Time to read: 10 minutes
Date: June 6, 2023
When it comes to electricity, no state uses more than Texas. In terms of the consumption of electrical power, Texas consumes 365.1 TWh annually, which accounts for 10% of the total electricity generated in the US. To get an idea as to how much power that is, it’s about 418 million light bulbs if they have an average wattage of 60 watts and are on for 4 hours a day. Additionally, Texas also stands out because its energy market is very different from the vast majority of the US. Texas is one of the few states that has a deregulated energy market. Simply put, the deregulated Texas electricity market grants Texans the freedom to choose a retail electric provider instead of having to use a single company for it.
In this article, we explore what it means for Texas to be a deregulated energy market and what that means for Texans.
History of the Deregulation of the Texas Energy Market
The deregulation of the Texas Energy market has quite the history. The electric reliability council of Texas (ERCOT) was created in 1970. Later in 1975, Texas passed the PURA act (Public Utilities Regulatory Act) which created the PUC (Public Utilities Council). This was done in order to regulate the rates and services of utility providers. Over time, utility providers became more and more involved in the electrical process for cities in Texas. This led to the monopolization of power providers. The development of energy monopolies was made possible by several factors, the first of which being a switch in fuel types used for the creation of electricity.
The change in fuel types used to generate power also played a role in the deregulation of the Texas energy market. During the late 1970’s, the oil and gas crisis led to the switch from natural gas over to coal and nuclear power when the United States Fuel Use Act in 1978. This change from natural gas to other forms of power, combined with market inflation, led to a greater need to power generators in Texas. Thanks to this, energy prices increased. This type of market system lasted up until 1995 when deregulation of the Texas energy market began.
First, the wholesale generation market was deregulated in 1995 when Senate Bill 373 was passed. Four years later, the distribution market was deregulated in 1999 when then governor George W. Bush signed Senate Bill 7. While the governor signed it in 199, it wouldn’t take full effect until 2002.
Senate Bill 7
According to a research project carried out by Cities Aggregation Power Project Inc., Senate bill 7 was introduced and signed into law in order to “eliminate energy rates and monopoly providers” (Dyer, 2009, p.3). This enabled 85% of Texans to select a retail electric provider to supply them with electrical power.
How Does a Deregulated Energy Market Work?
The primary goal for the deregulated energy market is, ideally, to drive electricity prices lower. The goal is to do this by encouraging competition between power generators while encouraging new competitors to enter the Texas energy market. ERCOT acts as an overseer to ensure that the grid works reliably. In addition to this, ERCOT is also responsible for keeping a watchful eye on operations within the market to ensure that no buyer or seller acquires any unfair advantages over competitors.
This is all set up in a way that encourages Texans to choose between different electricity providers while keeping such providers from establishing or contributing to energy monopolies.
Competition and Texas
One of the biggest concerns with deregulating the energy market in Texas was how it could encourage new electricity generators to come to the Lone-Star State. The main concern with new competitors is that they need some form of protection to keep the already established power providers from undercutting their prices.
To combat this, from 2002-2007 a phase-in period of time in which a price floor was created. This was done to allow new companies entering the Texas energy market could do so without being undercut. Additionally, the new power providers in the energy market were able to offer prices at lower rates while those who were already operating in Texas could not.
Ultimately, this strategy for attracting new competition into the Texas energy market was successful.
Has Deregulating the Texas Energy Market Helped Texans?
Let’s begin with a summary of the benefits provided by a deregulated energy market for Texans.
Quick summary of the benefits of a deregulated energy market
- Attempts to reduce electricity rates
- System is set up in order to prevent energy monopolies from developing
- Allows Texans to switch electricity providers if they aren’t happy with their service
While one of the biggest objectives for Texas energy market deregulation was to lower electricity prices, the rates have fluctuated. Rather than keep prices at a consistently lower price than before deregulation, rates for electrical power have increased above the national average after deregulation before stabilizing at a lower cost between 2010 to 2015. Unfortunately, the average rates increased again several years later in 2021 and have become more expensive for average for Texans.
Things that can cause fluctuations in price include cost of fuel, market conditions, weather conditions, and infrastructure investments. It’s also worth noting that there are other things that influence the price of electricity in a deregulated energy market. The costs for energy transmission and distribution also play a part in the cost of electricity for Texans.
