Today, Texas is the largest deregulated energy sector in the US. Over 90% of the state’s citizens have some control over their energy providers. However, this has not always been the case. When the electric power sector was born in the 1800s, the electricity monopoly was at 100%.
The electric sector remained essentially unchanged for over a century. The company controlled all areas of the electric supply chain.
How was Texas able to turn this situation around? How has deregulation benefited and affected the Texan state? This article provides answers to these questions.
Energy deregulation is the process of creating competition in the supply and distribution of energy.
Government bodies do this by enacting laws that regulate retail energy prices. It could also mean allowing independent suppliers access to energy infrastructure.
In the energy sector, deregulation doesn’t often affect Utilities. Such an action would be wasteful; building multiple utilities to serve the same area is impractical.
In most cases, all suppliers use the same utility while the customer pays an energy bill to the local utility.
Deregulation grants rights to several independent agents to supply energy. The customer can choose the supplier with the best charge structure.
Electric utilities came into Texas in the early 1880s. It began with the building of the first power station in Galveston.
The growth of electricity was initially slow, and only one station existed for years. However, by the 1890s, there were numerous small stations in the city. During the 1890s, electric companies held strong monopolies over the electric sector. The companies controlled all areas of electricity supply.
The electricity sector remained unchanged until the 1990s. During this time, Texas Utility Company built high voltage transmission lines.
In the 21st century, the government used several laws to disband the monopolies; they also opened the sector for competition. The laws enabled independent electricity providers to access electrical infrastructure.
All companies use the same utilities, but the consumers can choose their electricity providers. Some Texans are even able to provide their electricity. They do this by using affordable renewable energy sources such as solar panels.
The power companies no longer completely control the state’s energy sector. The Electricity Reliability Council Of Texas (ERCOT) currently regulates the Texan electric market.
The State of Texas started its deregulation process, as we know it, in January 2002.
Before this time, the state regulated and even controlled the rates and services of its utilities. This approach caused some problems because the state had only one Utilities Company. The Utility Company monopolized the market, despite the presence of other independent stakeholders. This monopoly led to soaring rates of electricity bills.
In 1995, the Texas Senate passed Bill 373. The Bill forced the ERCOT to grant independent generators access to transmission abilities. The Bill aimed to foster competitive electricity generation and distribution. But the Bill did not meet all of the needed intent.
In 1999, the Senate passed Bill 7 to guard against underselling electricity. Senate Bill 7 established a price floor for all Texan power players. The Bill called the price floor ‘The Price to Beat.’
Finally, in 2002, the Public Utility Commission made ERCOT an independent body. The Bill charged the body with maintaining the wholesale and retail market.
The independence of ERCOT led to the restructuring of the Texas Electricity Sector. The process of electricity generation and distribution was split into different units. Each unit is competitive, so one unit can’t have a monopoly. Customers could now choose their suppliers and distributors from different companies.
Senate Bill 7 has broken the electricity monopoly but has also benefited Texas. Deregulation has driven the costs of electricity down for Texans.
Although there is a Price of Beat, competition prevents pricing from getting too high.
Retail Electricity Providers (REPs) now engage in constant research and development. In the competitive market, constant research helps companies stay ahead of competitors. It also improves the energy sector.
The development of the Texan green energy market is on a high. Some customers prefer environmentally friendly energy sources. Some companies seize this advantage by developing renewable energy infrastructure.
The quality of energy delivery is always top-notch. Energy Companies in Texas compete with each other to provide the best services and incentives.
Customers have the liberty to choose companies and switch plans seamlessly. This ability to switch plans keeps companies at their best. This ease has driven companies to provide better services.
Texans have access to many unique incentives and reward programs. The companies offer Texans these incentives to stay ahead of competitors.
Deregulation has greatly profited Texas, but it has also come with its problems.
Texas’s abundance of supplier options is both a blessing and a curse. However, it has led to low costs and better delivery. It has led to inconsistent behavior of consumers. Reports show that indiscriminate switching of service providers is common among Texans. Texas still relies heavily on only one source of energy. This heavy reliance is problematic as all independent companies depend on this source.
This problem became apparent in February 2021. When winter storms caused Texas’ electricity grid to fail, many independent suppliers could not provide energy to their customers.
The incident also exposed the weakness of some deregulation policies.
The Price to Beat Policy stops companies from reducing prices below a limit. But it does not stop them from increasing prices above a limit.
During the grid failure, some suppliers still had access to energy. But they increased their prices at astronomical rates. Customers paid the ultimate price for the policy’s weakness. The Texan state relies almost wholly on Natural gas. Natural gas is unrenewable and ultimately bad for the climate.
Texas indeed has a developing green energy sector. But Green Energy accounts for only 10% of the state’s supply. This small percentage is not enough to effectively combat climate change.
The Deregulation of Texas Electricity has taken centuries to develop. It has brought many benefits in low cost and development. But it has also failed to address Texas’ over-reliance on one infrastructure set. Both government and independent must conduct more research if deregulation is to fulfill all the needs of the people.