Deregulation 101: Why We Have REPs

The deregulated energy market in Texas can be confusing. After all, we’re the only state in the lower 48 with just such a market.

The truth is deregulation has been in the works for decades. Here’s the basic summary:

• In the late 1970s, Texas was a monopoly and had high electric prices
• In 1995, Texas finally organized itself to attempt deregulation
• 1999 saw the creation of REPs, which had their power increased in 2002 by ERCOT

Now, learn the full story of how deregulation came about and why REPs bill you the way they do.

1975: A Monopoly on Electricity Begins

Prior to 1975, individual cities got to set their own electric rates. But then in 1975, Texas enacted the Public Utility Regulatory Act (PURA).

This act aimed to give the state more power over electric prices. But it wasn’t perfect. It still gave cities some power to do that as well.

During this time, electric utilities began to take over as much of the electricity distribution process as possible. They began to control every step, ranging from generation to customer service.

Despite PURA, utilities were able to succeed in their campaigns. They created a monopoly and raised prices.

1995: The Texas Senate Lays the Foundation for Deregulation

In 1995, Bill 373 was passed. This bill gave the Electric Reliability Council of Texas (ERCOT) more power over the distribution of electricity.

The goal was to create more competition and lower prices for Texans.

ERCOT could, for example, force the traditional utilities to recognize new players in the electricity market.

It could also force the deregulation of rates previously regulated by the Public Utility Commission.

It had other powers too. But you get the point.

1999: Senate Bill 7 Is Passed, which Creates REPs

The efforts in 1995 largely failed. But they created the momentum for Senate Bill 7 to pass in 1999.

Senate Bill 7’s success largely resulted from setting a “price floor.” The fear was that the traditional utilities would lower prices so far that new entrants to the electricity market wouldn’t be able to stay in business.

REPs were given the power to go below that floor if they so chose. However, traditional utilities could not.

While REPs have the ability to sell electricity to you, they cannot own or operate any electricity generation assets.

Then, in 2002, ERCOT was given the power to monitor and maintain a competitive retail electricity market. And they have kept that power to today.

While exceptions do exist, on the whole you can get cheaper electricity in Texas than you ever could before. And if you don’t like something about your REP, you can always change to a new one.

While deregulation has taken time, it has worked. And now you understand why we have the electricity market we do.