Many Texans are frustrated with higher electric rates following the spike in natural gas prices over the last few years.
But despite the complaints, most Texas consumers hold plenty of sway regarding the prices they pay for electricity.
When your cable TV bill gets too high, you can switch to satellite providers. Home telephone too expensive? Go with voice-over-Internet protocol. Don’t like your cellular service? The kiosk at the mall will give you a free camera phone if you’ll switch. We routinely comparison shop for cars, for groceries, for clothes, for insurance… Why not shop for electricity?
In fact, we can. For the last three years, about 80 percent of Texas residential customers have had the option to change their electric provider based on lower rates, stable billing, or good service. Yet there are still those who want to blame today’s prices on deregulation and big business.
Perhaps an example will be instructive on this point.
For my first several years in Austin, my apartment rents rose about 10 percent a year. The tech boom brought tons of people to the area, occupancy rates ran in the 98-99 percent range, and home prices were escalating. Although it may have been a “sellers market,” there was certainly no shortage of buyers.
But in 2000, the dot.com bubble burst. By the following year, the definition of B2C changed from “Business 2 Commerce” to “Back 2 Cleveland.” Customers disappeared in droves. Apartment developers were bringing new developments online but couldn’t find any renters. In my current neighborhood, these new communities were offering three free months on a 12-month lease just to get people in the door.
By contrast, my apartment complex proposed a 5 percent rent increase when my renewal came up. I looked at the rental landscape, saw that home prices and mortgage rates had dropped to a range I could justify, and decided that I would buy a house instead.
In the month after I turned in my notice, there was a moving truck in front of a different building every day, taking former neighbors out and not bringing anyone in. It wasn’t long before the complex looked like a ghost town.
But a couple of months later, the complex was advertising free-rent promotions similar to what their competitors had used to lure away their residents. The rents for that complex remain lower today than they were five years ago.
The moral of the story is that while businesses want to keep their profits high, in a free market they are powerless to do so unless they have the cooperation of consumers.
There has been much hand wringing about what would happen when the last vestige of rate regulation – the “price to beat” – disappeared on Jan. 1. We are already starting to see the answer: more companies are offering lower rates in response to consumer demand.
According to the Public Utility Commission’s PowerToChoose.com website, there are now electric companies serving my neighborhood that offer rates one-third below the former “price to beat.” I just switched my electric provider for the third time because the company I had been with no longer offers a competitive rate.
Of course, many consumers value factors like reliability, service and price stability over low prices, and are willing to pay more to get them. Competent retailers will in turn offer products suited for these customers. We shouldn’t berate companies for meeting consumer demand.
Instead of asking the PUC to re-regulate the electric industry, why not have it deregulate those areas where customers still don’t have choices? The key to lower electric prices is more competition, not more regulation.
David Guenthner is the Director of Media and Government Relations for the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.