How does the Texas Electricity Market Work?

Texas Electricity Market

America is all about the consumer and their right to choose, from groceries on the shelves and clothes on the rack, to phone and Internet providers, you name it. But this has not always been the case for every type of industry, like healthcare, pharmaceuticals, and banking. When the government or state oversees a particular industry, there’s very limited choice for the consumer. Instead, the control lies in the state’s hands. This was always the case in Texas electricity market until deregulation occurred in 2002.

What does deregulation mean?

Deregulation means that the government or state has reduced or removed their involvement in a particular industry, meaning that there are no state regulations overseeing that market. Deregulation has happened in other industries in the past, such as the airline industry in 1978, allowing many competitor airlines to pop up, allowing for more competition and thereby, increasing the efficiency of how the airline industry operates and ultimately improving service delivery.

Having the ability to choose from the various goods and services means that multiple companies and businesses can compete with one another, driving down prices and driving up incentives for companies to create more innovative and attractive packages to reel in more consumers. This is precisely what happened with the Texas energy market.

What does deregulation mean for the Texas electricity market?

In 2002, Texas’s energy market became deregulated, becoming one of only 17 deregulated states across the United States, along with California, New York, Michigan, and Washington D.C. Since then, consumers have the ability to select their power company of preference to supply energy to their homes and businesses. The power to choose is literally in the consumers’ hands! 

What does this look like for the consumer?

Energy is supplied to households or businesses in a similar way as groceries and produce arrives at your home, where food is grown at a farm, sold to a grocery store, and then sold to the customer. With grocery shopping, customers can choose the grocery store that they shop at, but not necessarily the farm from which the produce is grown. This is the case for the energy market, too.

With the energy market, a power generation company produces electricity through power plants that they own. They generate power through various sources such as coal, nuclear, natural gas, and also renewable, or “green”, energy sources including wind and solar power. According to the Public Utility Commission of Texas (PUCT), which regulates various utilities in addition to electricity, such as telecommunication, water, and sewage, Texas has almost 500 power generation companies.

The power generation companies then sell wholesale electricity in bulk to utility companies, also known as Retail Electricity Providers (or REPs; i.e., the “grocery store” in the analogy above). The wholesale electricity market is overseen by the Electric Reliability Council of Texas (ERCOT). ERCOT is a non-profit organization and independent system operator under the authority of PUCT. ERCOT coordinates the flow of electricity in the Texas grid from power plants to individual homes and businesses, managing the supply of power for over 25 million Texans!

The REP sets their own energy plans and electricity rates based on the wholesale price at which they were sold electricity, a price that is regulated by ERCOT. As the final link in the chain, the REP sells these plans and delivers electricity service to customers based on their household or business needs. 

The REP stage is where the consumer choice lies. An REP is the company that you can select from a variety of other REPs in your region. The REP is also responsible for customer service and managing any outages or service disruptions in your area. Arrow Energy is an example of an REP.

How is power supplied to the consumer?

REPs work with Transmission and Distribution Utilities (TDUs), which are separate companies that aid in the process of actually delivering the electricity to homes and businesses. Their jurisdiction includes creating and maintaining electricity lines, towers, poles, and meters. Unlike the wide variety of REPs to choose from, there are only a handful of TDUs in Texas. 

The 5 main ones are: 

  • AEP Texas Central
  • AEP Texas North
  • CenterPoint Energy
  • Oncor Electric Delivery
  • Texas-New Mexico Power

Also unlike REPs, the customer does not have the freedom to choose which TDU company will service their home. The TDU comes hand-in-hand with the REP that you end up choosing, based on your location or ZIP code. For example, CenterPoint Energy services Houston, while Oncor Electric Delivery services Dallas-Fort Worth.  

When you see your energy bill, you’ll see TDU charges. This charge remains the same for all customers in your area. What changes from bill to bill is the electricity plan that you choose, based on your agreement with your REP. Since the deregulation of the Texas energy market, there are now hundreds of REPs to choose from, and although the REP is servicing your power, the power lies in the customer to decide which one fits best with their needs. 

The advantage of a deregulated market is that REPs must provide competitive rates to attract customers, but this means a little bit of extra research on your end. To find the best REP for you, think of which factors are important for you, either as a household or a business. Read our blog on what questions you should ask an REP when comparing electricity plans to find the cheapest electricity rate before signing a contract.

Arrow Energy is an REP that provides flexible and affordable plans through various sources, including renewable energy sources, to service energy to homes and businesses. Contact us today as you start your REP research to learn more about the rates and plans we offer!