A White Paper Explains the Benefits of a Competitive Market
HOUSTON - The Energy Institute at the University of Houston released a study
today on the impact of restructuring the Texas
electric market. The
Institute's findings conclude that competition in the sale of
will be beneficial for the state, and that Texas
restructuring is drastically different than that of California's.
The authors of the study argue that the Texas law and competition
will bring electric prices down. Beginning in January 2002, a six
percent discount to most electric customers who do not switch to new
provider will significantly lower electric bills. With this discount alone
the typical residential customer could save about $78 per year, and the
average commercial customer could see $425 in annual savings. Those
customers who do switch to a new provider are also likely to see
savings. Overall, savings by electricity customers statewide could add up to
almost a billion dollars in a year.
The authors of the study note the difficulty in comparing prices under
competition and regulation. They conclude that competition will result
in lower total electric bills for customers than in a regulated market.
Under both regulation and competition, however, the rates that customers pay
will be affected by changes in the price of natural gas. During 2000
the cost of natural gas rose, and prices for electricity in
Texas also rose. The study concludes that in a competitive market a
customer's electric bill would be lower than in a regulated market, but that
future prices may be higher than today's prices, if fuel prices
A second focus of the study evaluates the environmental effects of
electric restructuring. Provisions in the restructuring legislation are
expected to improve air quality by requiring renewable energy to generate
2,000 MW of the state's electricity. The law also requires older
high-emission power plants to reduce their emissions or shut down.
Additionally, recent technological advances mean that new clean-burning
natural gas power plants are built faster and more efficiently. The use of
smaller on-site generation units will also conserve resources by limiting
the need to build new transmission lines.
The study contrasts the strengths of the Texas competition model with the
California restructuring. The California model did not permit retailers to
buy power under long-term contracts, so that they could not manage their
price risks. More importantly, California did not build enough power plants
to meet the rising demand of a strong economy. Fueled by growth in Silicon
Valley in the 1990s, the demand for power in California increased,
Texas, on the other hand, has a healthy reserve margin of electric
generating capacity, and the supply of electricity should be adequate for
customers' needs, even in the hottest months. Unlike California, Texas
allows new power plants to be built quickly to meet customers' needs, and it
has enjoyed a building boom of new power plants since 1995. And unlike
California, Texas allows the retail electric providers to buy power under
long-term contracts, and use these contracts to manage the risk of price
The report notes that competition in the airlines, telecommunications,
and natural gas industries in the late 1960s to the early 1990s led to lower
prices, new technologies and innovation, and better products and services.
The same benefits are expected to come from restructuring the U.S. electric
industry. Forty-two states are in various stages of implementing electric
deregulation legislation, and at least three states, Pennsylvania, New
Jersey, and Maryland, are examples of electric competition working well.
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