Texas’ Wild West Electricity Market Drawing Scrutiny

February 25, 2021

As Texans struggle with the aftermath of an unprecedented winter storm leaving them with water and energy problems, Dallas County Judge (in Texas, County executives are called “Judges”) Clay Jenkins joins Stephanie Ruhle to discuss what residents need to do now.

Wall Street Journal:

Texas’s deregulated electricity market, which was supposed to provide reliable power at a lower price, left millions in the dark last week. For two decades, its customers have paid more for electricity than state residents who are served by traditional utilities, a Wall Street Journal analysis has found.

Nearly 20 years ago, Texas shifted from using full-service regulated utilities to generate power and deliver it to consumers. The state deregulated power generation, creating the system that failed last week. And it required nearly 60% of consumers to buy their electricity from one of many retail power companies, rather than a local utility.

Those deregulated Texas residential consumers paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state’s traditional utilities, according to the Journal’s analysis of data from the federal Energy Information Administration.

The crisis last week was driven by the power producers. Now that power has largely been restored, attention has turned to retail electric companies, a few of which are hitting consumers with steep bills. Power prices surged to the market price cap of $9,000 a megawatt hour for several days during the crisis, a feature of the state’s system designed to incentivize power plants to supply more juice. Some consumers who chose variable rate power plans from retail power companies are seeing the big bills.

None of this was supposed to happen under deregulation. Backers of competition in the electricity-supply business promised it would lower prices for consumers who could shop around for the best deals, just as they do for cellphone service. The system would be an improvement over monopoly utilities, which have little incentive to innovate and provide better service to customers, supporters of deregulation said.

“If all consumers don’t benefit from this, we will have wasted our time and failed our constituency,” then-state Sen. David Sibley, a key author of the bill to deregulate the market, said when the switch was first unveiled in 1999. “Competition in the electric industry will benefit Texans by reducing monthly rates,” then-Gov. George W. Bush said later that year.

The EIA data shows how much electricity each utility or retail provider sold to residents in a given year and how much customers paid for it. The Journal calculated separate annual statewide rates for utilities and retailers by adding up all of the revenue each type of provider received and dividing it by the kilowatt-hours of electricity it sold.

From 2004 through 2019, the annual rate for electricity from Texas’s traditional utilities was 8% lower, on average, than the nationwide average rate, while the rates of retail providers averaged 13% higher than the nationwide rate, according to the Journal’s analysis.

The Texas Coalition for Affordable Power, a group that buys electricity for local government use, produced similar findings in a study of the state’s power markets and concluded that high statewide prices relative to the national average “must be attributed to the deregulated sector of Texas.”

In other states that allow retail competition for electricity, customers have the option of getting their power from a regulated utility. The absence of an incumbent utility in parts of Texas that allow retail competition makes it difficult for consumers to know if they are paying too much for power, critics say.

The push to deregulate the electricity-supply market in Texas and elsewhere in the U.S. began in the 1990s amid similar efforts in airlines, natural gas and phone services. Leading the charge was Enron, the Houston energy company and champion of free markets that went bankrupt in 2001 amid revelations of widespread fraud.

For power generators, the laissez-faire market design rewarded companies that could sell electricity inexpensively and still recover their capital costs. But it provided little incentive for companies to spend cash on infrastructure that could protect power plants during sporadic severe cold snaps.

Catherine Webking, general counsel for the Texas Energy Association for Marketers, an industry trade group, said retail providers give customers access to more choices than many standard utilities, such as renewable-energy products. Customers also typically have the option to switch plans, she said. If customers “don’t feel it’s the best thing for them they can find a different provider,” she said. 

On the retail power side, dozens of competitors emerged after deregulation. But recently, competition in Texas has been declining amid a wave or mergers in the industry.

More at link

Fallout: Energy retailer Griddy now target of a billion dollar class action suit.

Houston Public Media:

A Chambers County woman who says she was charged more than $9,000 for electricity during last week’s winter storm is petitioning for a $1 billion class action lawsuit against retail electricity provider Griddy, according to court documents.

Lisa Khoury, of Mont Belvieu, alleged in a petition filed in Harris County District Court that she attempted to switch providers after realizing she was facing sky high electricity prices, but was not able to.

Over a six-day period from Feb. 13-19 Griddy charged her $9,340, according to the petition. It goes on to say her normal monthly bill is $200-$250. 

“The outrageous bills added to Khoury’s stress and financial burden, especially as a retiree,” reads the petition, which seeks class action protection. “She describes herself as going into ‘survival mode.’ Many Texans complained the crisis drained “the mental reserves they had left’ from the COVID-19 pandemic.”

The company did not respond to a request for comment Tuesday.

Heading into the storm Griddy warned its 29,000 customers in Texas that prices were about to go up, and in an unusual move asked their customers to switch electricity providers. 

However, by the time many customers got the notification most providers had closed for the President’s Day weekend or were not accepting new customers.

One Response to “Texas’ Wild West Electricity Market Drawing Scrutiny”

  1. rhymeswithgoalie Says:

    The WSJ article had the headline “Texas Electric Bills Were $28 Billion Higher Under Deregulation”.

    That’s such a backwards way to think about it. Texas Electric companies that lobby politicians made $28b more under deregulation. That’s what Texan politicians call freedumb!

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: