Texas Claims Bragging Rights on Power

Mar 27, 2001

Texas Claims Bragging Rights on Power

Promoters of the Texas plan to deregulate electric power, in the true tradition of the Lone Star state, are bragging that they will show California how it's done.

And there are observers who say they might be right.

In contrast to California, a power plant building boom has been under way in Texas since 1995 and shows no sign of letting up soon. And Texas has apparently taken measures to ensure there will be real price competition and customers will have real choices between providers.

"We believe they have done a lot of things right in Texas, in that they have taken a model that has worked in Pennsylvania and may even have improved upon that, although that remains to be seen," says Mark Stultz, vice president for public affairs at the Electric Power Supply Association.

Even the director of a citizen watchdog group in Austin, Tom Smith of Public Citizen, agrees that Texas has done a better job than California. He warns, however, that a lot depends on the customer in Texas doing his research and making a wise decision.

Since 1995, 27 new power plants have been constructed in Texas, 27 more are currently under construction and 31 are in the planning stages. Most of them are more environmentally friendly gas-fired plants, rather than coal fired, and the others are wind-powered.

"If you build it, they will come," says Pat Wood III, chairman of the Public Utility Commission of Texas in Austin. "Texas built a positive environment for clean, efficient power plants and investors continue to come here. Now it's time for customers to enjoy the benefits of choice."

New Texas plants will add more than 21,000 megawatts of capacity by the summer of 2002, enough to supply nearly 5 million Texas homes on the hottest summer day. Demand is expected to reach 67,000 mw this summer, but total generation capacity should exceed 83,000 mw for a 23 percent reserve margin, according to the PUC.

"Unlike California, we've got plenty of power in Texas," Wood says. "Even on the hottest day this summer, during peak demand, we'll have more electricity than we need."

Stultz says Texas also ensured that customers would actually have a choice in getting the best deal for their energy dollar.

"While the California plan nominally said customers would have a choice, they didn't provide the incentives either for competitors to come in and compete for those customers or for those customers themselves to switch," he said. "Texas seems to have done a better job of recognizing that a big part of restructuring is the need to give customers a say and give them a choice of suppliers."

The full launch of competition in Texas won't come until Jan. 1, 2002, but a select group of investor-owned utility customers will be able to take advantage of competitive prices in a shakedown pilot project called the Texas Electric Choice Program that starts June 1.

The aim of the Texas deregulation signed June 18, 1999, by Gov. George W. Bush was to give customers the ability to shop for lower electric rates like they shop for groceries. Texas electric bills are among the highest in the nation due to heavy air conditioning costs in the summer.

Under the law, the electric rates of investor-owned utility customers were frozen in September 1999 in preparation for full competition in 2002. On Jan. 1, there will be an automatic 6 percent rate cut across the board to establish a "price to beat" for competing electricity providers.

"The 6 percent would be a significant cut for those who would not choose to change, but room for competitors to beat the price," said Terry Hadley, a Texas PUC spokesman.

Texas customers can stay with their current provider and accept the 6 percent cut.

Twice a year a utility can make rate adjustments based on fuel costs. There is a provision to pass along higher fuel costs to the customer, which was a major problem in California where customer rates were capped and wholesalers could not pass along higher fuel costs.

Rising natural gas prices could have an impact in Texas. More than 90 percent of the projected new electric power plants in the nation will be fueled by natural gas but supplies are tightening, according to a recent report by Cambridge Energy Research Associates.

Under the Texas law, the customer could take out a contract with his provider that would control the price for a set number of years.

"There is every reason to believe there is going to be price volatility, and unless people look out when they do their contract they could be paying much more than they anticipated," says Smith. "The whole thing could backfire."

At least 14 investor-owned utilities have been certified to enter the Texas market. The Legislature gave cities that run their own electric systems, along with rural electric cooperatives, the option of entering the competitive market, or maintaining their current operation.

Texas customers will also be able to choose between competing companies based on their environmental records, Smith says. The law requires old coal-fired plants to reduce emissions and encourages more use of gas-fired technology and renewable power sources, such as wind.

About 46 percent of the electric power in Texas currently comes from natural gas-fired plants and 41 percent from coal or lignite-fired plants, with another 13 percent from nuclear plants. The renewable energy sector supplies less than 1 percent. About 20 wind projects have been proposed in West Texas and several are under construction.

Smith says the consumer will have a variety of factors to consider before making his energy choices in the new, competitive Texas energy market.

"You better shop around," Smith warns.