How Deregulation Drives Innovation

Throughout the country, more and more people are demanding more and more electrical power. However, state regulated markets generally lack agility to meet this challenge that comes with rapid growth. Because the state manages, regulates, and sets the price of electricity, building new power improvements is a slow, bureaucratic process. Power utilities must negotiate with state regulators to build both build new generation and develop new transmission routes and then wrestle with the means of how to pass the expense on to consumers – who are also state taxpayers. Naturally, regulated states are very cautious with how they spend public money. Consequently, improvements and innovations are developed so cautiously that they are often technologically out of date when they are deployed for use. Likewise, generating companies have little incentive to cut costs, invest in new technologies or best practices, or improve energy efficiency because they have a monopoly. They are guaranteed a profit no matter what.

However, in deregulated states, competition has been the answer to the problem of growth and expanding power demand. Competition removes the public’s financial risk for the investment and profitability of electrical generating plants and transfers it to private investors. When customers have a choice between rival competitors in an industry, the one that succeeds is the one that gives their customers what they want for the lowest price. Consequently, investors can effectively motivate their generating companies to cut costs by investing in new technologies, adopting best practices, and improving energy efficiency.

Market competition has been the key feature in Texas electricity deregulation since it began the process in the late 1990s. Already the second largest population in America, Texas is still among the fastest growing states and is expected to have 50 million by 2040. The Electricity Reliability Commission of Texas (ERCOT) has estimated that peak demand for Texas electricity increased at an annual rate of 2.5% from 1990 to 2006 and will experience similarly high annual growth, requiring between 60,000 and 80,000 MW of new electricity generation capacity by 2030.

Several important improvements to Texas’ electrical grid have now been put in place by ERCOT because of deregulation. Beginning in 1995 with its wholesale market, ERCOT consolidated 10 different control centers into one central location, increased staff and resources, created new transmission pricing and interconnection policies, developed statewide planning expertise, and produced detailed annual reports identifying transmission constraints and needs throughout Texas. This reorganization streamlined policies and eliminated bottlenecks in the transmission and distribution network. One of the effects was transmission rates became so-called “postage-stamp” rates, meaning that generating companies pay the same rate throughout the region, no matter how far the electricity must travel. With ERCOT as the central clearinghouse, transmission companies can rely on one organization with one price.

In terms of poles and wires, $5.8 billion has been invested in the transmission grid since 1999. Much of this has been in upgrading the carrying capacity of 69,000 volt lines (69 KV) to 138,000 volt lines (138 KV). Since 2008, ERCOT Transmission Service Providers (TSPs) completed numerous improvement projects affecting approximately 1,137 circuit miles of transmission. In 2013 alone, an estimated 2800 circuit miles of additional 345 kv lines are planned. To meet further growing electricity needs, other major projects are being considered through years 2010 through 2015 and beyond, with an estimated cost of over $8.8 billion.

Power generation also benefited from the change to market deregulation. Between the years of 1990 to 1997, only 6 gigawatts (GW; 1 GW= 1,000 megawatts) of electrical generating capacity had been added to the ERCOT system. With the introduction of wholesale completion in 1998 and continuing through 2008, 36 GW of electrical generating capacity was added – with 6.4 GW (most of it green) added in 2008 alone. This is a clear sign of the amount of investment in improved generation capacity brought to Texas. Most investment in new generation capacity was in energy efficient generating technologies, such as low-polluting combined-cycle natural gas systems. Coal, the traditional fuel for power generation, is also improving its ecological footprint. Clean coal generation technologies now offer innovations that cut carbon emissions through Carbon Capture and Storage (CCS).

The biggest developments are in wind power. Long thought an environmentalist pipedream in past regulated markets, Texas now leads the US in wind energy with more operational wind turbines than Iowa and California combined. In fact, on February 28, 2010, wind generators delivered a record 6,242 megawatts of power to Dallas, Austin and other population centers. At 1 p.m., 22% of all the electricity consumed in the Texas grid was coming from wind. ERCOT has now set the goal deploying 10,000 megawatts of renewable energy by 2025.

One of the innovations being deployed by TSPs and ERCOT are Smart Meters. Smart Meters provide both retail and transmission companies with consumer power usage for billing while also providing consumers with a breakdown of their usage history. Several software companies, including Google, are developing systems for the home that allow the consumer to monitor their electricity use in real time. As more smart appliances are developed, their profiles will be read by the system, allowing the consumer to see exactly what appliance is using how much electricity and how much it costs. Ideally, a consumer can adjust their power usage to increase their efficiency and save money. Of course, this next innovation is in the near future as such systems are only now entering the market.

Market competition has also pushed companies to sell electricity to its customers in more innovative ways. After all, a reliable and growing electricity system is all about managing supply and demand. Instead of one company making power, transmitting power, and billing you for the power in a one-size-fits-all format, the electricity market integrates wholesale and retail competition. Generation is separate from retail. Because retailers and their customers can choose where they buy power from, power generating companies must produce power more efficiently than those they compete with- even in other states.

Retail companies know their success requires them to go the extra mile not just for the best deal on the power they purchase but also to meet the consumer’s needs. Many offer consumer incentives that reward both consumer loyalty and paying their bill on time. For a consumer in a regulated market, loyalty or on-time bill payment don’t happen. Why? Because their regulated power company is the only one they have. The only consumer choice is between the one-size-fits-all power company plan or buying a case of candles.

In a deregulated market, the consumer gets real choices. Consumers can choose power that is the cheapest available or they can choose power made using 100% green, renewable technologies. They can choose a provider plan that follows monthly market prices or locked-in, fixed rates for up to five years. Right now, the quickest way consumers can save money is by shopping around for a better deal at Powertochoose.org. Meanwhile, all this consumer choice requires the wholesale power market and Retail Electricity Providers to actively develop better and better plans and solutions for their customers. By competing to win, energy wholesalers and retailers will continue to meet growing consumer demand through the beginning of this century and beyond with better plans and innovative technology.

Author Bio: Bounce Energy is a Texas Electric Company based in Houston. Bounce Energy’s goal is provide more than low Texas Electric Rates to our customers. With innovative and flexible plans, excellent customer service, and superior customer rewards, Bounce Energy offers a unique approach to Texas electricity.

Category: Legal
Keywords: texas energy, energy deregulation, electricity, electricity company