NCPA - National Center for Policy Analysis

Texas Avoids California's Electricity Deregulation Fiasco

January 10, 2001

In the process of planning for electricity deregulation in Texas, several of the state's politicians visited California several years ago to review that state's progress. They came away determined not to follow California's blueprint -- even though they remained enthusiastic over deregulation being applied to the electric power industry.

So Texas is moving ahead on a vastly different deregulatory model -- confident that California simply had a bad plan.

  • Since the Texas law was signed in 1999 by Gov. George W. Bush, officials there have had no second thoughts.
  • In March, Texas will begin a marketing campaign -- followed in June by a pilot program involving 5 percent of the state's customers.
  • It will culminate with full deregulation in January 2002.
  • The fundamental difference between Texas and California is that the former has built 22 new power plants since 1995, with 15 more scheduled to come online by 2002 -- while the latter, primarily because of tough environmental regulations, has not built a major new plant in more than a decade.

Because of its harsh regulatory climate, it takes California seven years lead time to construct new power plants -- but Texas just two to three.

Also, California is tied to a centrally controlled bidding process, and mandates that utilities buy power only through short-term contracts, leaving them vulnerable to upturns in wholesale prices. The Texas plan, meanwhile, lets companies enter into long- and medium-term contracts to hedge against price increases.

So Texas has a power surplus, while California starves. Texas is also unique and fortunate among the 48 contiguous states in having its own power grid -- thus falling outside federal regulation.

Source: Jim Yardley, "Texas Learns in California How Not to Deregulate," New York Times, January 10, 2001.


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