03/04/2005: "And Then There Were Three—A Perspective on Electric Competition"
It’s been just over three years since Senate Bill 7 (SB7) introduced competition into the Texas retail market for electricity. Let’s take a look at what’s happened since January 1, 2002, the effective date of SB7.
Some 85 retail electric providers have been certified, and 55 are currently supplying service. New providers continue to enter the market and offer customers various cost savings plans plus a variety of options.
The performance of the Electric Reliability Council of Texas (ERCOT) wholesale market has improved. As a result, customer complaints related to electric services have declined notably.
SB7 mandated 6% savings for residential and small commercial customers of incumbent providers. Competition has yielded significantly better results.
About 1.5 million requests to switch providers have been processed over the past three years. Approximately 18% of residential customers and a quarter of commercial and industrial customers are now receiving service from non-affiliated providers.
More than 50% of the megawatt-hours sold to small commercial customers and almost 70% of the megawatt-hours sold to large commercial and industrial customers have been through non-affiliated retail electric providers.
In addition to the savings to customers, the opening of the retail market to competition has also led to a substantial increase in facility construction.
Renewable energy capacity grew during the past year, and investment in electricity generation is continuing as new plants are added to the total capacity. These plants are replacing older, less efficient facilities. Utilities are also increasing efforts to reduce emissions.
Nearly 554,000 Texans have enrolled in the low-income assistance program. Accountability for the program has been strengthened.
The level of competition in the retail segment has grown by virtually every measure and has resulted in significant gains in business activity across the state. With the emergence of competitive market forces, customers have gained more freedom to engage in negotiation with power providers.
In some cases, customers have banded together through aggregation programs to save more than they could individually. As a result, these cost savings free up dollars for other purposes, such as saving, investing, and spending, thereby benefiting the Texas economy.
Public sector entities such as cities, counties, and school districts are saving millions of dollars as a result of deregulation. As more municipalities, school districts, and other public sector organizations switch to lower cost providers or join purchasing groups, these effects will increase markedly.
It’s true that prices for electricity have risen, but the uptick stems from dramatic increases in the cost of natural gas rather than any failure in the competitive marketplace. In fact, prices in non-competitive areas exceed those of the independent retail electric providers. Reliable and cost competitive electricity is a significant economic development advantage. Along with the savings experienced by residential customers, commercial and industrial customers are enabled to compete more effectively in national and global marketplaces.
The positive outcomes after three years of deregulation offer compelling evidence of the effectiveness and efficiency of the Texas market. The economy of Texas is far better off because of SB7 as tens of thousands of jobs have been created through the additional business activity sparked by cost savings resulting from deregulation. In fact, my recent analysis reveals economic gains of $5.3 billion in annual total expenditures, $2.6 billion in gross state product, $1.4 billion in yearly personal income, and about 30,000 permanent jobs.
It is evident that the opening of the retail market to competition was a well-conceived and highly effective public policy decision. It is clearly proving to be an avenue of significant value to all Texans.