Janee Briesemeister of Consumers Union

Deregulation fails to curb rising electric bills (Oct. 2002).
By Janee Briesemeister

Recently, a consumer called our office asking, "If power prices in Texas are so low, why are bills going up?" Good question!

Last week newspapers reported that Ohio-based utility American Electric Power Co. announced the closing of 16 power plants in our state due to "low prices" in the wholesale market. That news follows on the heels of last month's Public Utility Commission vote to raise consumers' electricity bills by 5-10%.

Wholesale prices are too low, but retail prices are increasing. What's going on here? The answer is simple — it's deregulation. The current incongruous state of affairs is not surprising to us. It confirms what we've predicted all along — residential customers are likely to pay higher electric bills as a result of electric-industry deregulation.

By way of background, the Texas deregulation law requires the old utility monopolies, companies such as Reliant and TXU, to charge the residential customers a rate called the "Price to Beat" for a period of five years. When the law was passed consumers were told that the Price to Beat would bring an immediate price reduction and continue to provide price protection as the market developed and grew.

The utilities, however, have eagerly taken advantage of a provision of the law that allows them to easily raise rates, despite overwhelming evidence that their actual costs of generating electricity have not increased. The law assumes that there's enough competition to prevent utilities from raising prices without justification. However, that is far from the case.

Worse yet, state regulators are trying to convince consumers that they are better off. In an August 23 news release, the PUC claimed that even with the rate increase, electric bills are lower than last year. This, while technically true, is disingenuous. The PUC continues to use 2001 as the benchmark for comparison, although they know full well that rates in 2001 were unusually high because of a run-up in gas prices in late 2000 and early 2001. Compared with electricity prices in effect when the deregulation law was passed by the Legislature, consumers are paying more.

Deregulation has failed to deliver on its promises to consumers. The market is not aggressively going after residential consumers' business, yet we all need to purchase electric service. That's why consumers are stuck with seeing increased electric bills that are not tied to the actual costs of the providers. Deregulation allows electric providers to raise rates, just because they can. Only vigorous competition — which is unlikely to happen, or strong regulatory protection — which is sorely lacking, will prevent this type of nonsensical rate roller-coaster.

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