Analysis: The murky and confusing Texas electricity market
L.M. Sixel | Nov. 1, 2019
A basic economic principle holds that a key to well-functioning and efficient freemarkets is transparency, a state of affairs that allows participants to have the same access to information to make decisions on what to buy and sell. It works in stock, oil, and currency markets, where prices and other essential information are available to everyone.
But in Texas, where electricity deregulation was touted as unleashing the power of free enterprise, power markets tend to be more like frosted glass than clear panes. The murkiness extends from retail plans with confusing pricing and terms to wholesale markets, where bids are kept secret, to transmission, where the biggest commercial and industrial power users can game the system to push costs onto small businesses and households.
Texans have paid for this lack of transparency. For nearly two decades, consumers living within the compeititive power markets of Texas — which cover about 85 percent of the state — have consistently paid higher prices for electricity than those buying electricity from regulated municipal utilities and cooperatives, according to the Texas Coalition for Affordable Power, a group of cities that buy power in the deregulated market.
On average, Texans who choose their electric providers pay nearly 9 percent more for electricity than those in the regulated markets of cities such as as Austin and San Antonio, according to the coalition. For the average Houston customer, that has translated into an extra cost of nearly $400 a year in each of the past 15 years.
Call it the deregulation premium.
Trent Crow, a former JP Morgan energy trader and founder of Real Simple Energy, a website that charges conumers $9 a month to find and manage low-cost electricity plans, said part of the business model for the retail electricity providers is to make things as complicated as they can. That in turn makes it difficult for customer to estimate potential monthly costs and easily compare plans to competitors.
“People get confused and lose trust,” he said. “They are overpaying but they can’t put their finger on why.”
Nearly two decades after the start of deregulation in Texas, many residential consumers still operate under a misguided assumption that getting electricity reliably depends on which retailer they choose. Power, however, is delivered by utilities, such as CenterPoint, no matter which retailer is chosen. In the end, electricity is the same no matter which retailer sells it; the only difference between companies is price.
“Too many Texans are still overpaying for power,” said Fred Anders, founder of Texas Power Guide in Houston, a website that helps consumers find the lowest cost plans. “And very likely a disproportionate share of them are people who can least afford to overpay and have less time and awareness to navigate the minefield of gimmicks in the electricity market.”