Two years into competition in the retail electric market, the Texas economy and, in fact, all Texans are continuing to reap the benefits. Customers have true choice, with multiple retail providers in all areas. According to a recent report by the Public Utility Commission of Texas, more than a million customers have switched suppliers. Many are now taking advantage of price savings between $16 and $36 per month over the Price to Beat (for residential customers with usage of 1000KWH per month). These savings are in addition to mandated rate reductions (adjusted for fuel price changes) among incumbent providers. The proportion of residential customers utilizing a competitive provider continues to grow.
Introducing competition into the retail segment of the electric utility industry has resulted in significant gains in business activity. As competitive market forces have come into play, cost reductions are exceeding the legislative mandate of 6% in many areas. Customers have more freedom to engage in negotiation with power providers, in some cases banding together through aggregation programs to save even more than they could individually. These cost savings have freed up dollars for other purposes—saving, investing, and spending. The Texas economy has benefited; I recently completed a study quantifying those positive effects.
The Perryman Group’s impact assessment system, developed and maintained by the firm and used in hundreds of applications over the past two decades, was employed to estimate the spin-off (or multiplier) activity associated with the direct gains from competition. The results were quite impressive. One source of benefit to the economy is that the opportunity to compete brings a significant stimulus for the construction of new power plants. The economic impact of facility construction since SB7 began includes almost $19.9 billion in Gross State Product and 330,226 Person-Years of Employment. In 2003 alone, construction added $1.7 million to Gross State Product and 28,152 Person-Years of Employment.
A second major source of economic gain from electric competition stems from the cost savings to customers; all categories of users paying lower prices for power will have additional resources to deploy to productive uses. Savings totaled some $1.3 billion in 2003 (up from $815.0 million in 2002). As this money is redirected into the economy, it generates significant business activity. We estimated these gains to include $1.5 billion in annual Gross State Product and 19,499 Permanent Jobs.
We’re also enjoying other benefits from the introduction of competition. Renewable energy capacity continued to grow in the past year, and utilities continued to work to reduce emissions. The number of low-income customers taking advantage of the System Benefit Fund grew to 758,526 in September 2003, up from 597,523 a year before. During the first nine months of 2003, a total of more than $127.3 million in discounts were disbursed.
The economy of Texas is far better off as a result of the introduction of competition to the electric utility industry. The second year of competition demonstrated the innovations and options originally anticipated from freeing the market are indeed occurring. Tens of thousands of jobs have been created thanks to the additional business activity sparked by cost savings, and Texas is in an increasingly favorable position in the competition for quality corporate locations. After two years of competition, it remains clear that opening the retail electric market was a well-conceived and highly effective public policy decision.