Report: Texas Deregulated Retail Prices Now Below National Average; Progress Risked by New Capacity Mandate

A report from the Texas Coalition for Affordable Power said that average electric prices in parts of Texas open to deregulation have dipped below the national average for the first time in a decade, but notes that this progress may be short-lived if new capacity mandates are imposed on customers.

Link to TCAP Report

According to the TCAP report, which relied on EIA data, in 2012 Texans in deregulated areas paid, on average, 11.75 cents per kilowatt-hour for electricity, while the nationwide average was 11.88.

"This marked the first time in 10 years that average residential electricity prices in deregulated areas of the state dipped below the national average," TCAP said.

TCAP suggested that the average rate in the parts of Texas with choice has persisted above the national average due to, "persistent inefficiencies in the state’s deregulated electricity market, continued customer confusion about rates and service, and the relatively high prices charged by the state’s legacy electricity providers."

"In 2012, average residential prices in deregulated areas of Texas were 18.6 percent higher than average prices in areas of Texas outside deregulation," TCAP said.

However, in recent years, the differential in Texas between average residential electricity prices inside and outside of deregulation has diminished, TCAP said. Average residential rates in deregulated areas have fallen four years in a row. "These are positive developments for Texans who receive electricity in the state's deregulated electricity market," TCAP said.

"Unfortunately, prices in deregulated areas could increase under proposed mandates under consideration at the Texas Public Utility Commission. These mandates would require that retail electric providers make extra 'capacity' payments to generation companies. These capacity payments would inflate retail electric bills, potentially through a new line-item fee," TCAP said.

TCAP recommended that, "The PUC should reject any proposal to subsidize generators with ratepayer-financed capacity payments. These subsidies could substantially increase electricity costs in Texas."

"The state should reject any proposal to re-regulate the state's deregulated electricity market, including any move to create capacity subsidies for generators. Establishing capacity subsidies would mark a retreat from electric competition. Instead, policymakers should strive to make the market more efficient and fair to customers," TCAP said.

As in past years, TCAP recommends that, "[t]o reduce confusion in the electricity market, the Public Utility Commission should establish rules for standardized electricity products for residential consumers."

"Retail electric providers should be required to offer these standardized arrangements along with all their other electricity deals. Uniform terms and conditions of these standardized deals would be set by the Public Utility Commission. The prices would be set by the retail electric providers," TCAP said.

While, in the past, the notion of a standardized retail contract has not gained strength, due to the Commission's reluctance to regulate REP offerings under PURA, there is certainly more authority in PURA concerning consumer protection for the Commission to approve a Commission-standard retail contract, and compel its use, than for the Commission to mandate that all retail electric providers meet a capacity obligation (through centralized auction or alternative mechanism).