While the media focuses on criticism of electric "deregulation" in Texas by some parties, the state legislature is actually tackling a real problem faced by thousands of Texas electric customers at cooperatives -- a total lack of regulation or state oversight of their power provider.

 

Despite the term "deregulation," most areas of Texas which have consumer choice -- the areas formerly served by TXU, Houston Lighting and Power, and Central Power and Light for example -- are regulated by the state's Public Utility Commission (PUC), with competitive energy providers subject to a host of consumer protection, marketing and certification rules, as well as PUC complaint procedures.

 

However, the state's 74 electric cooperatives -- often touted as a model that is superior to customer choice -- aren't subject to oversight by the Public Utility Commission.  If a customer has a complaint with the co-op regarding service or management, the customer has no recourse other than the co-op's internal management and board of directors.  And since cooperatives' management is free from oversight by the state, co-ops can become their own fiefdoms, unresponsive to the wills of their customers.

 

Such was the case at Pedernales Electric Cooperative, headquartered in Johnson City outside of Austin.  As chronicled in an editorial in the Austin American-Statesman, the fundamental problem at Pedernales Electric Cooperative, "was an insular, self-perpetuating group of board members, dominated by a long-serving and self-serving general manager ... [which] richly compensated each other and succeeded for years in stopping co-op members from learning details about the co-op's finances, including their own pay and expenses."

 

Such practices eventually led to a criminal complaint by the state's Attorney General in 2008, as well as customer lawsuits, which alleged that Pedernales executives and board members charged $700,000 from 2002 to 2006 on co-op credit cards for expenses such as first-class airfare and stays at top hotels, as well as spouse travel, concert tickets and other items.

 

In most parts of Texas, if your energy supplier was unresponsive to your complaints, conducted business in secret, and had inflated rates due to excessive spending, you could just "fire" them and choose a new electric company, thanks to competition and customer choice.  In fact, the ability to "vote with your feet" is one of the best benefits of competition in most parts of Texas, as it forces electric companies to keep rates low, offer high levels of customer service, and ultimately keep their customers happy or risk losing them.

 

Unfortunately for customers at co-ops, lawmakers aren't moving to give them the right to choose their energy supplier.  The legislature is, however, instituting other reforms at the state's 74 co-ops, including requirements for open meetings, open records, and open elections.  Additionally, customers would receive the right to appeal grievances to the Public Utility Commission, providing a critical level of independent oversight.  Legislation requiring such reforms moved out of the committee level last week.

 

Still, nothing is more powerful in making company’s response to customers than the ability of customers to choose something else.  In most parts of Texas, customers can choose from about 30 energy suppliers so they don't get stuck with a company that's insular and unresponsive.  Co-op customers will have to keep waiting for that right.