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Houston consumers protest high rates. photo courtesy of ACORN distribution of electricity, or the retail and marketing end of things. \(The transmission and distribution of electricity, considered a “natural monopoly,” remained regulated, while the production of power and the retailing to consumers was separate companies or restructure as a holding corporation with distinct businesses. To get the process going, the Legislature forced the largest utilities \(Houston Industries, off enough power plants to reduce their market share to 20 percent of generating capacity. At the same time, companies were allowed to recoup some $9 billion in unpaid debts tied up mainly in the state’s two nuclear power plants. Consumers and industrial power users are still paying for these costs through a monthly charge on each bill. On January 1, 2002, after a three-year rate freeze, the initial round of retail competition began with new companies vying to win customers. Reliant could sell electricity in TXU’s backyard and vice-versa; a start-up company with $100,000 in capital and not a single power plant could try to snatch market share from the big boys. To give the entrants a leg up, SB 7 makes the successors of the former monopoly utilitiesFirst Choice Power, CPL, WTU, Reliant, and TXUsubject to continued limited regulation. They are required to offer an above-market “price-to-beat” rate to individuals within their regional service areas who have not switched to an alternative provider. Twice a year, the retail companies offering the rate can ask the Public Utility Commission, the state’s regulatory agency, for an adjustment to the price-to-beat based solely on the price of natural gas. \(At the time SB 7 was drafted natural gas was cheap and favored for being relatively cleanoffering electric plans other than the price-to-beat. And on January 1, 2007, the price-to-beat will be lifted, and full-blown competition will commence. The government’s role will be limited to coordinating the electric grid and policing the unfettered market. At first, economists, lawmakers, and industry reps hailed Texas as the model for deregulation. Even in 2001, the year before retail competition began, when California’s deregulation experiment suffered from blackouts, price gouging, and illegal trading activities by Enron and others, deregulation proponents touted the safeguards in the Texas model. But in the aftermath of California’s disaster and Enron’s 2001 collapse, many states hit the brakes on deregulation. Thirty-four states have scrapped or delayed retail deregulation or have confined it to large business customers, according to a 2005 study by energy industry consultants. “Now as the fiction of deregulation is exposed, more are figuring out how to get out of it,” says Mark Cooper, director of research with the Consumer Federation of America. Texas, he notes, is “hard-core” and represents perhaps the last stand of deregulation in the United States. With that in mind, the free-marketers have sought to fight off the naysayers. In April, Jim Burke, the CEO of TXU Energy, the largest power company in the state with over 2 million customers, told lawmakers gathered to discuss electricity issues the day after rolling blackouts across the state, “Texas has by far the most successful market in the country and [is] arguably on its way to the most successful market in the world.” Burke cited figures that show 30 percent of Texans have switched to an alternative provider. He spoke of competitive alternatives to the price-to-beat in the most expensive deregulated regions and of innovative electricity plans. He noted that there are a dozen retailers in some service areas, far more than any other comparable state. Burke also acknowledged the elephant in the room: “However, there have been a lot of challenges. Higher prices have cast doubt on whether this is a successful model.” Rep. Sylvester Turner, a Houston Democrat, was a supporter of deregulation in 1999, but he is now one of the system’s fiercest critics. Hailing from a solidly Democratic district in Houston where 20 percent of the people live in poverty, Turner understands how a penny-ante issue for affluent people like the monthly electricity bill can be of paramount concern to households surviving paycheck to paycheck. “The reality is that Texas used to be a low-cost energy state,” he says. “Not only do we [now] exceed the national average, we exceed what people are pay JUNE 30, 2006 THE TEXAS OBSERVER 7