Mark your calendars for a happy Energy Independence Day to Lubbock consumers! In late 2023, Red Raiders and other citizens of the Hub City will be able to choose their own Retail Electric Provider — joining more than 7 million other Texas residential, business, and industrial customers. Thank the Lubbock City Council: On February 22, councilmembers voted unanimously to give their citizens a choice in electricity supplier.
Lubbock’s story is a good reminder that competition and customer choice are not the universal rule in Texas. For years, the City of Lubbock’s municipal electric utility, Lubbock Power & Light (LP&L), was locked into what we in the biz call a “full requirements contract.” Under the agreement, citizens’ electricity was supplied by a single regional utility. Simply put, citizens of Lubbock had no choice in who provided their electricity. Before Lubbock successfully negotiated to give consumers a choice, their monopoly provider was contracted to last until 2044. This kind of situation is unfortunately common. Millions of electricity consumers and all natural gas utility customers — remain locked into energy monopolies in Texas.
It’s a core principle of business in America that you should have the right to hire — and to fire — the services provider for your home or business. Competition for customers motivates businesses to keep costs low and to add value through the services they provide. That pencil-sharpening and innovation depend on customers being able to choose in the first place. Today we see the successes of customer choice wherever we look, including in telecommunications and data, streaming services and cable, airlines, insurance, and banking. Many of these industries started out as monopolies or something like it in the course of American history. Consumers benefited from the opening of markets in these industries. And they’ve benefited from choice in electricity: Researchers at the Baker Institute for Public Policy at Rice University found that the presence of competition disciplined suppliers’ prices, driving them down in the parts of Texas where customers are allowed to choose.
Some observers might be surprised by Lubbock’s choice in light of Winter Storm Uri, but they should not be. Not only did competitive power generators perform better than monopolies in ERCOT during Uri, competitive suppliers stood in the breach between customers and the price blowouts in the power and gas markets.
Customers who signed fixed-rate annual contracts were protected; their suppliers wore the risk of price spikes. Indeed, in a comprehensive analysis of 15 states where gas prices spiked during Uri, a typical residential customer of a power or gas monopoly ended up paying 3-5x more than the same customer in the Texas competitive electric market. In fact, most utility monopolies reported that their earnings were completely unaffected by Uri. Why? Customers ended up being utility monopolies’ insurance policy, but in competition, a customer uses a supplier as his or her insurance policy.
One final reason Lubbock cited in its decision was that competition in energy supply will allow the city utility to focus on ensuring the reliability of the distribution business (the poles and wires function of utility supply). Oversight of distribution will remain in the city’s hands even as energy supply moves to competition.
So, three cheers to Lubbock: a place where policymakers looked at the facts and concluded that their citizens should have a choice in electricity, just like they do in practically everything else in their lives. More power to them!
