Why Your Electric Bill Might Not Go Down Under Deregulation
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What is the main topic discussed in this episode?
Here's your Money Briefing for Thursday, February 25th. I'm J.R. Whelan for The Wall Street Journal. You might have heard about some people in Texas seeing their electricity bills skyrocket following this month's frigid weather there.
Why did Texas residents receive surprise electricity bills after the extreme cold?
That's raising questions about the role of deregulation in the energy sector and how a wave of private energy companies affects the choices that consumers may or may not have.
In my conversations with people who've signed up to these plans is they don't really understand how an electricity bill works. They can be complicated.
The charges can be sort of hidden in the back. Coming up, our investigative reporter Scott Patterson will give us a closer look at why private energy companies' prices often end up higher than public utility costs. That's after the break.
Millions of Texas homeowners are grappling with how they're going to pay surprise utility bills in the aftermath of this month's extreme cold. The deregulation of the energy sector in Texas and elsewhere in the U.S. about consumer choices when a utility company is no longer under government control. Among them is our investigative reporter, Scott Patterson, who's been closely following the issue. And he's with me now. Scott, thanks for taking the time to be with us.
Yeah, thanks for having me.
So can you just take us through and help us understand what's happening here? What was the goal behind deregulation and how did it change the energy sector in Texas?
Yeah, in the 1990s, there were a lot of people pushing for deregulation across a bunch of different industries.
What was the original goal of energy deregulation in Texas and who promoted it?
And one of those industries was natural gas. And a company at the time that had benefited from that and had been pushing for deregulation was a company called Enron based in Houston, Texas. They thought, you know, we've really benefited from deregulation in natural gas and being able to trade it more and more. So why don't we do the same thing for electricity? So Enron and other proponents of free markets traveled throughout the country visiting state legislatures. pitching this new idea that electricity should move from the current model, which was vertically integrated monopoly utilities, to a place where companies could buy and sell electricity and offer it to consumers. And by doing that, you would lower prices for consumers down the road.
Got it. So what do we know about how that worked out? On paper, it makes sense. If you've got multiple companies bidding to sell their services to consumers, you'd think the ones with the lowest price would be where consumers would go. And on paper, it sounds like a good idea. In actuality, it didn't happen, especially in Texas.
How did deregulation change the electricity market structure compared with utilities?
And Texas is a really interesting case because there you have about two-thirds of the state that only has these so-called retail electricity providers. there is no utility. In theory, that would be the ideal conditions. If competition would work to lower prices, that would be the best thing for consumers. But in reality, what's happened is consumers are paying a lot more than they would have if they're in parts of the states that didn't have those retail providers.
And you report that Texas residents ended up paying $28 billion more after deregulation rather than less.
It's sort of worked out the exact opposite, and it's kind of hard to know exactly why. Electricity is really a different beast than telecommunications or cable, which supporters of the industry often compare it to. They say, you can choose who your cell phone provider is. How come you can't choose who sends the electricity to your house? It sounds good, but in reality, it just doesn't seem to work that way. People sign up for their utility or their electricity provider, and they just kind of ignore it. They put it on auto pay. And what seems to be happening is the bills just start creeping higher and higher, and they keep paying, but they don't really know that they're paying more than they really should.
Isn't there a responsibility on the part of the consumer, though, to understand the agreement that they're getting into?
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–0:17
2
Why did Texas residents receive surprise electricity bills after the extreme cold?
0:17–1:37
3
What was the original goal of energy deregulation in Texas and who promoted it?
1:37–2:55
4
How did deregulation change the electricity market structure compared with utilities?
2:55–5:38
5
Why did deregulation lead to higher consumer costs instead of lower prices in Texas?
5:38–7:39
Speakers
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