October 07, 2007

A Tale of Two States: Texas vs California

Today, the Houston Chronicle reported that Texas consumers have decided that the state's experiment with energy deregulation has been a costly failure. Rather than bringing about lower costs, Texans have seen their electric energy bills go up more than all but three other states.

"It's like there's a penalty for being a Texan when it comes to your light bill," said Mike Coleman, a Cypress homeowner who also is responsible for the electric bills at an industrial equipment supplier with offices in four states.

Here were some specific points from that piece:

  • Since 2002, the price of natural gas has risen sharply which has led to the increase in customer electric bills. But:

    [...] the very structure of Texas' deregulated market exposes customers to the full impact of rising natural gas prices more than in other states, or even in parts of Texas still served by regulated electric companies, municipally owned utilities or electric cooperatives.

  • The price for energy in areas that are still served by regulated utilities, such as San Antonio and Austin, have been able to keep prices lower.
  • Some people want to blame those Texans who haven't shopped around for a better deal.

    "When people complain about prices I ask them, 'Have you shopped around? Have you changed your consumption habits?' " said Steve Madden, senior vice president of supply at StarTex Power, an independent electric retailer.


    Houston Mayor Bill White said high rates disproportionately affect consumers who are least able to switch providers namely low-income residents.

    Companies may require customers who cannot demonstrate satisfactory credit to put down deposits, which can be as high as one-fifth of their estimated annual bills.

  • Texas ratepayers are not too happy with their lot:

    But until the market matures or legislators step in, Texas customers likely will have higher bills than many other Americans.

    "I like free markets and I'm no Ralph Nader, but it seems weird to me that our rates are still so high compared to other states," said John Burrmann, a Missouri City homeowner who cut his rate about 25 percent in recent weeks by shopping around.

    "I'm happy with my choice to switch, but I just get the feeling the general population is getting screwed."

And John would be right. Texas is getting screwed. And one wonders what will keep their power companies from gaming the system just like they did in California in 2001. People are aware that this is always a possibility:

Critics fear the wholesale market can be manipulated by power companies by such techniques as keeping some power plants off line to help create a shortage and drive prices up.

But, of course, the power companies would never to that, would they? Oh, that's right, they actually did do that to California in 2001.

In fact, it would be useful to compare California and Texas. Both states went for deregulation in the late 1990s. Both of them saw the legislators who created the deregulations plans move on to be lobbiests for the energy companies. And the citizens of both states saw that those regions and cities with their own electric companies didn't see the rapid raise in rates their neighbors did. Deregulation certainly hasn't been too good for the citizens of the states.

Yet, there is another insiduous problem that deregulation has that we as a nation cannot afford. The deregulated energy industry has no reason to keep costs down for their consumers. No reason to reduce their customers energy usage. And no reason to invest in clean energy. When electric companies make their money on how many watts their customers use, they have a vested reason to see their customers use more energy. In fact, it makes sense for them to give their customers hairdryers for heating their houses, as that would provide the highest usage for the company.

In California, before deregulation, the state had been on a steady downward trend and the large energy companies were incented to help conserve energy as were the citizens of California. In fact, from the late 70s to the early 90s, Californians had been holding their per capita rate of energy usage steady while the rest of the country saw their energy usage increase.

It cannot be emphasized too much that using extra energy when you can get the same for less is a total waste of money. Energy efficiency pays for itself year after year, and decade after decade. And every watt you don't need to produce is one that won't be producing greenhouse gases that are warming the planet. In fact, each watt saved in efficiency costs four times less producing that watt - link.

California with its decades long focus on energy efficiency had already given California a much lower usage pattern than other states. Meanwhile, Texas had continued to look at energy usage as strictly a demand problem. This meant that by the mid-1990s, Texans were using much more energy than their fellow Californians. Pulling data from the Energy Information Administration (part of the DOE), I created the following charts that demonstrate the differences between Texas and California (the two most-populous states in the nation) from 1995 to 2004.

electrical-consumption.JPG electrical-expenditure.JPG
Per Capita Electrical Energy UsagePer Capita Electrical Energy Expenditure [the spike in 2001 was Calif's encounter with the deregulatory crooks]
Population 1995-2004 [Notice this is the only chart where California is above Texas on the graph]
Per Capita Overall Energy UsagePer Capita Overall Energy Expenditures

(Here's the detail for the charts)

Texans are using a lot more electricity and energy than their neighbors in California. And they are producing a lot more greenhouse gases. Today, they are paying a lot more for their energy than they should. But it will take changing the game there to make it work for Texans. The energy companies profits will need to be decoupled from energy usage for Texas to make it work for both consumers and producers. And a carbon tax on emissions would go a long way to making it more worth the industry's while to cleaning up their act.

Some Texans like this guy believe it is a mark of honor to live in the state that creates the most carbon emissions in the nation, but other Texans can see that it's not a zero-sum game. They can have the same services for less (and cleaner) energy and save the planet for their children if they simply make their legislators know they are tired of being played for chumps and want a sane energy policy that actually works towards a better future.

Posted by Mary at October 7, 2007 10:44 PM | Energy | Technorati links |

Bush is promoting abstinence

Posted by: ccoaler at October 8, 2007 06:25 AM

For more information on carbon taxes, take a look at the Carbon Tax Center's www.carbontax.org.

Posted by: Dan at October 8, 2007 08:15 PM