Texas fully deregulated the electricity market in January, 2002, however there were a number of significant developments cited as reasons for the success of the deregulation of the largest power market in the U.S. and 11th worldwide.
- Industrial cogeneration development spurred growth of a strong independent power industry in the 1980s.
- Further cogeneration development occured upon the passage of PURPA under Texas law.
- Retail electric choice legislation was enacted in 1999 through Senate Bill 7
- A 2001 pilot project sought to, and succesfully did ensure a smooth transition to full deregulation in 2002.
- The Public Utility Commission of Texas mandated a 6% rate cut to coincide with full deregulation.
- Problems related to switching providers and starting new service were quickly identified and resolved.
Unlike many markets, where the entire state was deregulated regardless of special circumstances, Texas opted for a more gradual approach for areas served by an electric cooperative or municipally owned utility. Areas outside of the grid operated by ERCOT (Electric Reliability Council of Texas) are still under the jurisdiction of the PUCT, which has the authority to determine if and when retail electric choice can be implemented in those areas. As of December, 2010 it remained unclear when customers of Entergy Texas, Southwest Electric Power Company, El Paso Electric Company and XCEL Southwest Public Service Company will have the choice other Texans have enjoyed since 2002.
In addition to the build-up to deregulation, the "Price to Beat" is cited as a major factor in Texas' success as a deregulated market (measured in percentage of customers switched from the incumbent electric supplier). Residential or commercial customers had the option to stay with the local distribution utility affiliated provider (A-REP, or Affiliated Retail Electric Provider) at a regulated rate or switch to a competitive Retail Electric Provider. The A-REP regulated rate was known as the "Price to Beat" and could be adjusted up to twice per year. The Price to Beat, which was typically much higher than competitive offers, allowed competitive providers to gain a foothold until these regulated rates went away in December 2006.
In January, 2011 Texas officially moved from a "zonal" to a "nodal" congestion management system. Put simply, the nodal congestion management system will improve the electric grid's stability and reduce retail market volatility and distruptions.