While competition is keeping Texas electric rates low, as customers have an opportunity to choose their electric provider, states which still have monopoly utilities with no customer choice are seeing rates skyrocket, even with abundant natural gas supplies and cratering wholesale power prices.
These rate hikes, which defy market conditions, result from poor investment decisions from monopoly utilities, which customers must now bear. One of the many benefits of introducing competition into the electric market is that it frees customers from bearing the investment risk of power companies, who now must build power plants by putting their own money at risk. This drives efficiencies, and forces companies to be more careful with their money, since they no longer have "captive" ratepayers to act as a blank check.
For example, in Colorado, customers at Xcel Energy are being asked to reimburse the utility for what the Colorado Consumer Coalition called "its own bad business judgment" in canceling a power sales arrangement with Black Hills Energy.
The Denver Post called this "galling" and unfair. A commentary in the Denver Post noted that, "The fact is this would not have occurred in a competitive, restructured electricity market where company shareholders pay the price for uneconomic decisions."
Elsewhere, customers are paying big bucks to bail-out utilities which invested in integrated gasification combined cycle (IGCC) power plants, which have proven to be more costly than other types of generation.
For example, at Duke Energy Indiana, an IGCC project has included cost overruns of $1.3 billion. The costs would have led to a rate hike of 22%, but regulators have limited the increase to a still significant 14.5%.
Elsewhere, at Mississippi Power, the utility said just two months ago that its IGCC project was on time and on budget. Now the utility says that the IGCC project is $366 million over budget, with total expenditures or commitments reaching $1.5 billion.
In contrast, Texas electric rates are at their lowest level in over a decade because customers are not on the hook for bad investment decisions of power companies. As a result, Texans can directly benefit from changes in market conditions, such as the shale gas revolution, which have brought significantly lower electric rates. The power to choose your electric provider -- and "fire" companies that charge too much -- disciplines investment decisions, and shields customers from the cost overruns inherent in a monopoly system.