Monday, April 16, 2018

Fun facts about electricity deregulation

Ken Lay Enron CEO April 15, 1942 – July 5, 2006
I'm on the Nextdoor app and every now and then someone asks "I am about to change electricity providers. Who would you recommend?". The answer isn't easy. In fact it is impossible because it is extremely difficult to understand the hundreds of plans available to consumers. It's difficult to understand how much you will actually pay. And it is difficult for someone with a good plan to recommend one because the price you pay is based upon your particular usage.

It gets old hearing all the recommendations from people who think they got a good deal because they probably just think they got a good deal and really didn't. So before you ask for a recommendation, here are some points you should know. For a detailed report on electricity deregulation read The History of Electric Deregulation in Texas by R.A. Jake Dyer of Cities Aggregation Power Projects (CAPP). It's actually very good.
  1. Before deregulation. Prior to 2003 HL&P, Houston Lighting and Power,  provided electricity in the Houston area. We paid just under 8 cents/kWh. A consumer would sign up and pay their monthly bill until they no longer needed the service. The service was inexpensive, long term, and reliable. What more do you want? At the time Texas was ranked #4 in electricity affordability. Oklahoma and Louisiana was also competing for the #4 ranking.
  2. After deregulation. In 1999 the Texas Legislature began the process of deregulation with promises of more competition and lower prices. In 2003 middlemen companies came on board. These middlemen traded electricity and passed the "savings" onto the consumers. They did NOT produce the electricity. Now Texas ranks #32 in electricity affordability with Oklahoma and Louisiana still competing for #4. Electricity plans are now complicated, almost impossible to get a good deal, and short term.
  3. San Antonio. Some areas did not deregulate. They had the opportunity to opt in. San Antonio is one of those cities that did not opt in. They continue to have long term contracts at below 8 cents/kWh.
  4. Deregulation stopped. In 2009 a Senator in East Texas filed a Bill that stopped deregulation in his district citing the failure of deregulation to fulfill its intended purpose, which was to provide lower rates to consumers. The bill passed.
  5. Enron. Remember Enron? Enron lobbied for deregulation like they did in the California. California paid the price for their meddling. Enron eventually paid the price also, as well as their employees, some losing their entire retirement portfolio. (I met Ken Lay, Enron's CEO in the elevator at the Texas Capital during the Enron scandal. I always wondered why he was there.)
  6. The Power to Choose website. As part of deregulation the Public Utility Commission created the PowerToChoose.org website to help consumers compare the hundreds of plans available. The website is near worthless, but don't take my word for it. According to the PUC Chairman: Donna Nelson, chairman of the Public Utility Commission, said Thursday at a public meeting. “They’ve [electricity resellers] got all these tricky little things in their prices, and whatever the fact sheets are called – the nutrition label – that makes it really difficult for customers.”  
  7. Project 45730. The PUC took action and started Project 45730 which was literally titled "PROJECT TO EVALUATE THE POWER TO CHOOSE WEBSITE". They solicited comments on how the website could be improved. They received 197 comments from individuals and organizations. Then the PUC took no action. The website is still overly complicated and is useless in comparing prices.
  8. You just can't pick and choose. Most companies require a contract, some for as long as 5 years. If by chance you found a cheaper plan, you will have to pay a fee to break your contract or wait till your contract ends and hope that new plan is still available.
  9. Your plan may be a horrible plan for others. The rates are complicated and are based upon your specific usage. Its not easy to determine what plan would work for you or if your plan would work for others.
So be careful when you are recommending a particular company. What is good for you may be horrible for your neighbor.

1 comment:

Fred said...

Excellent summary. And to your Nextdoor neighbors, I'd suggest recommending not a company, but that shoppers simply do the math. Nearly every electricity retailer offers at least one plan that will cost a fortune for your particular usage. You can only avoid those with math.