This past week, I attended a business seminar on campus that discussed energy markets. The lecturer discussed what she had learned as a result of her work in this market, including how geographic location influences the type of technologies one would encounter during daily work.
For me, the most interesting concept that was brought up during the seminar was how the energy market operates in the state of Texas. In 2002, the Texas Senate approved a measure that would deregulate the electricity market. This deregulation would take place over several years. As a result, 85% of Texas power consumers are able to choose an electricity service from large pool of retail electric providers (or, REPs). In fact, as of 2012, residential customers in the Dallas-Fort Worth area could choose between 45 REPs that offered 258 different prices plans.
A 2014 report by the Texas Coalition for Affordable Power (TCAP) found that “deregulation cost Texans about $22 billion” during the ten years proceeding the initial signing of the bill. However, increased competition in a marketplace necessarily leads to lower prices for the end consumer. That is, when the overall supply in a market increases, the quantity demanded increases and the subsequent price per unit decreases. Indeed, Texas’ electric prices in 2015 were calculated to be 17% lower than the national average.
Unlike Texas, the city of Tacoma has a single utility company: Tacoma Power. Tacoma Power owns the power production, the transmission lines and the eventual bill for providing electricity to homes in Tacoma. Consumers are indeed forced to do business with Tacoma Power.
One of the central tenants of a free market economy is to maximize choice for consumers. In order to maximize choice, competition must be allowed and encouraged among firms. The firms that provide the most values service (as defined by the free-to-choose end consumer) enjoy the most financial benefits. Other firms are able to mimic the market at perhaps a lower price for consumers, and thus the cycle continues. Ultimately, allowing customers to have more choices in the marketplace is a necessary and worthy goal of public policy.