The History of Texas Electricity Deregulation
The electric power industry has existed since the late 1800s, but it remained almost unchanged for a century. Electric companies held monopolies for decades, controlling all areas of the electric supply chain: generation, high-voltage transmission, medium-voltage distribution, metering for homes and businesses, and billing. However, the US power sector has experienced rapid changes in the 21st century:
- States have been opening their electric industries to competition, letting homes and businesses choose their electricity provider. This process is called deregulation.
- Renewable energy systems have become more affordable, and especially solar panels. Homes and businesses now have options to produce their own electricity, and power companies no longer control 100% of the electric supply.
Texas has the largest deregulated electric sector in the US. Over 26 million Texans can now choose their electricity provider, which represents over 90% of the state’s population. The electric market is managed by ERCOT – the Electric Reliability Council of Texas.
How Electricity Deregulation Happened in Texas
When the electric industry was new, there was little control over the first power companies. The Public Utility Holding Company Act was created in 1935 for this reason, regulating utility companies and assigning them to specific regions. Electricity monopolies continued to exist for several decades, but now are subject to government regulation. This changed with the Energy Policy Act of 1992, which gave states the authority to create competitive energy markets.
The story of electricity deregulation in Texas dates back to World War II. Utility companies in the state formed the Texas Interconnected System (TIS), which had the main purpose of powering military manufacturing centers in the Gulf Coast. However, power companies soon realized the benefits of being interconnected, and the TIS became ERCOT in 1970, under the oversight of the Federal Energy Regulatory Commission (FERC).
- The laws that allowed deregulation were enacted a few decades later, until 2002.
- There are now over 400 Texan cities where residents can choose their Retail Electricity Provider (REP). These providers offer several electricity plans, adapting to the needs of different customers.
- The process can be compared with choosing a mobile phone plan: there are several carriers available, and each of them offers different plans.
Electric deregulation brings many benefits, but having options can also lead to confusion, especially when dealing with a technical topic like energy. Just like you can save on power bills by choosing an adequate plan, you can end up paying much more with a poor selection.
How Much Does Electricity Cost in Texas?
According to the Residential Energy Consumption Survey from the US EIA, the average Texas home uses 13,895 kWh per year. With the average electricity price of 11.87 cents/kWh, this results in an average bill of $1,649 per year. However, there are two important factors to consider:
- Lower bills are possible by selecting a favorable electricity plan, but the opposite also applies: an unfavorable plan can lead to above-average bills.
- Electricity consumption is not distributed evenly throughout the year. Texas is characterized by hot summers, and air conditioning ads to high power bills in the hottest months.
There are several types of electricity plans in Texas, but most can be classified into five broad categories:
- Fixed-rate plans offer you a kWh price that does not increase during the contract term, and in exchange you agree to purchase electricity for a minimum term. Some typical contract lengths are 12, 24 and 36 months.
- Variable-rate plans and market-rate plans change by month, based on how kWh prices behave in the market. There is no minimum term and you can switch at any time, but you can get high power bills in months with expensive electricity.
- Prepaid electricity plans are paid upfront with a deposit, and consumption is deducted from your balance. The advantage of these plans is that you can check how much cash is left in your plan, and electricity providers will not ask for a credit record.
- Wholesale plans are relatively new in Texas, and they simply transfer the price that is being paid to generators in the wholesale market. However, we don’t recommend these plans at Quick Electricity: the wholesale market can reach very high prices during summer days or emergencies. During the February 2021 winter storm, homeowners with wholesale plans were charged thousands of dollars in just a few days.
Having access to a wide range of electricity plans is one of the benefits of deregulation, and Texas currently has over 300 different providers. For example, you can choose prepaid electricity plans if you want to pay upfront and avoid surprises, or you can get a fixed-rate plan if you want to avoid electricity price spikes in the summer and winter.
Which States Have Deregulated their Energy Sector?
There are 26 states that offer some form of energy choice. Texas and five other states have deregulated their electric sector, while 11 states have deregulated natural gas. There are 9 states that have deregulated both electricity and gas.