The Texas electricity market was deregulated in the year 2002, allowing Texans to choose their electricity providers. Conventional utilities have continued to operate, but now they only charge a transmission and distribution fee that is added to the price of electricity. Utilities can continue to generate electricity and sell it to their customers, but must compete with other providers in a free market; in other words, electric utilities no longer hold a monopoly over the energy supply. Currently, around 85% of Texans can choose their electric providers, and this includes Houston and the Dallas/Fort Worth metroplex.
It is important to note that conventional utilities still hold a monopoly over transmission and distribution, but this makes sense because it allows a single power grid to serve a given area. If competition was allowed in transmission and distribution as well, cities would become saturated with distribution networks belonging to different companies.
Why Haven’t All Utilities in Texas Been Deregulated?
You might be wondering then, why can’t all Texans choose their electric providers? This has to do with how deregulation was legally structured: it was made mandatory for investor-owned utilities, but optional for municipal utilities and electric cooperatives. In other words, these companies can decide not to participate in the competitive retail electricity market.
- As implied by their name, municipal utilities normally serve a specific municipality and
are owned by the city government.
- On the other hand, electric cooperatives are owned by their customers, and profits are
either reinvested or distributed among electricity consumers.
Municipal utilities and electric cooperatives are examples of publicly-owned utilities, and they are both non-profit organizations. Although there are exceptions, municipal utilities are typically found in urban areas, while electric cooperatives are often established in rural areas. These companies can only become deregulated through a resolution by their board of directors or governing body; however, once they agree the process is irreversible.
There are also areas of Texas that are served by private utilities, but where there is not enough competition in generation to successfully establish a retail market downstream. This also applies to areas where the existing grid interconnections are inexistent or unable to support energy purchases from other locations in the state. Some examples of this are the territories served by Energy Gulf States and AEP SWEPCO.
Major Cities in Texas Without a Retail Electricity Market
San Antonio, El Paso, Amarillo, and Lubbock are among the largest Texas cities without a competitive energy market yet. The reasons are summarized in the following table:
|City||Limitations for Electricity Deregulation|
|San Antonio||The city is served by CPS Energy, a municipal utility that is not participating in the retail electricity market.|
|El Paso||El Paso Electric is an investor-owned company, but the wholesale electricity market and local grid cannot support a competitive retail market yet.|
|Amarillo||Southwestern Public Service Company (part of Xcel Energy) is an investor-owned company, but the wholesale electricity market and local grid cannot support a competitive retail market yet.|
|Lubbock||The city is served by Lubbock Power & Light (LP&L), a municipal utility that is not participating in the retail electricity market.|
Lubbock Power & Light to Interconnect with ERCOT in 2019
Although deregulation is not mandatory for LP&L, the municipal utility is taking steps to deliver more affordable electricity to its customers. Currently, the utility is purchasing all of its electricity from Xcel Energy. The contract is set to expire in 2019. At that point, LP&L will join the Electricity Reliability Council of Texas (ERCOT) and interconnect with the statewide grid.
The main benefit of this move is that LP&L will no longer rely on a single wholesale provider, and will be able to purchase electricity from the 550 generators spread throughout Texas who are connected to the power grid. Rather than being bound to a single provider, LP&L will now be able to select an energy mix that best suits the needs of its customers – solar and wind power are of special interest, due to how fast their cost has declined in recent years.
LP&L will also avoid having to invest in a new power plant that could cost from $350 million to $700 million, which would likely cause a sharp increase in electricity rates. Other key benefits are eliminating capacity charges and gaining a new source of income in the form of transmission fees, which are charged if other participants in the Texas energy market use grid infrastructure owned by LP&L.
It is important to note that Lubbock citizens will continue to purchase energy only from LP&L, which means this is not deregulation strictly speaking. However, electricity prices are expected to decrease while service reliability is improved. Investment in a new grid interconnection will be required, but the technical and financial benefits for LP&L and its customers outweigh the cost of interconnection. The decision was taken after 19 studies carried out by third-party consultants and LP&L staff, and the project has been called the 2019 Solution.
If you live in a region of Texas without a retail electricity market, the outlook depends on your location. If you purchase electricity from a municipal utility or an electric cooperative, deregulation is only possible if the company voluntarily joins the retail market. On the other hand, if you live in El Paso, Amarillo, or any other region served by an investor-owned utility, deregulation is just a matter of time. The retail electricity market will be available as soon as the grid infrastructure and wholesale market deliver the right conditions.