Understanding Deregulation in the Texas Marketplace

If you’ve ever found yourself shopping for electricity in Texas, the phrases “regulated energy” and “deregulated energy” may sound familiar to you. If you’re new to the state, or even just new to a deregulated area, it can be difficult to understand the nuances of the electricity market in Texas. In this article, we aim to cover the history of deregulation in Texas and the resulting benefits to consumers. 

How Deregulation Started

Prior to the 1970s, all Texans relied on a single local provider, whether it was a municipal utility in cities, a large investor-owned utility or a smaller electric co-op. At the time, these utilities owned and operated the entire supply chain of electricity - from generation to the meter on your home/business. 

It wasn’t until 1999 with the passing of Senate Bill 7 that the Texas State Legislature deregulated the electricity industry and opened the supply of electricity to competition. This put a stop to large utility companies having complete control over the cost of electricity and gave consumers the option to choose from multiple energy providers. While this legislation impacted the two largest metropolitan areas in Texas, Houston and Dallas-Fort Worth, there were a handful of cities that chose to opt out of deregulation. These cities, including San Antonio and Austin, are still regulated by electric cooperatives or municipalities today.

Get Pricing Now

Restructuring of the Energy Industry 

Included in the legislation that deregulated the industry was also an outline for how the industry would need to be restructured. Instead of having just one utility fulfill both supply and delivery of electricity, utilities were forced to separate into three parts:

2) Generation Providers (Entities that generate electricity)

As the name suggests, these companies are responsible for generating electricity. They own and operate large power plants across the state and are responsible for supplying energy to the grid. These companies must be registered with the Public Utility Commission of Texas; and must abide by outlined market rules. 

3) Retail Electric Providers (Entities that sell electricity directly to consumers)

These organizations must successfully register with the Public Utility Commission of Texas and are responsible for the supply of energy to consumers. There are several retail electric providers (REPs), so this gives the consumer the option to choose electricity rates and plans that best fit their needs.  

The new deregulated structure introduced competition into a historically monopolized market. Under this new structure consumers quickly learned that they could switch suppliers to benefit from cost savings, without any encountering any interruption to their service from the utility. 

The increase in consumer control over decision-making will continue to push the growth of deregulation. Energy deregulation in Texas has helped create a robust, competitive marketplace that meets consumer’s needs while providing long-term cost savings. 

Deregulation has put the power in your hands. If you’d like to understand how, you can read more about that here.