of energy regulation has lowered. In other words, the price difference in 2014 is the narrowest it’s been since deregulation started in 2002.
- Residents now have more options than ever before within energy deregulated areas. These options are much better than rates in regulated, or deregulation exempt areas and seem to be available in greater numbers than ever before.
- Major regulated distribution and transmission service providers have increased and assessed charges at a rate that is greater than inflation. While these rates are regulated, the increases are partly responsible for higher prices in areas of deregulation.
Texas Energy – Long-Term Trends
The report also identified several long-term energy trends through analyzing residential energy deregulated, regulated and other areas within Texas from 2002 – 2014.
During this period of time, residents living in energy deregulated areas on average paid higher rates compared to residents living in regulated areas. Translating this information into percentages shows that deregulated area rates have been between 9.2% (2002) and 46.5% (2014) higher than regulated areas. This also means that residents living in energy deregulated areas might have lowered their energy bills by a total of $25 billion dollars if they had the same averages prices as residents living in regulated areas.
That being said, during the same period of time, the residential energy prices across the United States raised at a rate that was less than the rate of increase for both energy deregulated and regulated areas. In addition, the rate increase in regulated areas was more than the rate of increase in deregulated areas.
For 10 of the 13 years included in the report, the annual average residential electricity price in energy deregulated areas have been higher than the overall United States average. This is compared to the annual average residential electricity price for regulated residents, which was higher than the United States average only once in 2005.
Distribution and Transmission Charges in Texas
Both distribution and transmission utilities are regulated and the rates they charge have an impact on the prices retail electric providers charge to their customers. The reason for this is because distribution and transmission rates are included in the prices all retail electric providers charge operating in the utility’s territory – they are non-by-passable rates.
Therefore, when utilities increase rates, like Oncor or CenterPoint Electric in 2003, they can start to increase their rates faster than the rate of inflation. The report also takes into account the fact that a residential customer energy bill also includes utility distribution and transmission charges, which make up an increasing share.
Despite this, a survey conducted in early 2016 by the Public Utility Commission of Texas showed an increase in pricing options or offers that had lower prices compared to the electricity rates paid in San Antonio, a regulated city within the state. This is in comparison to previous years, where the same surveys showed many less deals in deregulated areas like Houston that had lower rates compared to regulated areas.
In the Dallas-Fort Worth Area, the same survey showed an increase in pricing options, with 24 plans or offers that have lower rates than those found or paid for in San Antonio.
Recent Texas Energy Trends
The most interesting results from the analysis come from the most recent information provided by the Energy Information Administration (EIA). The report outlines several important facts about energy in 2014 including,
- On average, residents living in electricity deregulated areas paid 12.59 cents per kilowatt hour. The United States average at during the same year was 12.52 cents.
- 8.94 cents was the average price of electricity for the state of Texas, for all class of customer (this includes, industrial, commercial and residential) in both deregulated and regulates areas. The United States average price the same year was 10.44 cents.
- Residents in deregulated areas would have saved a combined total of $1.4 billion dollars had they paid the same average price as residents living in regulated areas.
- A regular customer who consumed an average of 1,300 kilowatt hours of electricity each month but living in a deregulated area might have saved around $263 if they had paid regulated prices.
- The areas served by the Electric Reliability Council of Texas (ERCOT) have average residential electricity prices that were higher than rates charged outside the ERCOT region.
Texas Energy Rates – What Now?
The important take away points from the report help to show that the energy deregulated market is gaining maturity. For residents living in deregulated areas, they have more options available than ever before. Therefore, shopping around for the best rates and plans is a key factor to lowering the monthly cost of electricity for deregulated customers. With energy deregulation offered to over 85% of the state’s residential population, the findings over the next couple of years will help to define whether or not this trend continues.
Currently, the released snapshot report does not include data for 2015 or 2016, as that information has not yet been released by the EIA. This makes it difficult to determine whether or not the difference between average electricity prices within regulated and deregulated areas of Texas changes or continues. However, what is clear is that with the ever increasing competitive options and plans being offered by retail energy providers, the future looks extremely promising for energy deregulation in the state of Texas.