What It Means to Texas Consumers

In January of 2002, Texas will launch a bold experiment when the state allows consumers to choose power generation suppliers.
This is known as ELECTRIC DEREGULATION and if you’re unsure what it means to you, you’re not alone. Many people are confused about deregulation and its implications – partly because for most of us it’s a new experience and partly because its ultimate consequences will not be known for several years. To compound the confusion, the deregulation experiment has gone painfully awry in several states across the nation. Most notably in California where wholesale power rates have increased as much as 900% since electric deregulation was implemented.

How much will deregulation affect electric rates?

For consumers, the most immediate concern about deregulation is how it will affect their power bill. Advocates of deregulation predict it will reduce retail electric rates. Unfortunately, rates probably won’t drop as much as consumers may have been led to expect. In fact, deregulation of other industries such as telecommunications has led to higher total bills.
This is because your electric bill is actually three bills – and deregulation impacts only one of them.

Anatomy of an electric bill

The three parts of your electric bill are generation, transmission and distribution. Electric deregulation changes how power generation will be bought and sold. It does not change how power will be transmitted or distributed.

GENERATION is the actual production of electric power, whether by hydroelectric dams, coal or natural gas fired plants, nuclear power plants, wind turbines, solar cells or other means. Most power in West Texas is produced by natural gas, coal and oil.

TRANSMISSION is the process of moving power from the point of generation (a power plant, for instance) to the point of distribution (called a substation). This is done by high-voltage transmission lines carrying huge amounts of electricity, sometimes as much as 400,000 volts. Compared to the millions of miles of distribution lines, transmission lines are relatively short.

DISTRIBUTION is the process of getting power to the consumer. This is the network of lines that connects the transmission delivery point (such as a substation) to homes, stores, offices, factories – anyone that buys retail electricity.

Co-ops only distribute electricity

There are seventy -five electric co-ops in Texas. Most of them only distribute electricity. (Another eleven Texas co-ops generate and transmit electricity, but they only wholesale electricity to distribution co-ops.)
If you are a member of a rural cooperative, your co-op is a distribution co-op; it distributes electricity from power suppliers to its members. The co-op does not manufacture electricity nor does it primarily operate high-voltage transmission lines. As a wholesale customer, it pays for both generation and transmission, passing these costs on to members without mark-up.

What deregulation will do

Deregulation affects only power generation (not transmission or distribution). Currently, many utilities—private and public—not only distribute power, but generate and transmit it as well. Deregulation will require these companies to separate those parts of their businesses that supply power.
The eventual result of this divestiture will be to create a "power market" where power suppliers will be free to sell their electricity to the highest bidder. The law of supply and demand, deregulation advocates say, will ultimately benefit everyone: power producers, utilities and, of course, consumers.

Will deregulation benefit consumers?

In theory, deregulation should lower electric rates. Whether this will actually happen remains to be seen. Other states have had mixed results with electric deregulation. For that matter, other industries, such as airlines and telecommunications, have undergone deregulation with results that have not always benefited consumers. Deregulation is an experiment whose ultimate outcome cannot yet be confidently predicted.

Why co-ops have a choice in deregulation

When the Texas Legislature approved electric restructuring in 1999, it exempted cooperatives and municipally-owned systems. Why? Because these services are owned by their customers and run on a democratic business model. Co-op members, for instance, elect their board of directors, which in turn set co-op policy.
Does this mean that co-ops cannot deregulate? Not at all. It means that co-ops may choose to opt in or out of deregulation. Unlike electric distributors elsewhere in the state, co-ops and municipally-owned systems have a choice. This gives rural electric cooperatives a unique advantage: the opportunity to wait and see if the state deregulation experiment will benefit their member-owners, especially in the rural markets where the cooperatives primarily operate.

"Opting in" is forever

There is no deadline for co-ops to "opt in," but—and this is important—if a co-op decides to become deregulated, the decision is virtually permanent. Opting "out" again is not a viable choice.
Once a co-op chooses deregulation, it must purchase its power on the market at the prevailing market price, competing against all other power customers, bidding high when power is expensive and low when it is cheap. Whether this will result in energy savings is a question that has yet to be answered.

Why we want to "wait and see"

Regardless of whether your co-op ultimately opts in or out of deregulation, it will remain your power distributor. If it becomes deregulated and buys power at market prices, the generation part of your bill will reflect the higher or lower cost, but the other parts of your bill—transmission and distribution—will be unaffected.
No one has a crystal ball to view the future of electric deregulation. Like many other Texas cooperatives, Smart Choice Co-ops believe the wisest course is to "wait and see." Before deciding, Smart Choice Co-ops want to know if deregulation has raised or lowered rates for other Texas power customers, particularly in rural areas.
Unlike private corporations, co-ops are owned by their customers. Your co-op’s board of directors is elected to set policy that most benefits its member-owners. Your board is answerable to members and only to members, not shareholders or investment banks.

Not until we’re sure it’s right

Generations of Texas schoolchildren have memorized the motto of Davy Crockett, defender of the Alamo: "Be sure you’re right, then go ahead." That wisdom is as apt today as it was in 1836.
Smart Choice Co-ops intend to go on serving their members as they have for over sixty years. We intend to go on providing the same superior service, personal attention and affordable rates our members have come to expect.

And if deregulation is right for our members, we intend to go ahead.
But not until we’re sure.