With the Blackout of 2003 behind us, many questions have been raised as to how to prevent the same thing happening again. Ironically, after the Blackout of 1965 the same question was asked and supposedly solved through the creation of a regulatory body.
Currently one of the piñatas being knocked around various media outlets and academic circles is that deregulation is to blame for the loss of electricity for over 50 million individuals across North America. Adding insult to injury, individuals like Paul Krugman believe that not only is "deregulation" the root cause for the latest fiasco but in turn, call for greater regulation and oversight of the already beleaguered industry.
Speaking of fiascos, in the mid-90s, regulators, consumers and energy producers began to rearrange the market for "deregulation" in Texas . Incumbent providers such as TXU and Reliant were restructured in the name of free markets, but when the dust cleared, the only winners were members of the political class and corporations that had been State-sanctioned monopolies prior to the "deregulation."
TXU was separated into two companies, Oncor and TXU Energy. Oncor was given the monopoly on all services including meter reading, energy delivery, etc. Additionally they own all of the poles and wires and are protected by law from competition. TXU Energy became a billing company (and owner of power plants), merely forwarding all of the customer service questions and problems to Oncor, and therefore providing no services themselves.
This is akin to the following: splitting AT&T into two separate companies, one (Nexis) that owns all of the cables, wires, PBXs, switching stations, call centers, etc. and provides all of the services, repairs, installations, etc.; and the other company (Willy) whom simply sends you a bill at the end of the month, providing no value-added service.
Not only is it not deregulation (the same players exist with State protection) but more overhead is created through the creation of another billing company. Instead of paying Nexis, you are now paying Willy who in turn pays Nexis—an unneeded layer of complexity that is inefficient in terms of capital allocation and time for all parties involved.
And the technocracy does not end there.
As of this writing, there are three separate pieces to the energy market in Texas : power plants, services and billing. Power plants are still heavily regulated, both by FERC and by ERCOT (note: both TXU and Reliant Energy own the majority of power plants). In most of Texas all services are provided through a monopoly called Oncor, which was previously named TXU (if they aren't provided by Oncor, services are provided by a municipality which has a monopoly on those services: Garland Power & Light or City Public Service for examples). Billing is the only area in which competition is allowed, with about a dozen companies vying for an easy dollar—and as shown above, this is an unnecessary and inefficient layer.
As far as pricing goes, if the average market price of natural gas increases 4 percent over a 10-day period, incumbent utilities like TXU and Reliant can request a price increase, all of which have been granted (the commissioners at the Public Utilities Commission have to grant the price increase if this condition is met).
Not surprisingly, the incumbent utilities purchase all of their natural gas via long-term contracts, so short-term market fluctuations over a 10-day period do not affect their bottom line, yet this condition gives them an excuse to increase their prices twice a year (the maximum allowed).
Additionally, only half of the power plants used by incumbent providers are powered by natural gas. Nuclear, coal, water and wind generators provide the other half and are not subject to the same price fluctuations:
Before deregulation, regulators would investigate a utility's actual fuel costs and allow companies to pass those costs directly on to consumers.
"Fuel prices should be looked at over the long term, not over the short term," said Carol Biedrezyeki, executive director of the Texas Ratepayers' Organization to Save Energy.
"The way this system is set up, it's a one-way street. They can ask for increases and the commission has to grant them. Nobody is allowed to ask them to decrease the fuel factor if fuel prices go down. "It's easy money for the companies, and they're going after it," she said.
TXU customers in the North Texas area and Reliant customers in the Southern regions will be paying more for their electricity since the creation of the grid, an all-time high. Additionally, under the guise of competition and open markets, the incumbents can now increase their rates perpetually into the future. This irony is lost on the State-based PowerToChoose.org website, as in reality the only thing consumers can choose between is Tweedledee and Tweedledum.
If Will Rogers was alive today he would surely say something to the effect of: "I came, I saw, I laughed… at both the regulator and the fool following him."
 Dallas Morning News, January 25, 2003, Page 24A.