Deregulation History
From the very beginning of commercial electric service in America, there were giant companies called Electric Utilities or EUs. They owned electrical generation plants, and they owned the transmission lines that carried the electricity to the users. The users were people like you and me, living in houses, working in offices and industrial plants, using electricity for light or heat or air conditioning. To figure out how much electricity the customers were using, the EUs provided meters that they checked regularly and billed according to what the meters showed.
Because the power was delivered on transmission lines, which is a very expensive infrastructure, it wasn't practical to have more than one set of transmission lines from the generation plants to the users, so the EUs held what is known as a natural monopoly.
That's a good thing for the company, but a bad deal for everyone else. The monopoly controls a commodity that users need but can't get anywhere else. Because of this control – and this need – the monopoly can charge as much as it wants for the commodity and the users have to pay.
The State of Texas, like other states, developed a system to control these monopolies by forming a commission that set a ceiling for electrical pricing. This commission in Texas is called the Public Utilities Commission, or PUC. When the EUs wanted to raise rates, the PUC held hearings, allowing users and providers to give testimony on why the rates should or should not be raised.
In the 1980s, there was a nationwide push for deregulation and against monopolies in general – even government controlled ones. All across the country, states worked to eliminate the natural monopolies inherent with utilities with varying results. Railroads, airlines, telephone services and banks have all gone through some type of breakup and deregulation. In some cases, the deregulation has been very successful: over time, services to the public have gotten much less expensive. States set sights on the natural monopoly of electric power.
By 1995, wholesale deregulation of electric power was underway. California was first; in a lot of ways in that state, deregulation was poorly implemented and was later abandoned.
In 1999, in Texas, Senate Bill 7 was signed by Governor George W. Bush. SB7 mandated deregulation of Texas electric rates effective January of 2001.
There's no doubt that the goal of SB7 was to lower electricity pricing by introducing competition to the market.
With deregulation, the EUs were broken into three parts:
- The Power Generation Company, the actual power producer who runs the power plants and sells on the open market,
- The Transmission and Distribution Service Provider, or TDSP, who owns and services the wires and meters, and
- The Retail Electric Provider, or REP, who buys power from the producers and sells it to users.
One of those three parts, the TDSP, is still a natural monopoly, since there is no easy or economic way to replace transmission lines and force them to face competition. The TDSP charges a rate per KWh of electricity (which is still regulated by the PUC) to deliver electricity. That rate is only one component of your electric bill.
The largest part of your electric bill is the commodity charge. This is the charge for the actual paower used. Electricity is bought by the Retail Electric Provider, and marked up and sold to the user. The commodity charge is the part of your bill that changed with deregultion.
Different REPs charge different rates per kilowatt-hour of electricity. Most REPs also charge a monthly fee, and some charge an additional fee if the user consumes less than some minimum amount of power.
It’s important to understand that you as the user are buying electricity produced in the same generators, delivered to you by the same transmission lines, and measured by the same meters as it always was. The only difference is in the billing methods. The power is just as – or more – reliable as it's ever been.
The only real differences are price and billing methods.
