It may be difficult to imagine now, but not so long ago, Texas electric customers only had one option for electricity, a bare bones, one-size-fits-all product offered by their utility, that didn't offer any custom features, or value-added services. That has all changed with the advent of customer choice, which has forced electric companies to innovate by offering new products, customer bonuses, and green energy, which simply were not available before choice started in 2002. And the greatest innovations are just around the corner, as electric companies plan a host of new products to interact with new "smart" meters that are now starting to be installed in the Dallas and Houston areas, which will enable customers to see their electric usage in real time, and allow their appliances to interact with their meter to save them money.
The innovations seen in the Texas electric market are not surprising, given the rapid product development in similar industries that have been opened to customer choice. Take the telecommunications industry. For over 50 years, customers were stuck with one type of phone, a cumbersome, rotary phone provided by the phone company, with only one rate option for local calls, and another for long distance. Since competition has started, customers can now buy Blackberries and iPhones to make calls from anywhere in the world, can email from their phone, take pictures with their phone, and can choose from a host of pricing plans that fit their needs, including unlimited plans, rollover plans, and prepaid plans. Such new products would not have been introduced absent competition which has forced companies to innovate to win customers' business.
The same thing has happened in the Texas electric industry. Currently, some of the most popular innovations are value-added products that give customers something extra when paying their electric bill. For example, several energy providers allow customers to earn frequent flier miles based on the electricity they use, allowing customers to take a vacation simply by using electricity. Other value-added options include gift certificates to a host of stores and retailers, hotel reward points, magazine subscriptions, and customer rebates or bill credits for signing up with a specific energy supplier.
Competition has also made green energy available to all customers, and revolutionized how it is bought. Prior to customer choice, renewable electricity options were limited, if even offered. Customers only had one option on the type and amount of green energy, and it often carried a hefty premium. With competition, the popularity of green energy programs has exploded, as energy providers are now able to offer a wide range of renewable products and plans. Instead of being forced onto a one-size-fits-all green tariff, customers can choose the amount of green energy they want, and can even buy 100% renewable electricity from wind power. Meanwhile, competition has brought the price of green power down. In some cases, renewable electricity rates are the same, or lower, than comparable standard rates depending on the costs of other fuels like natural gas.
And it may not seem innovative now, but the ability to have a fixed-price for your electric rate was unheard of before competition. Prior to competition, utilities would pass through variable fuel costs on a regular basis, meaning that rates, at times, could change monthly based on the cost of natural gas, or coal, or other inputs.
That prevented businesses or customers on fixed incomes who need budget certainty in their monthly expenses from knowing how much they would be charged for electricity in the coming months. With the advent of competition, energy companies now offer a fixed rate for electricity for several different terms, from six months, to a year, up to five years. In addition to allowing customers to lock-in a good rate when prices are low (shielding customers from any price spikes), the fixed rate contracts also provide important budget certainty for customers, so they can plan their future expenditures. This is incredibly important to business customers seeking to limit volatility in their monthly outlays and effectively manage cash flow.
The most exciting innovations are just around the corner, which will be enabled by "smart meters" which are being installed throughout the state. The meters, which will radically depart from the century-old metering technology currently used, will enable communication between the meter and a home's appliances in real-time. Such a "Home Area Network" (HAN) has the promise of letting customers reduce their power bills, by adjusting how they use electricity. The smart meters will allow customers to be charged lower rates in the evening hours when electricity is cheaper. HAN and other devices will alert customers when prices are the cheapest, so they can choose to wash clothes or dishes during that time. Eventually, some appliances may become automated to run more efficiently and take advantage of the lowest priced periods, saving customers further money.