(Re)Considering (De)Regulation and Resiliency
May 20, 2021
A different market design probably would not have averted the crisis in Texas. But there is a clear need to protect consumers from these price spikes.
When the February storms left millions in the dark, it raised questions about deregulation and whether it undermined electricity reliability in Texas. Tamra Reynolds, co-host of CoBank’s Power Plays podcast series, and I both have deep personal and professional ties to the Lone Star state and wanted to probe this issue for our upcoming podcast, “Texas and the State of Deregulation.” We sought to understand whether the past winter’s crisis exposed flaws in market design, regulatory oversight or storm planning. Our many conversations with industry thought leaders simply underscored the complexity of the issues in Texas — with no easy answers for that state or the industry, as a whole, when it comes to climate resiliency.
Even when we focused the conversation on the benefits or drawbacks of deregulation, the answers were not straight forward. For instance, the main argument for deregulating the electric utility industry was that competition would benefit consumers in pricing and through innovation and broader marketplace options. But what we found is that expanded consumer choices wasn’t necessarily tied to lower prices for consumers, the bedrock argument for this market structure. Indeed, The Wall Street Journal’s recent accounting efforts — as detailed in “Texas Electric Bills Were $28 Billion Higher Under Deregulation” — suggests that deregulated customers might be paying higher bills than regulated customers.
The Journal’s assessment of customer bills from 2004 through 2019 found the annual rate for electricity was 8% lower from Texas’s regulated utilities, on average, than the nationwide average rate, while the rates of retail providers averaged 13% higher than the nationwide rate. Paul Griffin, the first of the two industry experts we featured on our upcoming podcast episode, pointed out that deregulated consumers could be experiencing higher prices and potentially less reliability. Paul, the current executive director of Energy Fairness and former lead lobbyist for NRECA, shared a chart comparing average residential prices in 2020 (see below). It shows eight of the 10 highest rate states in the contiguous U.S. were deregulated. He further noted the Lone Star state’s reserve margin has steadily eroded since it opted to deregulate in 2002, briefly falling below 8% in 2019. “For consumers, you want both affordability and reliability. And it would appear with deregulation, you are not getting either,” Paul told us.
However, it is not entirely clear that a different market design would have insulated Texas against the February crisis or that greater regulation would have averted the rolling black outs. Some Texas regulated markets (Austin, for example) did a reasonable job in keeping the lights on during the storm. But in Louisiana, similar regulated utilities fared less well.
As we will explore at length in this month’s podcast, a different market design would not have necessarily averted the crisis in Texas. “We built our infrastructure for the weather of the past rather than the weather of the future and this created a huge problem,” notes our second podcast guest, Dr. Michael Webber of The University of Texas at Austin.
Admittedly, there's no easy answer. But as Michael sums up in our podcast, “It's pretty messy, but I think we can get to something better. I think the way to get something better is probably not to get into the culture wars of wind versus gas, or fossil fuels are all good, or even the definition of what firm power is. I think we just need to plan for the future and do so intentionally.”
Disclaimer: The information provided in this report is not intended to be investment, tax, or legal advice and should not be relied upon by recipients for such purposes. The information contained in this report has been compiled from what CoBank regards as reliable sources. However, CoBank does not make any representation or warranty regarding the content, and disclaims any responsibility for the information, materials, third-party opinions, and data included in this report. In no event will CoBank be liable for any decision made or actions taken by any person or persons relying on the information contained in this report.
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