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Study: Average Texas Residential Rates Lower In Some Competitive Areas Versus Non-Competitive Areas

June 8, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Editorial Note: This story was updated June 8, 3pm ET.

The original story quoted text from the published study, reproducing the text exactly as it appeared in the study, which stated, concerning Texas residential electric rates, "by 2016, the average price paid by residential customers in competitive market areas was lower than the average price paid in non-competitive market areas."

After reaching out concerning the statement, one of the study's authors, Kenneth B. Medlock III, Ph.D., said that the text as published in the study should contain the qualifier "some" so that it reads, "by 2016, the average price paid by residential customers in SOME competitive market areas was lower than the average price paid in non-competitive market areas." Medlock noted that the lack of the qualifier "some" should have been caught in editing of the published study. Medlock noted that this point was not true until the last couple of years, as discussed in the study and our story.

Medlock noted that, for the commercial sector, the qualifier "some" is not needed as commercial rates in competitive areas are, on average, lower than in non-competitive areas, and have been for a few years now.

Our story has been updated to reflect the addition of the qualifier "some" where applicable

Study: Average Texas Residential Rates Lower In Some Competitive Areas Versus Non-Competitive Areas

A new study was released today which finds that, "by 2016, the average price paid by residential customers in some competitive market areas [of Texas] was lower than the average price paid in non-competitive market areas."

The study, Electricity Reform and Retail Pricing in Texas, was authored by Peter R. Hartley, Ph.D., Kenneth B. Medlock III, Ph.D., and Olivera Jankovska at the Center for Energy Studies at the James A. Baker III Institute for Public Policy at Rice University

The study finds: "At the residential level, prices were much higher in competitive areas than in noncompetitive areas when reforms were first implemented -- but they have since fallen to a point of parity with non-competitive market areas. This outcome highlights the importance of evaluating market dynamics over time rather than focusing on sample averages. Thus, residential consumers in competitive areas paid a higher average price for electricity from January 2002 through December 2016 than did customers in non-competitive areas. But this fact masks the underlying trends that market reforms have wrought. While the average price paid by residential customers in 2002 in areas that subsequently became competitive was between two and three cents higher than the rates paid in areas that remained noncompetitive, this was before competition could have had any impact. More importantly, residential prices declined in all competitive market areas from 2002 to 2016, while they increased in all non-competitive market areas over the same time period. As a result, by 2016, the average price paid by residential customers in some competitive market areas was lower than the average price paid in non-competitive market areas."

"In addition, while wholesale electricity prices declined from 2002 to 2016, with a significant increase in the interim, the declines observed in residential prices in competitive market areas were generally larger than the declines in wholesale prices. This is consistent with a market in which competitive electricity service providers are realizing efficiency gains and cost reductions," the study said

Further conclusions from the study were:

• "The average rate paid for electricity by residential consumers in competitive areas has been higher than that paid by residential consumers in non-competitive areas."

• "In 2002, the average price paid by residential customers in competitive areas was between two and three cents higher than the rates paid in non-competitive areas. This is before market reforms and retail competition could have had a material impact on the price paid by residential customers."

• "In 2016, the average price paid by residential customers in competitive areas was roughly equal, in aggregate, to the average price paid in non-competitive areas, with some competitive areas actually seeing rates below those in non-competitive areas. In fact, in all competitive areas prices declined from 2002 to 2016, but they increased in non-competitive areas over the same time period."

• "Wholesale prices declined from 2002 to 2016, which is generally consistent with trends observed in natural gas markets in Texas and across the country"

• "The declines in residential prices in competitive areas from 2002 to 2016 were generally larger than the declines in wholesale prices, which is consistent with efficiency gains and associated cost reductions in the competitive market."

• "The volatility of residential prices (measured by standard deviation) in competitive areas has been higher than in non-competitive areas. Moreover, price volatility in competitive areas has generally mirrored wholesale price volatility in competitive areas, but the same is not true in non-competitive areas."

• "The changes in wholesale and residential prices from 2002 to 2016, and the patterns of volatility in the price series, support the notion that residential prices better reflect wholesale prices in competitive areas. This result is consistent with electricity service providers acting in a competitive market and suggests that competitive markets have delivered what was intended."

The study reported annual averages of the inflation-adjusted (real) monthly residential billing data normalized by 1000kWh as follows, by several competitive and non-competitive areas:

                                    Rate Change
               2002 Avg   2016 Avg  (2002-2016)
SWPS            0.0835    0.1007      0.0171
SWEP            0.0823    0.0942      0.0119
Magic Valley    0.0910    0.0933      0.0023
Upshur          0.0814    0.1021      0.0208
Victoria        0.0957    0.1077      0.0120
Austin Energy   0.0993    0.1005      0.0013
CPS             0.0910    0.1055      0.0145
San Marcos      0.0867    0.0912      0.0045
---
AEP-CTX         0.1155    0.1047     -0.0108
AEP-NTX         0.1143    0.1019     -0.0124
Oncor           0.1090    0.0930     -0.0161
Reliant/CPT     0.1125    0.1021     -0.0104
TX-NM           0.1182    0.1000     -0.0182

The data used in the empirical analysis are taken from ERCOT, the Texas Public Utilities Commission, the US Bureau of Labor Statistics, the US Energy Information Administration, and the US Federal Reserve. All pricing and cost data are in real 2015$, using the US Consumer Price Index as a deflator.

Link to studies:

Study

Executive Summary

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