Posted by: Frank Eakin | June 5, 2019

How the Texas Deregulated Electricity Market Works

After decades of high electricity rates, the Texas State Legislature deregulated the electricity industry on Jan. 1, 2002, to facilitate better prices and provide consumers the power to choose their electric company in Texas and access the best electricity rates as a result of competition.

See our Texas electricity rate chart to view competitive rates from the most established light companies, and you can find the cheapest rates for your zip code. Check out reviews of major Texas energy providers as well.

What Does Deregulated Electricity Mean?

Energy deregulation means less government interference in the energy sector. It allows private players in the market. You have the power to choose your electricity or natural gas company. Electricity is transmitted to your home by the transmission and distribution utility (TDU, or TDSP) that owns and maintains the infrastructure, irrespective of your choice of retail electricity provider (REP) who sells and bills you for the energy. In a deregulated electricity market, generators are the owners of power plants.

The REPs purchase electricity in blocks to sell to customers, and TDUs check your meter and correct outages. Check Home Energy Club’s free service for the cheapest energy rates in Texas from major electric companies, and receive a discount off regular rates due to the club’s bargaining power.

Compare Texas Electricity Rates and Plans

What Is a Deregulated Electricity Market?

In a deregulated electricity market, consumers can compare rates and services of different third-party retail providers, and enroll in different contract types (such as fixed-price contracts, indexed, and hybrid). Consumers also benefit from an increased availability of renewable sources and green pricing programs.

TDU’s are responsible for the transmission and distribution of electricity, and maintenance of poles and wires.The following five significant utility companies provide transmission and delivery services to customers in Texas:

  • CenterPoint Energy
  • Oncor Electric Delivery
  • AEP North
  • TNMP
  • AEP Central

What Are the States That Are Deregulated in Electricity?

In the United States, deregulated states are Massachusetts, Connecticut, Delaware, Illinois, Michigan, New Jersey, Rhode Island, Maryland, Maine, New Hampshire, New York, Ohio, Pennsylvania, and Texas. The District of Columbia is also deregulated.

In Texas, about 85% of the state is de-regulated, with Houston and Dallas being the largest markets. Cities which are regulated (where consumers do not have a choice of retail electricity provider), include San Antonio, Austin, Beaumont, Conroe, The Woodlands and other smaller towns and cities.

Compare Texas Electricity Rates and Plans

Pros and Cons of Deregulated Electricity

The main benefit of an energy deregulated market is that the rates for electricity decrease over time.  Since 2008, rates declined each year continuously in Texas and reduced to 8.3 cents in 2016, before rising to 8.6 cents per kWh in 2017 due to the rising cost of source fuels. Texas electricity rates fell well below the national average.

Another benefit is in the competitive environment; companies need to ensure that their products and electricity rates are the best in the market. An unhappy customer can switch from one retail electricity provider to another with relative ease. Overall, energy deregulation prevents monopolies. There is increased availability of renewable sources and green pricing programs.

Market mechanisms not only offer multiple choice and lower prices, but also keep the system reliable. Deregulated markets must provide incentives to companies to keep extra generating capacity ready for an increase in demand. In 2014, the Texas Public Utilities Commission (PUC) approved an additional surcharge for power companies when supplies are meager.

One significant problem to keep in mind are problems related to the Texas Power to Choose comparison website, which has received many consumer complaints and negative media stories due to its lack of quality control over the energy providers and rate plans displayed on its website.

The state mandates the each electricity provider display an Electricity Fact Label (EFL) in relation to each energy plan that discloses the plan’s rate structure, but providers have learned how to game the EFL with gimmicks that cause billing surprises. You can learn how to identify these gimmicks and select the correct plan for your home with our helpful guide that will allow you to compare Texas electricity rates in an apples to apples fashion.

How Does Texas Electricity Work?

The Texas electricity market has various players who offer multiple choices. The energy players in the deregulated Texas market are:

  • REP: Your Retail Electric Provider is the company you choose to buy energy from through a plan you choose. REPs take care of customer service, billing, and payment processing.
  • TDU (or TDSP): Your Transmission and Distribution Service Provider is the company that delivers electricity to your home via transmission lines. TDSPs service connections and disconnections, restoring service after power outages and maintain meters, poles, and lines.
  • PUC: The Public Utilities Commission of Texas decides rates for transmission and distribution service, sets safety and reliability standards, and then implements those standards.
  • ERCOT: The Electric Reliability Council of Texas monitors the reliability and security of the state’s power grid.

You can choose the best provider and plan for your home. Consider these things while making your choice: the provider’s electricity rates, quality of online and operator service, integrity and stability.

Find the best electricity plan for your home at Home Energy Club, where you can review special discount pricing from the most established and trustworthy brands in the market.

Compare Texas Electricity Rates and Plans

Average Electric Bill in Texas by City

The average Texan pays an estimate of about $0.1098 per kilowatt-hour (kWh) and uses around 1,171 kWh per month. The average monthly Texas electric bill is about $128.50 or $1,542 annually.

Electricity deregulation permits about 85% of Texas power consumers to choose their providers. If you live in one of the state’s more than 400 deregulated cities, you can compare and choose plans to save money.

The average electric bill in Texas can be calculated, but it’s challenging to predict your future bills due to variations in usage due to weather and other considerations.

See our Texas Cities Electricity page, as well as special guides for Houston electricity and Dallas electricity.

Electricity Providers vs. Utility Providers

Your retail electricity provider offers energy plans and rates; it’s also responsible for the billing of services. They provide energy to your home, but do not repair power outages in your area.

The transmission and distribution utility company (TDU) is in charge of the energy that is being distributed to your area. In case of a power outage, you can contact your energy provider if you wish, but they will likely pass your call to the utility company, which is the one who has access to the grid and the capability to restore your services. You’ll want to have the phone numbers of both your energy provider and your utility company.

The regulated fees of the utility companies are calculated, in part, based on each consumers’ energy consumption. They pass their cost information to your electricity provider, and it’s reflected in your billing.

While you can’t control the fees of the TDU, you may be wondering about the best Texas electricity rates from electricity providers in your particular area. We at Home Energy Club will help you find the lowest energy rates for your zip code. Be sure to check the Texas Smart Meter site for convenient access to your usage.

 

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