Study: Slow down for a Texas drawl

Issue 5 and Volume 101.

Study: Slow down for a Texas drawl

A recent study suggests that unless a cautious approach is taken to introducing retail competition of electrical power in Texas, consumers and small businesses might not share in the benefits, while local and state governments could experience $234 million losses in franchise and property tax revenues the first year alone. Conducted by economists at the University of North Texas Center for Economic Development and Research, the study also recommends careful consideration be given to the recovery of strandable investments because of the potential for higher capital and electricity costs.

Strandable costs for Texas investor-owned utilities (IOU) is estimated by Moody?s Investors Services at nearly $13 billion.

OIn Texas, there is no pressing economic reason to rush into retail competition. Retail competition is being pushed hard in states where electric rates are double those here in Texas,O said Bernard Weinstein, Ph.D., director of the Center for Economic Development and Research at the University of North Texas. Financial problems could befall Texas IOUs if they are unable to recover strandable costs.

The study reports weakened balance sheets and income statements could result in higher capital costs and ultimately higher electricity costs for consumers. The effects would be far-reaching because of the widespread public holdings of utility equity either through direct stock ownership or through mutual and pension funds.

The study asserts that stranded cost recovery is justifiable on the basis of a regulatory compact that has existed for decades between regulators, utilities and the public. The compact grants an electric utility a certificate of convenience and necessity in exchange for the obligation to provide continuous and reliable service to every consumer at a reasonable costs.

The study recommends monitoring retail experiments in other states while encouraging pilot programs in Texas before embracing full-blown retail competition.