Energy Deregulation Texas Style

With energy prices on the rise, potentially skyrocketing in the future due to Kyoto costs, perhaps its time Canada looked at gasp electricity deregulation.

This may sound weird. California’s experience with deregulation seemed disastrous, with brownouts across the state. Ontario is running away from deregulation at top speed. Why would anyone enter this madhouse?

It’s getting tired to excuse these disasters by saying deregulation was bungled, no matter how true that may be. So let’s look at the year-old experience of deregulation in Texas.

Deregulation started badly. In its confusing early weeks, many consumers couldn’t get their power turned on. Deregulation couldn’t have started at a worse time, one month after the bankruptcy of Houston-based Enron. Enron’s key business was electricity trading and that’s at the core of deregulation.

Deregulation is designed to allow anyone to sell electricity into a state’s or province’s power grid. That enables customers to buy power from whomever they wish. In theory, some customers will prefer spot prices the lowest price available at the time. Others will opt for long-term contracts for stable prices.

Not only did Enron go bankrupt, but mid-way through deregulation’s first year in Texas Enron spin-off New Power which provided electricity for 80,000 Texan customers went belly-up. Worse, a couple months after New Power’s June bankruptcy, the Texas Public Utility Commission accused New Power of sending incorrect bills to its former customers.

Consumers doubtless enjoyed some of the problems. Hundreds of thousands didn’t get billed for months. Tens of thousands are still missing at least one bill. A few have been completely lost and continue getting electricity for free.

Even with these gifts, by November of 2001, consumer complaints were five times what they were in November 2000, just before deregulation.

Yet, deregulation has been a huge hit. The market is competitive. New entrants have further boosted competition and led to a rate war between providers.

Eighty per cent of large businesses have switched providers or negotiated reduced prices with their current provider. This cuts business costs, makes Texas business more competitive, and creates jobs in Texas advantages that could accrue to Canadians with deregulation.

Consumer and small business users in Texas have been slower to take advantage of the competition but already five per cent of residential customers and nine per cent of small businesses have switched providers.

Problems plaguing the opening months of deregulation are inevitable, as they would be for the launch of any new system. Those problems will soon be forgotten as Texans enjoy reduced power rates, just as telephone deregulation initially created problems, now forgotten, as we all enjoy what once would have been unimaginably low long distant calling.

Kyoto could wreck economic havoc in Canada, but if we continue down this potentially disastrous path, electricity deregulation will become more important than ever. Canada will need to unleash the creativity of all of us to find Kyoto-friendly ways to generate power.

Leaving this creative task solely in the hands of hidebound electricity monopolies will add all the inventive drive monopolies usually exhibit none. Take a look at New Brunswick Power as an example.

The utility, apparently oblivious of the idea of clean power, plans to convert its Coleson Cove Generating station from oil to Orimulsion one of the dirtiest ways to generate electricity.

But, creative generating ideas are being built in New Brunswick. Irving Oil and Calgary-based TransCanada Energy plan a co-generation plant, powered by natural gas, at Irving’s Saint John refinery. This will improve the overall efficiency of the refinery.

Deregulation, like anything else, fails when it’s bungled or when governments beat a quick retreat following teething problems. Those problems are inevitable and proponents of deregulation must be honest about them.

But, in the long run, deregulation will reduce bills for consumers, lower business costs, and create new jobs both in generation and in industries that become more competitive because of reduced costs.