Over the past 10 years, we’ve added over 3 million Texans and our economy (after adjusting for inflation) has grown by a quarter of a trillion (real gross product up $255.0 billion dollars since 1999). Many other things have also changed. I’ve lost more hair, my email inbox has grown exponentially, and my cell phone is less than half the size of the old one.
Another thing that has changed is that we’ve now seen 10 years of competition in the market for retail electric power. The Texas Electric Choice Act (Senate Bill 7—SB7) was passed in 1999. SB7 required the vertically integrated investor-owned utilities to unbundle their business functions, among other things. In doing so, room was created for new electric providers to enter the market.
Three years later, on January 1, 2002, the state retail market opened for competition with appropriate transitional mechanisms. With the introduction of electric competition, Texas customers were given a variety of choices of electric providers, differing not only in price, but also in source of energy, locked-in-rates, and other billing options.
Within six years (June 2008), some 80% of customers in the state had made a recognizable choice regarding the offerings of the various competitors. More than four out of every 10 customers served by retail competition switched providers based on price or other benefits. Many others opted to remain with their incumbent providers. About 43% of these decisions involved residential consumers with almost 60% commercial.
Over the past decade, with the increase in population and growth in business operations, demands for energy have significantly expanded. To help meet these growing requirements, private companies in the electric utility industry have invested billions in generation and transmission capacity. The state’s electric capacity in renewable energy has also increased, adding over 4,000 megawatts of wind power alone. The investment in wind farms and other renewable sources, together with those for other types of power generation and transmission, have led to billions of dollars in economic activity and tens of thousands of jobs across the state.
The opening of the retail segment of the electric utility industry in Texas has resulted in numerous benefits to residential, commercial, industrial, and public sector customers. Among them have been a greater consumer choice and product innovation and lower prices than would be in place in a regulated environment.
My firm recently took a look at the savings and what they’ve meant to the Texas economy. We found that the positive effects of competition continue to grow and now total an impact of nearly $22.4 billion in total spending in the economy each year, $10.3 billion in annual output, $6.3 billion in annual personal income, almost $4.2 billion in annual retail sales, and more than 131,000 permanent jobs. Moreover, the economic stimulus associated with competition is now responsible for $761.0 billion in annual State revenues and $338.0 million in resources to various local governments across Texas.
Today, markets are offering up to 90 options for power from as many as 25 different companies. The increases in the number of providers, service plans offered, and switching opportunities are important indicators of healthy competition. In addition, the large investments in power generation and transmission by the private sector signal the success of the Texas electric power market and the value of competition.
Although not without challenges, Texas has achieved remarkable success in electric competition. As the state faces the daunting tasks of fashioning a recovery from the current malaise and providing impetus for lasting prosperity, it is imperative that the healthy electricity market that has emerged continue to contribute to future economic development.