Deregulation seems to be dropping prices, at least in the Houston area. Reliant Energy reportedly offered a residential rate of 1.9 cents for the first 250 kilowatt-hours and 6.7 cents thereafter - well below the 9.67 cents charged by TXU for service until January 1 and even below its new rate of 8.25 cents that went into effect New Years Day. But, Reliant is free to raise rates without any regulatory approval, just by giving customers 45 days’ advance notice. Suppliers are free to make special deals to attract customers. You can see the risk passed onto customers.
Although the opening of retail deregulation has prompted an initial 15 percent drop in price offered by TXU, how the result will impact the six utilities included and consumers is uncertain. Each of the competitive utilities has posted “price-to-beat” rates from 8 to 18 percent below previously regulated rates. The current lower prices could cut into profits, but a 40 percent drop in the price for natural gas used for power generation provides some breathing room. And peak demand occurs in the summer cooling season so providers won’t face higher costs in the next few months. One TXU customer who did not switch to Reliant explained, “I heard about the offer, but they said they did not have anything on paper. I decided to wait awhile and see if it is permanent.”
Deregulation does not cover all Texans, since the municipal utilities serving Austin and San Antonio, the Panhandle, Lubbock and El Paso plus others were exempted for several years. The area served by Excel Energy was exempted because, “a deregulated market can provide benefits for our customers, but in the short term it would be difficult to realize those benefits where costs of electricity from Excel already are low,” according to VP Gary Gibson.
Sam Jones, CEO of the Electric Reliability Council of Texas expects to see up to 2,000 residential customers switch suppliers daily, referring to the accounting and billing. The state’s transmission system remains regulated by the Public Utility Commission, and will operate as usual. ERCOT manages the power grid for 85 percent of the state. The system has consolidated ten separate control areas previously scattered around the state in a new headquarters near the Austin International Airport. A new center to provide backup redundancy is under construction in nearby Taylor. Many experts favor this centralized control system over that of other states in which the grid operator plays a smaller role. Bugs that were discovered in the system during the pilot phase have mostly been worked out. The system has switched about 110,000 consumers to competitive suppliers with a dramatically expanded computer system. Jones expects Texas to avoid the wholesale price spikes that destroyed deregulation in California, where the state restrictions on power plant construction created shortages. He noted, “We have created a situation here where people in the generating business want to come to Texas to build plants. So we have a surplus of generating capacity, and that will keep the wholesale price down.” The PUC provides consumer information, including referrals to all licensed suppliers on its Web site at www.powertochoose.com.
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