NCPA - National Center for Policy Analysis

As Texas Deregulates, Electric Capacity Exceeds Demand

January 3, 2002

Texas begins electricity deregulation this week warning customers that California's problems with deregulation were unique. There, the state deregulated the wholesale power market while capping retail prices. Thus, utilities couldn't pass on costs to customers. Also, California hadn't built a major plant in a decade.

Texas took a different approach.

  • The state deregulated the wholesale market in 1995, providing a time buffer to work out any kinks before retail deregulation this year.
  • Also unlike California, Texas has built 30 plants in the past 6 years.
  • Currently, the state's electrical supply exceeds demand by 23 percent.

Texas officials have promised citizens will never experience California's chaotic electrical shortages. Still, the program is new, and initial interest so far seems guarded.

  • So far few of the 4.7 million eligible households have chosen to switch from longstanding providers.
  • Most of the 41 new providers registered with the state are seeking commercial and industrial clients.
  • The rules establish an immediate retail price reduction of 11 percent to 17 percent, a drop partly attributable to the low price of natural gas, which is often used to fuel electric generation plants.

Source: Jim Yardley, "Texas Says It's No California As It Deregulates Electricity," New York Times, January 3, 2002.

 

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