WHAT DEREGULATION MEANS TO TEXAS CONSUMERS
In January of 2002, Texas launched a bold experiment when the state allowed consumers to choose power generation suppliers.
This is known as electric deregulation, and if you’re unsure what it means to you, you’re not alone. Many people are confused about deregulation and its implications. To compound the confusion, the deregulation experiment has gone painfully awry in several states across the nation, most notably in California, where wholesale power rates increased as much as several hundred percent since electric deregulation was implemented.
Anatomy of an Electric Bill
The three parts of your electric bill are generation, transmission and distribution. Electric deregulation changes how power generation is bought and sold. It did not change how power will be transmitted or distributed.
GENERATION is the actual production of electric power, whether by hydroelectric dams, coal or natural gas fired plants, nuclear power plants, wind turbines, solar cells or other means. Most power in Texas is produced by natural gas, coal and oil.
TRANSMISSION is the process of moving power from the point of generation (a power plant, for instance) to the point of distribution (called a substation). This is done by high-voltage transmission lines carrying huge amounts of electricity, sometimes as much as 400,000 volts. Compared to the millions of miles of distribution lines, transmission lines are relatively short.
DISTRIBUTION is the process of getting power to the consumer. This is the network of lines that connects the transmission delivery point (such as a substation) to homes, stores, offices, factories – anyone that buys retail electricity.
Co-ops Power Texas Communities
There are about 70 electric co-ops in Texas, including United Cooperative Services. You are a member of an electric distribution cooperative. Another seven Texas co-ops generate and transmit electricity. In that capacity, they provide wholesale electricity to member distribution co-ops.
United distributes electricity from its power supplier (Brazos Electric Power Cooperative) to its members. As a wholesale purchaser of electricity from Brazos, United pays for both generation and transmission, passing these costs on to members without mark-up.
What Deregulation Did
Deregulation affects only power generation (not transmission or distribution). Many utilities – private and public – not only distributed power, but generated and transmitted it as well. Deregulation required these companies to separate those parts of their businesses that supply power.
The eventual result of this divestiture created a “power market” where power suppliers are free to sell their electricity to the highest bidder. The law of supply and demand, deregulation advocates say, will ultimately benefit everyone: power producers, utilities and of course, consumers. This is clearly subjective.
Why Co-ops Have a Choice in Deregulation
When the Texas Legislature approved electric restructuring in 1999, it exempted cooperatives and municipally owned systems. Why? Because these services are owned by their members and customers and run on a democratic business model. Co-op members, for instance, elect their board of directors, which in turn set co-op policy.
Does this mean that co-ops cannot deregulate? Not at all. It means co-ops like United may choose to opt in or out of deregulation. Currently, however, to enter the deregulated market, United would take on millions of dollars in additional costs, which would likely either eliminate any savings or cause higher rates. Unlike electric distributors elsewhere in the state, co-ops and municipally owned systems have a choice.
This gives rural electric cooperatives a unique advantage: the opportunity to wait and see if the state deregulation experiment will benefit their member-owners, especially in the rural markets where the cooperatives primarily operate.
“Opting In” is Forever
There is no deadline for co-ops to “opt in,” but – and this is important – if a co-op decides to become deregulated, the decision is virtually permanent. Opting “out” again is not a viable choice.
Once a co-op chooses deregulation, it must purchase its power on the market at the prevailing market price, competing against all other power consumers, bidding high when power is expensive and low when it is cheap. Whether this will result in energy savings is a question that has yet to be answered.
Why We Want to “Wait and See”
Regardless of whether United ultimately opts in or out of deregulation, we will remain your power distributor. If the co-op becomes deregulated and buys power at market prices, the generation part of your bill will reflect the higher or lower cost, but the other parts of your bill – transmission and distribution – will be unaffected.
No one has a crystal ball to view the future of electric deregulation. Like many other Texas cooperatives, we believe the wisest course is to “wait and see.” Before deciding, United wants to know if deregulation has raised or lowered rates for other Texas power consumers, particularly in rural areas.
Unlike private corporations, co-ops are owned by their members. United’s board of directors is elected to set policy that most benefits its member-owners. The board is answerable to members and only to members, not shareholders or investment banks.
Not Until We’re Sure It’s Right
Generations of Texas schoolchildren have memorized the motto of Davy Crockett, defender of the Alamo: “Be sure you’re right, then go ahead.” That wisdom is as apt today as it was in 1836.
United Cooperative Services intends to go on serving our members first as we have since 1938. We intend to go on providing the same superior service, personal attention and affordable rates our members have come to expect. As of right now, staying out of the deregulated market makes the most sense for our members. Even with all the low-rate gimmicks and “free” times, our constant monthly comparisons have found deregulation still cannot provide the same low rates we supply to our members day in, day out.
Perhaps one day in the future, deregulation could beat the competitive pricing we currently offer and the time will come for us to consider joining the deregulated market. If that time ever comes, and it makes economic sense for United members without putting them at risk, then we will do what’s right for our members. Regardless, we will continue to deliver exceptional service and value to our membership in the most efficient way possible.
Frequently Asked Questions About Energy Deregulation and Restructuring
No. About 70 other municipalities have the same option as co-ops to wait and decide.
When Texas legislators approved electric restructuring in 1999, they recognized that member-owned electric co-ops and city-owned systems are locally based and that they operate under a democratic business model. Co-op boards of directors and members must decide what path to take. Investor-owned utilities are dedicated to maximizing profits for shareholders. United's goal, as it always has been, is to serve you conscientiously and efficiently at the best possible cost.
Each co-op will decide in its own time. Many will wait and see what the real costs of deregulation will be. United will opt for competition only if it benefits you, the member-owner.
Only if you request it.
No. You don’t have to change.
No. We are against rushing into anything that might not be advantageous to our member-consumers. Telephone, airline and railroad deregulation, for example, have had their down sides. Deregulation of these industries has not always resulted in benefits for consumers, especially in rural areas and small communities. And once a decision to change is made, it cannot be revoked.
If a co-op in your area opts in to restructuring, you may be able to become a co-op member-consumer.