Electric Deregulation in Texas

What is electric deregulation?

Since the deregulation of the Texas electricity market January 1, 2002, most customers have been able to choose their electricity provider. Instead of using the utility that “serves your area,” you have been able to select the company you want based on price, service, or other criteria. This change is called restructuring.

Electric restructuring affected customers of Texas' investor-owned utilities, including American Electric Power (Central Power and Light, Southwestern Electric Power Company, and West Texas Utilities), Entergy, Texas-New Mexico Power, Reliant Energy, TXU Electric, and TXU SESCO. El Paso Electric and SPS in the Panhandle were not affected and continue to be “regulated” areas.

Electric cooperatives and municipally owned utilities can decide whether to participate. At present, there are 85 cooperatives and 75 municipally owned utilities in Texas.

How does deregulation work?

Senate Bill 7, passed by the Texas Legislature in 1999, required the investor-owned power companies to unbundle their rates and services. The companies previously had "natural monopolies" because they provided all electric supply and distribution services to all customers in their service area. Each company unbundled its services into three separate functions: power generation, power delivery, and retail customer services, such as meter reading. The cost of power delivery services (those associated with electric line companies) will remain regulated.

Who are the players?

• Power Generation Companies (PGCs) will own or operate generation plants and sell wholesale electricity.
• Power Marketers will buy and sell wholesale electricity.
• Transmission and Distribution (T&D) utilities will transport electricity, a function that will still be regulated.
• Retail Electric Providers (REPs) will sell retail electricity to customers. REPs cannot own generation plants; they will buy from PGCs or power marketers and resell to retail customers.
• Aggregators will bring customers together and act as buyers’ agents to assist customers in competitive negotiations with REPs and in obtaining lower prices by combining the needs of small customers.
• The Independent System Operator (ISO) will act as the independent “air traffic controller” of the electric transmission grid, maintaining reliability, overseeing operation of the grid, and performing certain power market administrative functions.
• The Public Utility Commission of Texas (PUC) is the state agency responsible for regulating public utilities and other participants in the Texas power market.

What is ERCOT?

The Electric Reliability Council of Texas, Inc. (ERCOT) was created as a not-for-profit organization in 1970. ERCOT works behind the scenes to ensure the reliable and safe transmission of power across Texas' 37,000-mile power grid, serving approximately 85 percent of the state's electric load. ERCOT serves as an independent, third party that impartially coordinates access to the power grid among the various power companies and oversees the expansion necessary to meet increased demands. In its role as ISO, ERCOT provides the platform for wholesale and retail competition by serving as an independent administrator of the transmission grid and competitive power market with no political or monetary stake in the market.

What is Texas Nodal Market Implementation?

In September 2003, the Public Utility Commission of Texas ordered ERCOT to develop a nodal wholesale market.

In today's zonal market, the grid is divided into Congestion Management Zones (CMZs). Several limitations of the current zonal model have been identified:

• Insufficient price transparency--This results in less efficient power dispatch, less efficient congestion management tools, and distorted signals for investment.
• Resources grouped--Schedules are submitted for a group of resources in a specific zone, and ERCOT operators have limited options to resolve congestion.
• Indirect assignment of local congestion--Participants who contribute to local congestion are not directly assigned the associated costs.

In the nodal market, the grid will consist of more than 4,000 nodes, replacing today's CMZs. The nodal design is expected to deliver the following benefits:

• Improved price signals--Granular pricing will encourage additional generation/transmission in the proper locations.
• Improved dispatch efficiencies--Dispatching at the resource level will yield a lower overall cost of power supply.
• Direct assignment of local congestion--Settlement prices are based on locational marginal costs.

Above information provided by ERCOT.

How is TASB involved?

TASB has hired energy and legal experts to help navigate through the confusing maze of electric deregulation. Also, TASB is registered as an aggregator to help participating members find the lowest price and the most beneficial contract in the electricity marketplace. Finally, because these energy services are available through the BuyBoard , TASB's online purchasing cooperative, you can rely on the assurance provided by the competitive, sealed process.

Where can I get more information?

When you need help, think TASB first! For more information about energy deregulation, aggregation, and the electricity marketplace, contact Jeff Clemmons at 800-580-8272.