What You Need to Know About Texas Energy Deregulation

Shopping for an electricity company in the Lone Star State these days is as easy as the Texas Two-Step. Not only do we have a lot of choices in providers and plans, but all the information we need to make an educated decision is typically just a few clicks away. As straightforward as this is today, it wasn’t always this way. Not long ago, Texans couldn’t choose who their provider was. If they were unhappy about the service they were receiving or the rates they were paying, there just wasn’t another option. That is, until the state deregulated its electricity market in 2002. What does this mean for you? Read on to see all that you need to know as a consumer about electricity deregulation in Texas.

What Does Energy Deregulation Mean?

For consumers like you, deregulation means that you can choose from multiple Retail Electricity Providers (REPs) if you live within a deregulated area in Texas. Having multiple REPs in an area gives you the chance to pick the electricity company with the best plan, pricing and incentives while also making it easy to switch. Before deregulation, local electric utilities controlled every step of the process, from generation and transmission to customer service before deregulation. These vertically integrated utilities were the only provider in an area, which created monopolies and caused increased rates. 

Why Was Electricity Deregulated in Texas?

The stated goal for Texas Senate Bill 7 was to decentralize the generation and delivery of electricity and use competition to lower rates and provide more options for consumers. However, the root of the deregulation movement can be traced back to November 1965, when a blackout left about 30 million people in the northeastern USA and Ontario, Canada without power for more than half a day. This led to the creation of the National Electric Reliability Council, which split the American electric grid into smaller regions for more efficient management. The Lone Star State’s regional entity, known as the Texas Reliability Entity (Texas RE), is a nonprofit corporation that enforces national reliability standards in the area served by ERCOT. 

The Energy Policy Act of 1992 opened the door for deregulation nationwide as part of a broader effort to reduce dependence on petroleum, improve air quality and increase clean energy use. Texas, along with California and New York, is among the nearly 30 states in the country with deregulated electricity markets.

When Was Texas Energy Deregulated?

Passed in 1999, Texas Senate Bill 7 deregulated the state’s electricity market. When the law took effect in 2002, the impact on the industry and consumers was profound. Whereas the generation, distribution and customer service aspects of power delivery were handled by individual utilities, the deregulated market separated them. REPs are the providers that you buy electricity from. There are more than 130 REPs in Texas. All REPs are required to register with the Public Utility Commission, which controls how REPs sell power and oversees how the Electric Reliability Commission of Texas (ERCOT) operates the electricity grid. Meanwhile, Transmission and Distribution Service Providers (TDSP) own and manage the power lines and transformers, while power generators produce and sell electricity on the wholesale market. REPs purchase the electricity and then sell it to you, the consumer.

Who Regulates Electricity in Texas?

When we talk about deregulated electricity in Texas, that doesn’t mean that it’s the Wild West here. Deregulation refers to how the market works and the choices that consumers can make. We may have a deregulated electricity market, but the state still regulates how power companies operate. Here’s how it works:

• Public Utilities Commission of Texas – The PUCT is responsible for protecting customers and ensuring that all players within the Texas electricity market follow the rules. It does not set the price of electricity that is charged to consumers, but it does set the delivery charges that pay for the transmission poles and wires. You can also submit complaints on the PUCT website, which also has information about consumer rights that all Texans should be aware of. The agency also approves larger electric transmission line routes and is involved with water and telecommunications utilities.
• Electric Reliability Council of Texas – ERCOT is a membership-based nonprofit corporation that manages the flow of electric power to more than 26 million Texans. It is responsible for maintaining system reliability, facilitating competitive retail and wholesale markets and ensuring free access to transmission. ERCOT doesn’t make the electricity or own any transmission lines; instead, its job is to make sure the grid is working as it should be and that power is reliably delivered to Texans. ERCOT is subject to oversight from the PUCT and the Texas Legislature.
• Texas Reliability Entity, Inc. – The TRE is the regional entity that represents much of Texas in the North American power transmission grid. It’s one of the six regions within the North American Electric Reliability Corporation (NERC), a nonprofit, self-governing corporation created after the passage of the Energy Policy Act of 2005 to develop and enforce compliance with mandatory reliability standards. Here in Texas, the TRE works with ERCOT to develop, monitor, assess and enforce compliance with NERC reliability standards.