Texas is Ripe for Competition in the Electricity Industry

Texas is ripe for competition in the electricity sector, and the State Legislature has set an effective course to transition to a competitive market that should be maintained, according to a new analysis.

AUSTIN, Texas – The study, commissioned by the Association of Electric Companies of Texas (AECT) and prepared by The Perryman Group, analyzes the 1999 Texas Electric Choice Act in the context of developments in other states, including the recent problems in California and the dramatic rise in natural gas prices. The Texas bill opens the retail market for electric power to competition next January. The anticipation of retail competition in electricity under the Texas Electric Choice Act has already stimulated extensive investments in new capacity within the state, says the report. The economic impact from construction of projects currently under way includes $5.3 billion in state product and 87,600 person-years of employment. The law provides an effective competitive mechanism to yield greater consumer choices as electric providers compete on price, services, and product differentiation in the area of renewable energy or green power, it explains. It also offers numerous advantages in improving the environment in Texas and ensures that a substantial segment of new capacity will be clean and fuel-efficient and establishes goals and incentives for renewable energy. “The results of the review are unambiguous,” says report author Ray Perryman. “Competition will result in competitive prices that will be lower than consumers could expect in the highly regulated structure that exists today.” “In addition, Texans can expect greater choice, enhanced efficiency, more effective innovation, and improved environmental quality,” he explains. “An open market for retail power, with appropriate safeguards, will bring many positive outcomes to the state.” The recent problems in California are due to the fact that the state has a deficiency in power supply and imports one quarter of its electricity from outside its borders. It has a cumbersome process for developing new capacity, with a new plant taking seven years to commission. The state has built virtually no new capacity in the past five years, despite substantial economic growth and corresponding increases in power needs, explains Perryman. “In short, the situation in California does not stem from any weakness in the concept of competition; it is more the result of basic flaws in the structure and implementation of the specific programs,” says the study. Texas is not in a position to be plagued by the problems which have beset California in its transition to competition. “This study provides an effective analysis of the course Texas has followed on the road to competition versus how it was done in California,” says AECT president John Fainter. “It provides compelling evidence that Texas is on track to achieve significant benefits from competition. Clearly, we should stay the course.” Texas has significant excess generation capacity and new generation facilities can be commissioned within three years. It has added 5,000 megawatts of new capacity during the past year and has several times that amount now under development, including a number of major wind farms. AECT is a trade organization that represents investor-owned utilities in Texas. It was formed in 1978 to provide a forum for the exchange of information.

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