Texas Insulated From Electric Upset


One could argue that Texans caught another lucky break this week when the state's electricity deregulation experiment was delayed for the third time. After all, as the West Coast learned the hard way, privatizing power is a dicey business.

But the risks of deregulation in one of the nation's energy hubs are peculiarly low, thanks in part to a protectionist system that has effectively walled off the state's electric grid from the rest of the nation.

The power grid is the handiwork of tough politicians and an isolationist streak in a state where popular bumper stickers still urge secession from the union. Over the years, Texas has gone to pains to make sure no other state linked itself to the electric network.

In the meantime, it has built a network of natural gas, oil, nuclear and coal-powered plants that can pump out 20% more electricity than Texas can use. All are contained within Texas' borders and therefore immune to the directives of the Federal Energy Regulatory Commission, which oversees electricity in the rest of the country.

"Texas is the most isolationist state in the entire union," said Philip K. Verleger Jr., a Newport Beach-based economist specializing in energy markets. "It's astounding how a litany of politicians from Texas have managed to impose protectionism on energy resources."

President Bush, the former Texas governor, has introduced an energy plan calling for a national electrical grid and even proposed the unfettered flow of power among Canada, Mexico and the United States. Meanwhile, there are three grids in the nation: the East, the West--and Texas.

The robust supply of power means that, for now, customers here are unlikely to face the sharp price spikes and blackouts that plagued California deregulation. California's dramatic price spikes were driven, in part, by a lack of supply.

But even with the cards stacked in favor of the Lone Star State, discarding six decades of regulation hasn't been easy.

Thousands of Texas households were poised for their first taste of an open electricity market this week--until a pilot program had to be delayed once again. Originally scheduled to begin June 1, the experiment has been postponed three times while officials tinker with a new, centralized computer network that coordinates the movement of electricity throughout the state.

When the pilot program finally creaks to a start--now set for July 31--a test sample of Texas electric customers will buy power from competing companies. The experiment is meant to smooth any technical kinks before Jan. 1, when the state's investor-owned power monopolies are to be dismantled.

But if July 31 "comes along and we're still not ready, we'll go ahead and delay it again," Jennifer Taylor said. Taylor is a spokeswoman for the Electric Reliability Council of Texas, or ERCOT, the agency charged with running the state's power grid.

"None of these things are easy," ERCOT chief Tom Noel said. "They're very complex."

Customers are nonplused.

"It doesn't inspire a lot of trust when it's messy before it even gets started," said Karen Higgins, 37, a Houston bank manager. "I won't make a move until everything is straightened out."

That sentiment is common among residents: Despite prodding from radio and television spots, households have greeted their newfound commercial freedom with a collective shrug. The state hoped to test 247,000 households, but only a third of those have signed on to the experiment.

The indifference is, in part, chalked up to inertia. Most people can't be bothered to slog through complicated paperwork or listen while telemarketers promise to shave a few bucks off the electric bill.

And then there's California: The specter of the West Coast's woes--the images of darkened classrooms and household despair--haunt Texas' move into deregulation.

"They want us to go through the same mess here?" asked Lekeya Rowe, a 24-year-old aide in a Houston nursing home. "I wouldn't trust it. It's too hot here not to have electricity."

The state has tried to soften the worries: ERCOT's Web site features a short essay entitled "Texas is not California!!!" and a "Top Ten List: Texas vs. California."

"Texas," the Web site reads, "has learned from the experiences of others."

In a state where air-conditioning is a way of life and widespread manufacturing and technology gobble up power, electric bills are serious stuff. And Texas has remained impervious to the woes plaguing other parts of the country. Texans in recent years have paid roughly 12% below the national average for each kilowatt-hour they use.

Austin lawmakers voted in 1999 to deregulate the electric market, joining the 20 other states that had opened power sales up to competition. It was a heady time: Lawmakers and then-Gov. George W. Bush predicted plummeting electric bills.

"I believe it's going to reduce rates and increase competition," Bush told reporters before signing the bill into law. "And I know it's going to be good for clean air."

With a stroke of Bush's pen, electric rates were frozen. Lawmakers ordered rates to hold steady for two years, then drop by 6% once deregulation kicks in.

But thanks to sky-high costs of natural gas, households expecting a 6% drop on their January bills could be in for a nasty surprise. The decrease will be adjusted for fuel costs, so household bills could still be steeper than they are now.

Consumer groups in Texas have eyed deregulation with trepidation. They believe households could end up paying more--while big industrial customers use their considerable leverage to haggle for lower rates.

"I haven't seen any evidence anywhere in the country where this is good for residents," said Carol Biedrzycki, director of the Texas Ratepayers' Organization to Save Energy. "It appears to work best for big industry. Their accounts are so large, they've got the power to bargain."

Texas might be well positioned to avoid California-style price spikes or shortages in the short term, but some say its isolation from the rest of the nation might come back to haunt it.

Some power plants here are rickety and nearing retirement. As deregulation gets on in years, the test will be whether enough private power companies want to build enough plants in Texas to keep the state's capacity ahead of its growing need for electricity. They will want to sell power to the highest bidder, wherever that bidder is.

"A lot of people are putting power plants in Texas on the theory that they're going to make money, and I think they're going to want pretty quickly to be hooked up to the rest of the country," Verleger said.

Noel, of ERCOT, says: "I don't know the answer; I know we're working on it now. The state will do what it can to encourage the continued building of plants."

That's just the sort of uncertainty that puts consumer advocates on edge.

"It's uncertain--there doesn't seem to be anything that's definite," Biedrzycki said. "These are critical elements in the system that aren't operating yet.

"But we just more or less have to wait and see how it goes."


Times researcher Lianne Hart contributed to this story.

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