Today’s Fort Worth Star-Telegram has a story, “Electric rates set to keep falling,” that is of no great surprise to supporters of Texas’ deregulated electricity market. According to the story, “Natural gas prices have swung wildly – and so have electric plans that fluctuate every month.”

The Star-Telegram reports that “the average rate of about 30 different plans from various retail electric providers peaked in June at 17.3 cents per kilowatt-hour. That was up 38 percent from the start of the year.” During the same period, natural gas futures prices rose 65 percent.

Since their peak, futures prices have “plunged about 30 percent to $9.25.” The average rate plan has only dropped four percent during that time, but larger reductions will soon follow. “Deryl Brown, chief executive of Hudson Energy Services Texas, said his 12-month fixed-rate plan for small-business customers is down 21 percent since July 3, when natural gas prices hit a three-year high.”

Of course, over the last couple of years, it was in vogue to blame high electricity prices on deregulation, not on the real causes, such as high natural gas prices. But this story shows the fallacy of that argument.

And so does the fact that electricity prices in Texas today are no higher relative to other states than they were in 2001, before deregulation began.

That is because while electricity prices increase more rapidly in Texas based on market conditions than they do in other states, they also decline more rapidly. Over the next year or so while electricity prices are rising across the country as the higher natural gas prices of 2008 are being built into rate bases, Texas prices will have already adjusted to the new lower price of inputs.

Though we continue to try and find it, we must remember there is no such thing as a free lunch.

– Bill Peacock