Competition in Electricity Markets Proves Success in Texas
April 1, 2011
Introducing competition into Texas' retail and wholesale electricity markets has made Texas the greatest success story in the United States -- if not the world -- by moving away from the model of heavily regulated public utilities, says Bill Peacock, Vice President of Research & Planning and Director of the Center for Economic Freedom.
- That success is largely due to policymakers' willingness to let markets work and not manipulate prices or other policies for political reasons.
- The transformation of American electricity markets was dominated elsewhere by a political competition to "design" markets.
- However, Texas did not "design" a market in any meaningful sense -- it instead set general rules for market participants and allowed them to compete.
The resulting predictability of Texas markets helps explain why the Electricity Reliability Council of Texas (ERCOT) territory has seen investment in new generation to a level that continues to maintain reserve margins adequate for powering Texas' future economic growth. While other states have competitive wholesale markets, no state comes close to the competition found in Texas' retail market. Three measures detail the high level of competition:
- First, the percentage of electricity sold by incumbent retail electric power providers has plummeted -- none of them has even a 40 percent share in the market where each used to have 100 percent before competition.
- Second, almost 82 percent of consumers have actively chosen competitive rate plans, while the other 18 percent have benefitted from competition through lowered rates on old plans or getting competitive rates through move-ins.
- Finally, the average Texan in ERCOT can choose from about 138 different plans offered by 29 different providers; this is up from five providers offering eight plans in 2002.
Source: Bill Peacock, "Competition in the Texas Electricity Market: A Texas Success Story, " Texas Public Policy Foundation, March 2011.
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