Deregulation Produces Lower Business Electric Costs

Before you can truly understand the deregulation issues in Texas, its important know that the state is ranked 11th in the world when it comes to its consumption. There has always been a debate between state politicians as to what the best approach would be to the rising energy costs. The only thing they could come up with was a deregulation law.

The law allowed most power customers in Texas to choose their own electricity service provider from a number of REPs or Retail Electric Providers in their area. Initially, the new law was extremely popular and customers couldn’t wait to take advantage of better plans that would offer them lower rates. The numbers are actually quite astounding. From 2002, more than 85% of commercial customers in Texas have switched their providers at least once, while about 40% of residential customers in deregulated areas have switched.

The early evidence was auspicious as a number of new firms entered the market. It appeared as if the increased competition from deregulation would lower prices. In the two years after deregulation, more than 60 startup firms entered the Texas electricity market. These new firms served both residential and commercial areas.

Oddly though, prices began to rise once deregulation was embraced by customers. It was so detrimental to the public, the electricity costs increased by over 40% in a three-year span between 2002 and 2004. The end result was residential homeowners and commercial business feeling treated as a result.

However, proponents of deregulation tried to explain the situation as best they could. The answer revolved around electricity prices rising due to natural gas obstacles. During this time the natural gas industry had reached an all time high and reached increases of 60%. So they were trying to tell us that deregulation was actually saving customers money.

Economist also lent credence to the claims of deregulation supporters when they maintained that increased competition would eventually lower prices as soon as energy prices stabilized. Customers remained skeptical. They felt as if they had been sold a false bill of good and that the politicians and legislators had not fulfilled their end of the bargain.

In the end, the economists and supporters were right. As soon as the cost of natural gas stabilized and later declined, electricity bills in Texas fell across the state. In fact, from the summer of 2008 to the winter of 2009, power prices in Texas declined by nearly 30 percent.

Many experts attribute this to the glut of natural gas in the state coupled with decreased energy demand due to the recession. Though Texas residents still have their fingers’ crossed, many in the know expect prices to continue to fall as the recession intensifies and people use less natural gas.

While everything looks sweet on the surface, it’s forcing businesses to cut prices as well. The good news is they believe that the lower electricity costs are helping them keep their businesses afloat until the economy turns around.

About the Author:

About the author: J. Dyess has been specializing in the Electricity market segment for many years and written articles on Business Electric prices.

Technorati Tags: electricity deregulation, Texas