“Current” Woes – Deregulation and Transmission
One of the most controversial moves within the electrical power industry has been deregulation. Within the 1990s, it was seen as a way to break up an industry that had become a monopoly of big systems into smaller, more competitive ones. Instead of a single entity that generates, distributes, and sells electrical energy, what we know as the Power Company was supposed to only generate the power and handle repairs and emergencies.
Retail Electric Companies (REPs) would buy the power and sell it to company and residential clients, providing such functions as client service and billing. In deregulated markets, there are also Affiliate Retail Electric Providers (AREPs). The difference between a REP and an AREP is that the REP is an independent business; an AREP is an offshoot of the original utility organization, now in a separate company to do the selling. Clients who chose not to shop around and/or switch providers would end up with their local utility’s AREP.
Interestingly, the AREP is required to offer a standard rate for electrical service-literally known as the “Price to Beat”-which is set by the state’s utility commission. If a REP can beat the regular rate, the customer is free to switch service companies at any time.When deregulation was very first proposed, its backers promised savings of 25 to 35 percent. In reality, the hot competition for your power company was not so hot. For the first few years, although venture capitalists poured $300 million into the industry in 2000 alone, very few start-up firms emerged.
Those that did offered savings that frequently amounted to less than 10 percent. The lessons learned have been costly and confusing for consumers. With their prices no longer regulated by state governments, private utility companies posted record profits from 2002 to 2005, claiming to just be doing what was necessary to keep up with market costs. Some experts also blame the August 2003 blackout, in part, on the postderegulation confusion: No one in the new, “broken-up” market had adequate responsibility for maintenance from the energy grid or for making investments in new generation capacity.
A 2003 study by Lexecon, Inc. of Cambridge, Massachusetts, examined the financial data from 64 energy and utility companies and found those that performed the greatest were in states that had stuck to conventional business model, with customers who pay a flat rate for power based on how much was consumed, billed in numbers of kilowatt-hours. The same Lexecon study concluded that transmission will be “both an opportunity and potential drain” on the balance sheets of utility firms.
Investments in the backbone of the electrical transmission system, or “grid,” have declined from $5 billion in 1975 to about $2 billion in 2005, and the U.S. Department of Energy estimates it will take $10 billion a year over a decade to sufficiently upgrade the nation’s 200,000 miles of power lines. The program is aging, and individuals everywhere fight the placement of new transmission lines and substations on or near their property. Transmission costs account for about 10 percent of an average electric bill.
By Franco Zinzi
Tags: electricity deregulation
electricity deregulation | admin April 7, 2010
1 Comment to ““Current” Woes – Deregulation and Transmission”
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By j m kester, April 20, 2010 @ 12:34 PM
The experiment of electricity deregulation(E-D) in Texas has proven to be a failure. E-D needs to be re-invented or scrapped. In current practice, E-D is not working as planned and is only serving to pad the pockets of some opportunistic businesses according to reviews that I’ve read of some Retail Electric Providers(REP).
E-D in the Houston area has produced no tangible benefits to the consumer. On the contrary, the only effects of deregulation I have seen is higher electric rates along with my annual anxiety and frustration as the contract expires with my current REP and I must again chose an REP and a plan for the following year. While making this decision, I must be very mindful of the 14 day window permitted to make a REP change, or else, I could fall into the trap set by my current provider called the “early termination fee” and be forced to pay some exhorbitant, undeserved fee.
Unfortunately, the consumer is purposefully placed at the disadvantage in this process. The consumer is presented choices, but exact and understandable contract terms are not fully disclosed, intentionally misleading, omittted or worse. It is impossible for the consumer to make a wise and informed choice for an REP and a plan, without all fees, charges, conditions and other terms being fully disclosed, understandable and comparable for the consumer.
The PUCT publishes a well know website http://www.powertochoose.org, touted to help the consumer make a wise and informed choice for a Retail Electric Provider. The website shows REP offers conveniently sorted from lowest to highest price (cents/1,000Kwh), but the lower price offers may be quite misleading for the consumer and are not truly comparable:
For example:
a)the low rates for (1)one-month terms (i.e. month-month) will generally jump 30-50% on subsequent months.
b) the low fixed-rates for some longer terms ( 6, 12, 24 months) may be “unbundled” and NOT include significant, variable electric utility charges (ex: fees for transmission & distribution (i.e. TDU), fuel, monthly fees) which ARE included in other’s rate plans.
c) PUCT’s Consumer Complaint Score for comparison not prominently displayed.
Even though E-D was fathered by the Texas legislature, the PUCT is the nanny but has been remiss and inattentive to its responsibilities. The members of the Public Utility Commission of Texas need to review and recommit to the first tenet of their mission statement “to protect customers”, since I sure don’t feel protected.
Some fine first steps would be to revise and fully standardize the FACTS Label and portions of the Terms of Service document to permit straight forward comparision of REP plans by the consumer and avoid all billing suprises and many other complaints as well. Additional steps could be made to make the http://www.powertochoose.org website more helpful for consumers by standardized forms, full disclosure and true comparisons. Perhaps, web-links to independant REP reviews could be considered. Also, strongly suggesting that the REP’s amortize their “termination-fee” over the contract term. To fully appreciate and grasp the effects which E-D has had for the average rate-payor, the PUCT should earnestly seek the comments, experiences and opinions of deregulated electricity consumers.
I naively presume that the legislature’s motives were pure when instituting E-D, but something has gone terribly wrong (for the electric consumer) as painfully demonstrated by the following facts: Our neighbors to the west in Austin and San Antonio (with municipally-owned electrical companies) who elected NOT to adopt E-D, are enjoying some of the lowest electric rates in the country, while Houstonians endure rates that are as much as 150% times theirs and among the highest in the country.
I believe the politicians and their appointed bureaucrats owe us an explanation.