There has been much discussion in the past about deregulation in Texas and honestly, I never really knew what to make of it. Even though I grew up in Houston, I am slightly embarrassed to admit that I never paid much attention to things like the electricity market or even the oil and gas market (again, this despite the fact my father worked at Enron). So when I heard that Texas had become deregulated, I had no idea what it meant. The only things that came to mind were questions. What is the difference between regulation and deregulation and why should I care? How does it affect me? Thankfully, I have learned a great deal since then, and I’m sharing what I know with you.
Before Texas electricity became deregulated, it was regulated by the state government. The electricity rates were set by the Public Utility Commission of Texas (PUCT), and there was only one provider of the electricity service in each market. That single company was responsible for generating, transmitting, distributing and selling to the consumer. With there being only one company that provided electricity for each city that basically created a monopoly.
Back in 1999, the Texas Legislature thought that by passing a deregulation law, they could get rid of electric company monopolies and reduce government regulation of electricity rates. The idea was that multiple Retail Electricity Providers (REPs) would create competition, and competition would drive energy prices down. It made sense theoretically, so the laws were changed.
Since then, the majority of Texas has become deregulated except for about 25% that remained how it was. Since the legislation passed, it has allowed consumers to choose where they buy their power (just like they can choose their ISP or cable company). This allowed for competition for the retail component of your electricity service and spurred the creation of multiple REPs.
So was the change to deregulation worth it? Early results include increased consumer protection through the elimination of monopolies and the emergence of competitive forces. Additionally, deregulation has created jobs through the start-up of many REP?s. On the flip side, for the majority of the time Texas has been deregulated, electricity prices have actually gone up, not down. In fact, Texans are consistently paying rates higher than the national average. Some even argue that large corporations are choosing to set up shop and target factory locations where electricity is cheapest. It is hard to tell whether this is an impact of deregulation, or market prices in general, but notable none the less.
One thing is for sure: stakeholders will continue to argue the merits of deregulation for time immemorial. Lawmakers, consumers, suppliers and teachers will debate the good and the bad of it all, which hopefully will lead us to a refined policy that benefits everyone. For now, I will exercise my right to choose electricity in Texas.