How Does Deregulated Energy Work In Texas?

The Texas energy market is one of the largest energy markets in the U.S., with the electricity consumption being the largest in the country. Sitting at $24 billion per year, the electricity bill for Texas is comparable to Spain or Great Britain.

The electricity deregulation in Texas came after the Texas Senate Bill 7 was enforced, starting on January 1st, 2002. The deregulation is controlled by the Electric Reliability Council of Texas (ERCOT) and it oversees the grid and its operations while also making sure there is no unfair advantage for any player in the electricity market.


What does deregulated energy mean?

In a typical market, the prices are set in a fair market where supply meets demand. However, in the energy market new comers are forced out of business because of undercutting of prices by major Energy Provider for businesses . This can result in a monopoly of providers with detrimental costs to the whole economy. The deregulation act comes to fight this phenomenon, by establishing a price floor for a fixed period of time. This prevents the undercutting of prices and allows new electricity providers to enter the market and offer better prices. However, these lower prices are still high enough to allow a modest profit for the provider, thus encouraging new entrants in the market.


What are the results of the deregulated energy act?

Initially, lawmakers believed deregulation will eventually lower electricity prices for consumers. However, after the bill came into force, in 2002, the electricity rate increased seven times, with prices hovering around 15 cents per kilowatt hour in 2006. As of 2012, when the bill marked its ten year anniversary, the typical consumer paid $3,000 more in added costs since 2002. This translates in more than $11 billion for the whole state.

However, supporters of the deregulation act say that Texas has seen a faster economic growth when compared to the rest of the country, thus leading to generally higher energy prices. This means that a comparison between states is inconclusive and can bring unreliable numbers to the table.

The ongoing debate focuses on setting the prices so as the customer can afford to pay the electricity and have decent rates, while also keeping the rates as high as possible to attract investors in new power plants and infrastructure.


Understanding the environmental aspects of the deregulation act

When it comes to the environment, the results are mixed. Electricity producers are focusing on building cheaper facilities, such as coal powerplants. They produce much more pollution than the gas-fired powerplants. Even though cleaner opportunities exist, the costs can skyrocket and investors may rethink their investments.

On the other hand, positive results have also been seen, with investors being more and more interested in the regenerative energy market. Wind-turbine farms are becoming an integral part of the energy market in Texas, with a Houston energy provider recently announced the building of major wind farms across the state. Another positive environmental impact stems from the higher overall energy prices in Texas, resulting in consumers using less energy. As such, many consumers are installing better home insulation, check on their thermostat more often or install sun screens to fight the heat.