The Power of Power: Benefits of a Deregulated Energy Market

December 21, 2017 by Midlothian Economic Development

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Texas is known for having a deregulated energy market. The state moved to a deregulated electricity market in January of 2002, in an effort to drive down market prices and create better competition. Although this plan has had many critics, the benefits for the state have been abundant.

Previously, energy had been regulated on the city level, and to some extent, through the state. However, in conjunction with limitations in the types of fuel consumed, the city-state regulation contributed to prices rising quickly and often in a very short time span. This created economic concerns for state legislators. Eager to help prevent economic consequences, the market was slowly opened up, starting with a bill in 1995 that required the Electrical Reliability Council of Texas (ERCOT) to allow transmission access to independent electricity generators. This resulted in the creation of Retail Electric Providers (REPs) which could sell energy but not own the assets used for generations. These initial measures allowed for a restructuring of the market. Although some cities still have regulated rates, the majority of Texans benefit from deregulation, and the open market has created a number of benefits and given control back to consumers.

Lower Rates, Greater Efficiencies

Basic economics suggests that competition breeds competitive pricing. Texas has seen this come to fruition. Although fuel rates have seen volatility in recent years, especially with regards to costs of natural gas, Texas’ deregulated market has guaranteed a “best possible price” for consumers in allowing them choice and the opportunity to switch providers in pursuit of a lower cost. This has forced providers to remain competitive, as well as increase efficiencies. In order for companies to offer optimal rates without impacting bottom lines, providers have been forced to use more efficient energies, such as wind and solar, as well as invest in facilities that allow for greater generation capacity.

These competitive operations have forced investments by the state as well. The move toward energy alternatives by some businesses, in addition to consumer concerns, has spurred Texas to invest money in alternative ventures such as solar energy. Efforts have also been made to reduce transmissions costs by decreasing energy wasted and improving grid efficiencies. Incentive programs created by Texas’ Transmission and Distribution Utilities, and implemented by REPs, made this a reality.

Choosing Your Providers

Texas’ deregulation efforts initially revolved around the concept of “Price to Beat” (PTB). When deregulating the market, this measure was put in place to prevent incumbent utility companies from lowering their prices against newcomers to the market. In place until 2007, PTB was meant to guarantee fair competition by creating a universal price floor for existing providers. This control of the competition allowed competitors to safely enter the market, leading to both competitive pricing and diversity of choice.

These days, there are about 45 REPs in the state. They vary in price and specialization at times, but these REPs are all incentivized to created the best service offerings by competing to win over the consumer. The power of a consumer to switch is real for these REPs, in fact, since 2002 an estimated 85% of commercial and industrial consumers have switched energy providers at least once. So long as this power to choose exists, consumers can consider their interests well protected.

Impacting Your Bottom Line

Perhaps the most important benefit of energy deregulation in Texas is the effect on operating costs for businesses. Access to energy alternatives, multiple providers, and overall lower rates can all greatly impact operational costs for a business looking to move or even expand. The key is to find the right state, and even city, that allows you to benefit from the deregulation that brings costs down.

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