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Deregulation

What It Means to Texas Consumers

In January of 2002, Texas launched 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. 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 increased as much as several hundred percent since electric deregulation was implemented.

Anatomy of an Electric Bill

The three parts of your electric bill are generation, transmission and distribution. Electric deregulation changes how power generation is bought and sold. It did 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 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 more than 60 electric co-ops in Texas, including United Cooperative Services, that only distribute electricity. If you are a member of a rural cooperative, your co-op is a distribution co-op. Another 11 Texas co-ops generate and transmit electricity, but they only provide wholesale electricity to distribution co-ops.

United 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 Did

Deregulation affects only power generation (not transmission or distribution). Many utilities – private and public – not only distributed power, but generated and transmitted it as well. Deregulation required these companies to separate those parts of their businesses that supply power.

The eventual result of this divestiture created a “power market” where power suppliers are 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. This is clearly subjective.

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 co-ops like United may choose to opt in or out of deregulation. Currently, however, to enter the deregulated market, United would take on millions of dollars in additional costs, which would likely either eliminate any savings or cause higher rates. 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 United ultimately opts in or out of deregulation, we will remain your power distributor. If the co-op 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, we believe the wisest course is to “wait and see.” Before deciding, United wants 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. United’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.

United Cooperative Services intends to go on serving our members as we have for 65 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.

Frequently Asked Questions About Energy Deregulation and Restructuring

 

Q: Are co-ops the only ones that have the flexibility to wait to decide whether to opt in?

A: No. San Antonio, Austin, Brownsville, Lubbock and about 70 other municipalities are weighing their options, which are the same as the co-ops’.

 

Q: Why aren’t co-ops and municipally owned utilities required to compete as the investor-owned utilities are?

A: Because when Texas legislators approved electric restructuring in 1999 they recognized that member-owned electric co-ops and city-owned systems are locally based and that they operate under a democratic business model. Co-op boards of directors and members must decide what path to take.

Investor-owned utilities are dedicated to maximizing profits for their shareholders. United’s goal, as it has always has been, is to serve you conscientiously and efficiently at the best possible cost.

 

Q: When will United Cooperative Services make its choice?

A: Each co-op will decide in its own time. Many will wait and see what the real costs of deregulation will be. United will opt for competition only if it benefits you, the member-owner.

 

Q: If my co-op opts in to restructuring, will I receive more than one bill?

A: Only if you request it.

 

Q: Under restructuring, do I have to choose a new electric supplier?

A: No. You don’t have to change.

 

Q: Are all co-ops against choice?

A: No. We are against rushing into anything that might not be advantageous to our member-consumers. Telephone, airline and railroad deregulation, for example, have had their down sides. Deregulation of these industries has not always resulted in benefits for customers, especially in rural areas and small communities. And once a decision to change is made, it cannot be revoked.

 

Q: I have another electric provider but I would like to join a co-op. Is that possible?

A: If a co-op in your area opts in to restructuring, you may be able to become a co-op member-consumer.

 

 

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