As we have pointed out in a previous article, the average cost of electricity in Texas has increased over the last few years.
Potential Future of the Texas Energy Market
While deregulation of the Texas energy market was implemented to reduce energy bills, rates have steadily increased in recent years. Since the winter storm of 2021, the average rates for electricity in Texas have increased significantly. If we look at how energy prices since SB 7 was signed in 1999, energy prices have been tumultuous. The first few years after the market was deregulated were characterized by increased energy prices after 2002. It wouldn’t be until 2010 that the rates charged for electricity would drop below the national average. They remained below this average until 2015. From 2016 to early 2021, energy rates would steadily increase and then spike once Winter Storm Uri appeared.
The current pattern suggests that energy prices will continue to steadily increase. This is especially true when considering that more power generators are being added to the Texas electrical infrastructure. On top of that, the price of fossil fuels is also high. These costs, as well as the costs for fuel, are passed onto the consumers of electricity. Additionally, extreme weather events almost always cause a tremendous spike in the rates charged for power. Ultimately, prices seem to be increasing despite the deregulation of the Texas energy market.
How Does Solar Power Factor into a Deregulated Energy Market?
Solar power systems are great regardless of the energy market that they exist in. Let’s go over a brief summary of the strengths solar power systems offer Texans in any energy market.
Solar power is the king of long-term energy sustainability
While one of the biggest goals for implementing energy market deregulation is to lower electricity costs and provide reliable power, solar power systems excel in providing long-term sustainable electrical energy. A solar power system can reliably provide you with power for decades. Some customers install them with the intent to pass their solar power systems down to their children. This way, they can benefit from them as well!
Further reductions in the cost of electricity
Though the average rate for electricity in Texas has been increasing in recent years, it could go back down. The point to remember here though is that even if electricity rates drop back down, solar powered systems can allow you to pay even less for electricity or even eliminate your electric bills.
Net metering is also another useful tool available to Texans. Taking part in net metering can help Texans reduce the amount of money they spend on electricity. This is done by sending power back to the grid. In exchange, they receive credits that can be applied to their power bills. Different electricity providers have their own rates for net metering if it is offered. Learn more about net metering in our recent article on it!
More control over your own power
While a big benefit of energy market deregulation is the ability to choose your electricity provider, solar power gives you even more energy independence. Even if you choose an electricity provider that offers good rates for power, those rates could increase over the years to come. Further, extreme weather events lead to drastic spikes in the cost of electricity. As we pointed out in our other article, when Winter Storm Uri hit Texas in 2021 some Texans saw a 10,000 percent increase in their energy bills. Solar power systems give you the ability to depend less on your utility provider and more on a resource that never runs out: the sun. Having a solar power system is almost like being your own electrical power provider. You can even use net metering to sell electricity back to the Texas power grid.
Solar is Still the Best Long-Term Energy Solution in a Deregulated Energy Market
Whether the price of electricity lines up with the goal of implementing a deregulated energy market to reduce electricity rates or they keep increasing, a solar power system is still an exceptionally smart investment. If you’re looking for a long-term investment that comes with energy stability and savings in a turbulent market, then a solar power system is exactly what you need. Installing a solar power system with backup batteries and a Generac home standby generator can give you the ability to weather any power situation potentially for decades to come. This means you get unbeatable energy stability while saving money on electricity, no matter how high the electricity rates get. Pricing in a deregulated energy market may be volatile sometimes, but solar is always reliable.
Ask yourself why you are looking into solar power for your home or business and bring your answer to us! Everyone’s ‘why’ is different. Together we’ll determine the best action plan for you.
We have made it our mission to be a source of truth in renewable energy. Our team believes that accurate solar and backup power education is the foundation for making the best decision when choosing a system that fits your needs. If you are considering installing a backup generator or switching to solar for your home or business, reach out to us by going to our website, iestxsolar.com, or by giving us a call at (855) 447-6527.
If you are considering installing a backup generator or switching to solar for your home or business, reach out to us by going to our website, iestxsolar.com, or by giving us a call at (855) 447-6527.
Why Solar is a Smart Investment During a Recession (solarreviews.com)