News > Electric Deregulation > Frequently Asked Questions > History of Deregulation in Texas

1. What is electric utility restructuring or deregulation, and when did it take effect?
2. How does Senate Bill 7 apply to electric cooperatives?
3. What does “customer choice” mean to consumers in a deregulated market?
4. How has Texas Electric Choice affected electric rates and service for IOU customers?
5. What is Texas doing to avoid the problems that California has experienced?

Q. What is electric utility restructuring or deregulation, and when did it take effect?

A. In 1999, the Texas Legislature passed Senate Bill 7 to give participating customers a choice of electric generation companies from which to buy power. Effective January 2002, customers of investor-owned utilities (IOUs) were allowed to shop around for the best-priced electricity. By providing public “access” to wholesale generation companies, the market was intended to become more competitive. It was hoped that prices would ultimately go down.

At this time, electric deregulation is active only in Texas, Arizona, Oregon and in several Northeastern states. Six states have suspended deregulation and 26 others are not considering deregulation.

It’s important to note that the law applies differently to municipally-owned utilities and electric cooperatives, since they operate under a different business model as non-profit entities that already provide reliable service at the lowest possible cost, and aren’t in the business of markups and profits.

Q. How does Senate Bill 7 apply to electric cooperatives?

A. When Texas lawmakers designed Senate Bill 7, they recognized that electric cooperatives operate under a democratic business model and answer to their member-owners, rather than to investors. With that in mind, electric cooperatives were given the option to “wait and see” whether or not deregulation would be beneficial to their membership before opting-in. However, once a cooperative “opts-in,” the decision cannot be reversed. For that reason, almost all of the Texas electric cooperatives that serve over 3 million co-op members have decided to exercise their option to “wait and see.”

Q. What does “customer choice” mean to consumers in a deregulated market?

A. The Texas deregulation law applies only to the generation source of electricity. In other words, an IOU customer’s current provider still maintains and operates the lines that go to and from their home or business. What customers in a deregulated market have is the opportunity to choose the company that actually runs power plants and produces electricity – the company from which those consumers purchase their electric power.

Under the 1999 Texas Electric Choice Act, every investor-owned electric company (IOU) must separate (or unbundle) its business into a trio of companies that each provide a separate service:

• ·Generation Companies (GENCOs) are responsible for the actual production of electricity – from coal, natural gas, nuclear power or from renewable sources such as hydroelectric, wind, solar or biomass generation. All GENCOs must be registered with the Public Utility Commission (PUC).
  
• Transmission/Distribution Companies are responsible for delivering electricity to customers through the power lines that run along the highways and in their neighborhood by the wires company. These companies have continued to be fully regulated by the PUC.
  
• Retail Electric Providers (REPs) buy power from GENCOs, sell that power to the public and act as the customer point-of-contact. These companies must be certified by the PUC.

Q. How has Texas Electric Choice affected electric rates and service for IOU customers?

A. The promised benefits of electric deregulation have not yet materialized. In fact, many customers
have seen their bills steadily increase since deregulation. At this time, only 8.4 percent of the more than
5 million eligible customers have switched to competitive electric service providers. While the rates of investor-owned utilities continue to rise, Sam Houston EC rates remain steady.

Q. What is Texas doing to avoid the problems that California has experienced?

A. A lot has been learned from California’s deregulation struggles. While deregulation in Texas hasn’t been problem-free, much is being done to see that California’s mistakes are not repeated in our state:

• ·More Resources – California didn’t build any new power plants for more than a decade. In contrast, Texas has built or planned construction of 40 new power plants since 1995. That’s a quarter of all new power plants being built (or planned) in the nation.
  
• More Negotiating Power – Due to California’s lack of supply, power distributors in that state were forced to buy electricity on a system of short-term spot purchases that left them (and consumers) vulnerable to price spikes. In Texas, where supply and demand are more closely aligned, distributors are more able to negotiate long-term contracts designed to protect consumers against price volatility.

How Deregulation Affects Members of Electric Cooperatives