Report on Texas Electricity Deregulation

by admin on May 22, 2009

 

Texas Commercial Electricity Deregulation and Now

Texas electricity prices have had quite a remarkable history since deregulation started in 2002. Who does Texas have to thank for deregulating the energy service markets in Texas? Enron was the influential company that successfully lobbied the state of Texas government with who knows how much money to make deregulation come to pass. When 2002 deregulation went into effect the natural gas markets flew out of control. Some of the highest electricity prices in the history of the Texas electricity market occurred during the year of 2002. Because natural gas controls the cost of electricity in Texas it had a negative impact on the perception Texas energy consumers had with the deregulation process. Energy consumers in Dallas were accustomed to paying a fair price for electricity service to TXU Energy which was the monopoly electric company in that area prior to deregulation. To switch from TXU Energy and then be charged what appeared to be an inflated price for electricity made many people mad. Complaints were filed by the hundreds with the Public utility Commission of Texas. Many consumer sites like ripoffreport and pissedconsumer have now become the sites of choice to list complaints people have with Texas electricity companies that overcharge their customers. In 2002 sites like this were not as popular and so complaints were lost within the archives of the PUCT and not readily indexed on the search engines as what we have now.

Consumers Have a Large Voice in the Retail Electricity Markets

If you do a search for “TXU Energy rip off” or “TXU overcharging” you will find some corporate sites and maybe some related sites about TXU Energy rates and jobs. You will also find many consumer sites with complaints about the company. Electric service customers in Texas are beginning to list their complaints by the thousands on the internet with consumer sites. These sites allow consumers to quickly research and put the pieces together about an issue they experienced that maybe other people have experienced as well. Going back to our discussion about Texas deregulation in 2002 we find that many people had issues with the government deregulating the markets but people did not have the choices they have now of expressing their dissatisfaction. Enron was a heavy hitter in lobbying the Texas government t o deregulate the energy industry. Consumers took up issue with Enron and deregulation as Enron was known for inflating California electricity prices and now here we are in the beginning stages of Texas deregulation with historically high electricity rates. The governor of Houston even conceded eventually that deregulation was just not working.

Is Deregulation to be Blamed for Rises in Electric Service Prices?

Evidence suggests that deregulation in Texas is not the real cause for occasional high electricity prices. The issue has to do with natural gas prices rising to unreasonably high levels at times. This first started in 2002 and then happened again in the summer of 2008. Most of the country was impacted by a barrel of oil rising to as high as $140 a barrel last year. Natural gas rose directly with crude oil during this time. Natural gas doesn’t always have as close as a correlation as it did the summer of 2008 but at its peak natural gas was trading close to $14 per mmBtu during July 2008. Consider that natural gas is currently trading at $3.70 per mmBtu as of today. Electricity in Texas has a 90% correlation with natural gas prices and so people are really feeling the recovery in the drop in energy prices right now. Unfortunately electricity prices don’t always drop as fast as people would like when natural gas falls because there is another factor at play. Heat rate is the component of the electricity rate of transforming natural gas energy into electricity. This cost historically rises as natural gas prices fall. The heat rate can make electric rates fall at a slower rate than natural gas prices fall.

Texas Energy Prices and Trading on Commodity Desks

Many conspiracy enthusiasts and some news journalists theorized that the summer of 2008 oil and natural gas price increase was due to energy markets being manipulated by investment banks and subsidiary energy companies of more well known companies. Trying to trace the culprit within the commodities trading market is impossible as the trading desks remain anonymous for the most part to protect investor’s positions from being known by competitors. These energy companies that may have pushed energy prices up through complex investment strategies involving large volumes of investors is not a proven allegation but some energy experts believe there isn’t another answer for the fast rise in prices considering there was plenty of supply and not enough demand to lead to the speculative rise in oil and natural gas prices.

Picking a Bottom in the Price of Electricity

Picking the right time to lock into a fixed electricity price is a no brainer this spring of 2009 as Texas electricity prices plummeted just as fast as they rose and are now at near historical lows. For the risk averse it is recommended to lock into a 2 or 3 year residential electric service agreement. If you are a large commercial or industrial facility sometimes a 5 year or longer agreement can be locked into at a decent price. For longer term fixed electricity service agreements it is important that your company has impeccable credit or you will be asked for a very large sum of money for a deposit. For most Texas commercial businesses it makes more sense to go with a standard 1 or 2 year fixed electricity agreement. Many are now concerned that Obama’s green and renewable energy laws and regulations will lead to higher electricity costs. It was just last year that we saw a residential electricity customer in Texas paying over 30 cents a kWh with First Choice Power during the rise in electricity prices. Just imagine if you were a large commercial business using 1,000,000 kWh a year. This would represent having to pay .20 cents more per kWh than before. That represents $200,000 more that a company would have to pay per year to run their company. These additional costs get pushed to the consumer and could potentially cause this business to outsource to China where electricity prices are cheaper.

Pursuing Clean Technology to Produce Texas Power

If Texas is allowed to continue to pursue clean technologies using coal and natural gas power plants as well as nuclear facilities we should be able to keep the state’s electricity rates down. If Texas is required to expand wind generation facilities and solar as well as invest in the infrastructure to get this power to cities like Houston and Dallas we may experience some higher prices for the next 10 – 20 years or more in order to pay back this money. Investing in this will be expensive but it would not be the end of the world. If Obama is allowed to achieve his goal of encroaching in on the state of Texas laws and regulations we may find that Texas accepts the money for these renewable energy projects from the federal government. Instead of letting the state pay for the electric grid renewable energy expansions we may end up agreeing to larger federal income taxes that never go away because we accepted federal loans or grants. In the UK people are now faced with 61 % income tax rates. Let’s hope that Texas does not fall prey to the temporary loans from the federal government in exchange for rights we will never get back. The federal government power grab is an issue Texas energy consumers cannot afford.

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