Critical Essay on Electricity Deregulation Essay
Critical Essay on Electricity Deregulation
Electricity deregulation in the US state of Texas was the outcome of the Texas Senate Bill which was approved on January 1, 2002 which was the result of the infamous California electricity crisis of 2000 and 2001. During the crisis the different areas of California suffered black outs which were artificially created by a few companies and exploited them by supplying electricity at premium prices. The deregulation meant the most of the consumers of electricity could now choose their power supplier from a number of retail electric providers (REPS) which are private companies rather than owned by the municipality or the government.
The Public Utility Commission of Texas will have no control on the amount that will be charged from the consumers and the electric companies had the right to set consumer protection standards. The power lines were still controlled by the utility provider of the area who would not be deregulated. The consumers had the right to choose from alternate REPs same as you choose your telephone services. According to Electricity Reliability Council of Texas (ERCOT) the new law has given the power to regulate the operations and to ensure that the electric companies and consumer rights where protected.
The new law also gave provision to protect the rights of the new entrants of the market by establishing a Price to beat which prevented the new companies from unfair barriers to entry such as the economies of scale of the existing players. Texas alone is one of the biggest markets of electricity and the availability of different alternatives to the consumer meant the competition would be intense and the companies would push for greater efficiency and lower prices.
However since the bill has been implemented the residential rates have increased quite drastically. One reason that is mentioned for the rise in the prices is the increase in the price of inputs of an electric company which were transferred to the consumers. One of the main reasons sighted is the increase in the price of the gas supplied to commercial and residential consumers. Also there is a lack of control on the price setting mechanism which has led companies to set their own prices.
However the deregulation has had some positive outcome one of which is that the policy has been able to attract new entrants in the market which has intensified the competition. The new entrants have been prevented from exploitation from the existing firms as they have been provided a cushion through the price to beat formula. However these new plants have caused an environmental hazard as the coal fired power plant which are more efficient and cheaper then gas fired power plants but produce more harmful gases which are harmful for the environment.
Many new states have therefore put their deregulation plans on a hold due to a number of reasons. At the same time positives are that electric companies are investing in alternatives forms of energy production such as wind powered turbines. On the other hand, consumers are following other strategies such as using fuel efficient cars, moderate thermostat settings and other strategies to compensate for high electricity bills.
However many Americans feels that the policy maker are going no where with the deregulation strategy as consumers have the right to have energy at affordable prices. Treating it as a commodity, growing uncertainty and profiteering is absolutely against consumer rights. The consumers need look into this more closely as the policy is unable to achieve its desirable results. References Hauter, W. & Slocum, T. (2001). Public Citizen’s Critical Mass Energy and Environment Program. Retrieved May 16, 2010, http://www. ratical. org/ratville/dereg/10myths. html