Houston electricity deregulation explained

Senate Bill 7 and the 2002 market opening

In 1999, the 76th Texas Legislature passed Senate Bill 7, which restructured the electric utility industry and provided for competition in the retail sale of electricity. The enrolled bill summary on the Texas Legislature’s official site lists an effective date of September 1, 1999.

The Public Utility Regulatory Act, in Utilities Code Chapter 39, states the legislature’s intent to implement on January 1, 2002, a competitive retail electric market that allows each retail customer to choose the customer’s provider of electricity. Section 39.102 says each retail customer in this state shall have customer choice on and after January 1, 2002, except retail customers of electric cooperatives and municipally owned utilities that have not opted for customer choice.

The Public Utility Commission of Texas (PUCT), in its 2003 Report on the Scope of Competition in Electric Markets, states that on January 1, 2002, retail competition began for all customers of investor-owned utilities in the Electric Reliability Council of Texas (ERCOT) region. Before that, most retail customers were served by an investor-owned utility, a cooperative, or a municipally owned utility with an exclusive service area, and very few customers had a choice of companies to supply their power.

Who does what: retail providers, local utilities, and ERCOT

The same PUCT report explains the split that still shapes the Houston market. The distribution of electricity remains the right and obligation of the certificated utility. Customers in investor-owned utility service areas within ERCOT may select their power provider. Transmission and distribution facilities remain regulated by the Commission, while prices for the production and sale of electricity to retail customers are predominantly set by market forces rather than a government rate-setting process.

In everyday terms:

• A retail electric provider (REP) sells electricity to the customer and issues the supply portion of the relationship described in the contract documents.
• A transmission and distribution utility (TDU) delivers power over the poles and wires, reads the meter, and handles outages. Switching your REP does not change who maintains those wires.
• ERCOT is the independent system operator for most of Texas. Its official About page says it manages the flow of electric power to more than 27 million Texas customers, representing about 90 percent of the state’s electric load, schedules power on a grid with more than 55,000 miles of transmission lines, performs financial settlement for the competitive wholesale market, and administers retail switching for 8 million premises in competitive choice areas. ERCOT is subject to oversight by the PUCT and the Texas Legislature.

Houston is among the urban load centers in the ERCOT region, according to ERCOT’s official organization backgrounder. Not all of Texas is in ERCOT, and not every Texas customer has retail choice. Customers of municipally owned utilities or electric cooperatives have choice only if those entities have opted in.

What official sources say customer choice is for

Chapter 39 of the Utilities Code states that, except for transmission and distribution services and the recovery of stranded costs, electric services and their prices should be determined by customer choices and the normal forces of competition. The PUCT created Power to Choose as “the official and unbiased electric choice website of the Public Utility Commission of Texas,” where electric providers may list offers and customers can compare offers and choose a plan. The site also indicates when a ZIP code may not be in a service area open to competition.

Choice does not mean the local utility stops delivering power, and it does not mean every plan is the same. Compare the Electricity Facts Label, Terms of Service, and Your Rights as a Customer for any offer, as described in the plan-choice guide.

Why some Houston residents look at Think Energy

If your home is in a competitive-choice area, you may review official Think Energy plans and, if offered, home battery backup on the enrollment page linked from this site.