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The Role of Deregulation and Texas Electricity Rates Essay

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Updated: Dec 1st, 2021

Introduction

At the end of the twentieth century, Texas saw certain changes, which resulted in decline of its electricity market. Taking into consideration that Texas “is rapidly approaching the limits of its ability to produce electricity for is 22.9 million residents” (Lauderback), there arose a need for electricity deregulation law in the state and the deregulation bill was passed in 1999. The aim of this deregulation was to decrease the prices for electricity. However, the results were unexpected and these days Austin American Statesman reports about rather opposite data. Instead of prices starting to decline, they went up suddenly and Texans had to pay for electricity far more than national average. Some people state that deregulation was to some extent beneficial whereas others keep to the point that it was more of harm and had a number of flaws. It is necessary to consider deregulation in more details in order to find out its strong points and weaknesses and to determine which role it played for Texas electricity market.

Main body

What should be mentioned above all is that this legislation was aimed at increasing market competition and allocating the resources in the most efficient way for the benefit of the consumers: “Electric deregulation will increase competition and foster innovation, resulting in lower prices and better service for consumers” (Public Utilities Reports, Inc. 28). It was believed that “bringing competitive market forces more fully to bear in the electric power industry will enable more efficient use of electric power resources” (Melamed). Among the strong points of the regulation was that it stopped the existence of electric company monopolies. This widened the choice of electricity providers for the consumers and allowed choosing the best suiting supplier for them; it also was intended to increase competition among different suppliers which was supposed to drive down prices for electricity.

What else should be noted is that the biggest flaw of the deregulation was the removing of governmental control over the electricity rates. This resulted in the suppliers’ setting the prices they considered necessary and getting profits by causing inconveniences to the consumers. The aim of the legislation to reduce the prices by letting the companies fix them by themselves was not reached and let to opposite results. In the period from 1999 to 2007 the electricity rates were registered to have risen by sixty four percent. In 1999 the rates were fixed at 9 cents per KWh whereas the rates in 2009 fluctuate between 10. 8 and 13.5 cents per KWh. Moreover, the consumers often complain that it is difficult to find a company which provides electricity at lower rates, especially if the consumer has poor credit.

And finally, deregulation brought about numerous cases of market power abuses. The power market of Texas had more than 60 providers and anticompetitive behavior started to be observed among them this is why “Texas Legislative and regulatory authorities have recognized the importance of preventing market power abuses and have taken steps to address this issue through legislative amendments to the Texas PURA and the establishment of regulatory rules by the Commission” (Sioshansi and Pfaffenberger 402). Therefore, generation companies faced “20% cap on installed capacity” (Sioshansi and Pfaffenberger 402) and an obligatory giving of entitlements to their products.

Conclusion

Thus, deregulation brought about numerous changes within power markets of Texas. This legislation played an important role in increasing competition but it failed to reduce the electricity rates, which means that not much has been done for the welfare of the consumers.

Works Cited

Congressional Quarterly, Inc. CQ Weekly. Congressional Quarterly, Inc., 1999.

Sioshansi, F.P., Pfaffenberger. W. Electricity Market Reform: An International Perspective. Elsevier, 2006.

Lauderback, J.W. “California Energy Propaganda Comes to Texas”. Columnists. 2007. The American Conservative Union. Web.

Melamed, D. “Legislative and Oversight Hearing on Antitrust Aspects of Electricity Deregulation”. Department of Justice. 1997. Antitrust Documents Group. Web.

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IvyPanda. (2021) 'The Role of Deregulation and Texas Electricity Rates'. 1 December.

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