The Sneaky Reason You May Be Over-Paying on Your Electric Bill

NEW YORK (MainStreet)—The deregulation of electricity in states such as Texas, Pennsylvania and New York has often led to consumers paying higher prices.

Many consumer advocacy and non-partisan groups such as the AARP argue that deregulation has resulted in higher rates and has not benefitted consumers.

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"Deregulation is not working," said Janee Briesemeister, a senior legislative representative for the AARP. "Consumers have been promised that deregulation would bring lower rates than regulated monopolies. Overall, it has not benefitted consumers as it was promised."

R.A. Dyer, policy analyst for Texas Coalition for Affordable Power, a consumer advocacy group, said that while there have been some improvements in the short term, prices should be lower and contracts needs to be more transparent.

"We are still not where we should be," he said. "Folks are still paying too much for electricity."

In Texas, 85% of the state has been deregulated since 2002. Cities such as San Antonio and Austin have municipally owned utilities.

As of June 2012, consumers paid an average rate of 13.6 per Kwh in deregulated states compared to 11.7 in regulated states, Dyer said. In 2010, the average price in Texas in deregulated areas was 12.8 cents compared to 10 cents in Texas cities without deregulation.

"What we found consistently is that prices are higher in areas of Texas with deregulation — up to 40% higher — as compared to areas without it," he said. "Before deregulation, Texas had many years where rates were below the national average. Now our average rate is a little below the national average."

The retail electricity market is "very complicated and not straightforward," Dyer said.

"Our organization does not advocate reregulation, but we want to make the deregulated system as effective as it can be," he said. "It has been a difficult road. Deregulation is a challenge when it comes to electricity market. It has to be continually improved upon and there is potential for abuse and problems.."

Another hurdle for consumers is that providers offer different rate plans, difficult and opaque contracts with variable rates or expensive fees such as early termination, said Briesemeister.

In Texas there are 30 to 40 power companies who sell over 200 residential offers, said Terry Hadley, communications director at the Public Utility Commission of Texas.

Other states that have deregulated also give consumers the option to pay for a default service, which is usually provided by the incumbent utility and is under the supervision of regulators, said Briesemeister. The default service serves as a benchmark or standard offer rate for consumers to compare prices, she said. Consumers also have the opportunity to return to the standard offer rate.

The AARP was instrumental in helping to defeat a bill that would have eliminated the default service in Connecticut and is working on opposing similar legislation in Pennsylvania," Briesemeister said.

"We don't think deregulation has provided the benefits promised to consumers," she said.

The organization is also heavily involved in trying to prevent Arizona from deregulating utilities.

"No state should move forward," Briesemeister said.

Deregulation has provided many benefits to consumers since companies are willing to take on the risk to build new generation and plants, which often ensures greater reliability for the grid, said Tom Rumsey, vice president, external affairs for New York Independent Systems Operator, a non-profit and non-governmental power grid operator.

The additional generation provided by companies " is the most economic generation, which is often natural gas or renewable energy such as wind," he said.

During New York's recent peak demand of usage in July, all the generators were available to provide power for the entire week, Rumsey said.

While New York deregulated its electricity throughout the entire state over 12 years ago, every market performs differently. One factor that is often overlooked is the cost of the generation, he said. For instance, a coal-fired plant in New York would be extremely expensive because of the property taxes and increased environmental regulations in New York.

"It is the type of generation of the energy that is driving the price," Rumsey said.

Environmental standards also vary from state to state and that cost is passed onto the customer.

"The wholesale cost of electricity is cheaper now than 12 years ago," Rumsey said. "There is no other commodity you can say that about. Our state has also received $10 billion of private investments for new generation."

The purpose of deregulation is not to simply lower electricity prices, but to increase efficiencies and innovations such as renewable energy, said Darrin Pfannstiel, chief regulatory counsel for Dallas-based Stream Energy, which services over 550,000 meters in Texas, Pennsylvania, New York and other states.

"Competition has never guaranteed that prices would continue to decrease," he said. "The fallacy is that the consumer only cares about price, but they care about renewable energy and the environment. It is not a reality to see prices keep on decreasing in any market."

To find a report on electric deregulation in Texas, click here.

To see an analysis comparing prices in deregulated areas of Texas, compared to areas of Texas outside deregulation, click here.

For information about the prices throughout US cities, click here.

--Written by Ellen Chang

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