Electric Deregulation Promises Remain Unfulfilled.

On the Tenth Anniversary of Deregulation Law, Texans Still Waiting for Lower Prices and True Competition

AUSTIN, Texas -- Electric deregulation has led to dramatically higher energy prices for consumers, serious abuses in the wholesale power market and reduced profits for businesses, according to a comprehensive new report on the 10-year history of the Texas deregulation law released Monday to all members of the Texas Legislature.

The History of Electric Deregulation in Texas: 10 years of Senate Bill 7 also shows how useful reforms have been rejected during repeated legislative sessions. Environmental gains have been tempered by needlessly high prices, according to the report.

The report, commissioned by the Cities Aggregation Power Project, a nonprofit coalition of 103 municipalities and other political subdivisions, is one of the most comprehensive ever produced on the state's deregulation law, often referred to simply as "Senate Bill 7." Unveiled by state Senator David Sibley during a press conference in early 1999 and signed into law by Governor George. W. Bush on June 18, 1999, Senate Bill 7 was promoted as the answer to high electric prices in the Lone Star State.

"As this report illustrates, consumers have paid too much for too long under deregulation," said CAPP chairman Jay Doegey. "We have a deregulated market, but not a fully competitive one. Instead of excuses or ignoring the problem, Texans deserve meaningful reform."

The History of Electric Deregulation in Texas provides important context with which to judge whether deregulation has fulfilled its promise to bring lower power prices to Texans. Unlike the sponsors of other reports on the Texas market, CAPP derives no profit from selling electricity. Instead, the member communities of CAPP want what all Texans want: affordable and reliable power and a healthy economy.

Among the key findings:

*The number of electric providers has increased under Senate Bill 7 -- but so have prices. Texas ratepayers paid below the national average during the years prior to Senate Bill 7. Since the restructured market opened, prices have soared well above the national average. In fact, energy prices have increased in Texas by a greater percentage than they have increased in other deregulated states.

*Enron played a key role in the deregulation of the Texas electric market. Some of the current problems with the market structure can be attributed, at least indirectly, to the considerable political influence of Enron during the late 1990s.

*Over the past ten years, Texas has become a leader in renewable energy. Some of those gains can be attributed to Senate Bill 7. However, the aggressive build-out of wind power in West Texas will drive up transmission costs for all Texans and create new electric reliability challenges.

*The Electric Reliability Council of Texas, the operator of the Texas power grid, continues to have serious problems managing the system. A major market overhaul by ERCOT remains years behind schedule and approximately 900 percent over initial cost projections.

Based on its findings, CAPP calls for the following reforms:

* Market abuses have remained pervasive and uncorrected. The statute should be updated to provide more protections against abuses in the wholesale energy market. Senate Bill 7's prohibition against owning or controlling more than 20 percent of the generation within a power region should be updated to reflect the fact that transmission constraints have created several power regions within ERCOT.

*When market abuses occur, market participants harmed by such anti-competitive behavior should be given the right to participate in enforcement actions by regulators.

*Lawmakers should demand more accountability from ERCOT. The legislature should order ERCOT to abandon its behind-schedule and over-budget market overhaul.

The History of Electric Deregulation in Texas is based on months of research, including a review of journalistic accounts, regulatory documents, academic studies and years of data from the United States Energy Information Administration. It is available for download at www.capptx.com.

"We know that affordable power means more economic development for our communities and a better life for our citizens," said CAPP Vice Chairman Randy Moravec. "But competition does not simply develop once regulation is abandoned. The legislature promised Senate Bill 7 would result in lower prices. The people of Texas are still waiting."

ABOUT CITIES AGGREGATION POWER PROJECT

CAPP is a political subdivision corporation and registered aggregator for 100+ member cities and utility districts, all of whom are located in the areas of Texas that are open to retail electric competition. CAPP's members are concerned about the effect of rising energy costs on their own budgets as commercial consumers, but are also troubled by the prospect that Texas's increasingly expensive electric rates may compel large energy consumers to locate their businesses in other states, taking with them needed jobs, tax revenue, and the potential economic development.