While electric rates in parts of Texas open to competition fall, rates in regions without customer choice are increasing, despite drastically lower fuel and wholesale energy prices compared to a year ago.
It just shows that no region is immune to changes in the costs of producing electricity, no matter how the industry is structured. However, it also shows that, when customers have choice, consumer prices fall much faster as wholesale fuel and power prices fall, meaning customers get faster relief from any price increases.
In February 2008, oil prices were around $100, and natural gas prices were $8-9/MMBtu. In February 2009, oil prices plummeted to the $40 range, while natural gas prices bottomed out to around $4-5/MMBtu.
Why then, do several utilities not open to competition have much higher prices in February 2009 versus February 2008?
According to data from the Public Utility Commission of Texas, residential customers using 1,000 kWh per month in the following regions paid for more power in February 2009, despite drastic reductions in the cost of energy, compared to February 2008:
Comparison of Monthly Average Bills:
Utility Feb. '09 Feb. '08 % Increase
El Paso Electric $126.48 $112.96 12.0%
Entergy Texas $132.36 $83.60 58.3%
Southwestern Public Service $100.08 $83.56 19.8%
Magic Valley Co-op $111.08 $105.08 5.7%
Victoria Co-op $127.88 $109.31 17.0%
City of San Marcos $107.95 $92.44 16.8%
Customers at each of those utilities do not have the ability to choose their energy provider. And those February 2009 prices are in many cases higher than what is available in areas of Texas open to competition, where rates have been falling steadily since the summer, and customers can find several energy suppliers offering electricity for only 9-11¢/kWh, or about $90 to $110 per month for the average user. That's as much as $20 less than the price in Entergy Texas or El Paso Electric.
So why are prices in areas closed to competition going in the wrong direction, when wholesale energy prices are falling? Two reasons. First, utilities in areas closed to competition typically pass through higher costs on a lagged basis, through various fuel riders or other mechanisms, or rate cases. That means when the cost of coal, oil, and natural gas rises, the higher prices do not immediately show up in bills -- but as seen above, they do show up eventually. It also means that consumers don't receive the benefits of lower prices right away, because of the lag in utility pricing.
Secondly, competition simply forces electric companies to cut prices faster. Because energy suppliers have to compete to win your business, they can't afford to keep prices any higher than cost, meaning there's no lag when wholesale costs fall. In comparison, monopoly utilities face no pressure to lower rates when wholesale costs fall, meaning customers end up paying higher rates even as the cost of producing power falls drastically, as is currently the case.