Ambit Energy - Cost savings, more choice, new plants and new jobs all prove it

SB 7 was passed by the Texas Legislature in 1999. It authorized electric competition in the retail segment beginning on Jan. 1, 2002. Recently, my colleagues and I at The Perryman Group analyzed the economic benefits resulting from this transition. We found a lot of positives for the Lone Star State.

For example, market forces are having the desired effects of providing consumers with greater control and more choices at prices lower than they would have been under regulation. From January 2002 until now, more than 2 million electricity customer switches have been completed.

Competition has also led to increased interest in alternative electric-generation processes. As a result, 1,900 megawatts of electric capacity have been added by wind-power generation plants over the past four years. Moreover, the amount of metric tons of emissions from electric utility facilities has dropped dramatically.

The impact on business activity of cost savings from retail competition has provided an annual stimulus to the state’s economy of some $9.73 billion in total expenditures, $4.64 billion in gross product and almost 47,800 permanent jobs. This stimulus, especially in terms of employment, is highly important to the Texas economy.

In addition, more than $11 billion has been invested in new plant facilities with approximately $12.5 billion in potential capacity now in various phases of implementation. This investment in generation facilities helps ensure sufficient additions to capacity to meet future requirements of the state’s expanding population and growing economy.

The total economic impact of facility construction across Texas since the introduction of competition is $42.39 billion in total expenditures and nearly $20.57 billion in gross state product. Some $14.04 billion has also accumulated in personal income, with $5.38 billion gained in retail sales over the period. Moreover, 342,015 person-years of employment resulted during the construction phases.

The impact of facility construction for 2005 alone was almost $750 million in total expenditures; $360 million in gross state product; $250 million in personal income; $95 million in retail sales, and 6,022 person-years of employment.

Lower (relative) rates

Because Texas power plants are predominantly fired by natural gas, the price of electricity in the state is closely correlated to the price of natural gas. This has led to electricity price increases in Texas compared with those areas less oriented toward natural gas. Even so, competitive electricity prices have risen more slowly, and are well below estimated prices if the regulated market environment remained in the relevant areas. In fact, economic studies on the restructuring of the electrical power industry indicate that electricity rates are lower for most customers than if the industry had remained regulated.

Because of the enactment of SB 7, residential customers in the state’s competitive markets continue to have many choices of electricity providers, including at least one renewable product. While electric rates vary across areas of the state depending on fuel costs, capital costs and numerous factors, the success of the decision to permit competition in retail markets is evident as prices are lower and choices are far greater than they would have been in the absence of competition.

Based on that standard, Texas has the most successful program in electric retail competition in the United States.

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