What is Electric Deregulation

“Deregulation – Removal or relaxation of regulations or controls governing a business or service operation like utilities.”

Prior to 2002 Texas was a regulated State; meaning that the State of Texas, just like any other State, was simple for consumers. Depending on what area they lived in, they had one single electric company to serve them. Consumers had one point of contact for their area and one fixed price fixed by the government. If the utility companies wanted to raise the price, they had to get the government to agree to the new price. As Texans are a very loyal people, they were content with their utility company and that was that.

Before deregulation occurred, Texas was divided up by region and each region was served by one company. For example, in the greater Dallas – Fort Worth area the electrical provider was TXU. TXU owned the generation plants, the power lines and the selling and billing to the customer for their usage. In South Texas (the Corpus Christi area) the only provider was CPL, in the Houston area the provider was Reliant and so on. Customers can be classified as either a commercial, residential or municipal customer and they are all essentially the same. They use the power and then are billed by the electric company for their usage, tax and the cost of transmitting the power to them (they were mostly charged a customer fee for billing as well). Each region had very similar pricing and it just chugged along.

In 2002, Texas’ former governor, former President George Bush, set into motion a plan that would forever change the way that the Texas electrical market is run. He began the deregulation of the Texas electrical market. This meant that each region had to deregulate, like Dallas – Fort Worth area, unless  municipally owned and operated, like San Antonio. For the deregulated areas, the controlling company like TXU, Reliant and CPL had to sell off or separate two of their three part empires.

The three components in each area are the power production facilities, the distribution lines and service (called TDSP [Transmission and Distribution Service Provider]) and the billing to the customers which now involved buying the power from the power generating facilities and reselling it back to the customer. After these three part organizations were divided and sold, the retail (buying and selling of power to the consumers) end was frozen against competing until 60% of their customer base had moved away. At which time they were then able to compete in the Retail Electric marketplace. This led to a vacuum in the electrical market.

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