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Texas Electricity Deregulation

Texas electricity deregulation, a process that began in the late 1990s, means that about 75% of Texas power customers (those not served by a a municipality or a utility cooperative) can choose their electricity service provider. Before Texas electricity became deregulated, it was regulated by state government. Electricity rates were set by the Public Utility Commission of Texas (PUCT), and there was only one provider of electricity service in each market. The single company was responsible for generating, transmitting, distributing and selling to the energy consumer.Currently, consumers can select electricity service from a variety of “Retail Electric Providers” (REPs). The incumbent utility in the area still owns and maintains the local power lines (and is the company to call in the event of a power outage) and is not subject to deregulation.\

In 1999, the PUC, under then-Chairman Pat Wood, openly acknowledged that the rates charged by utilities were too high. In its Scope of Competition report, the PUC made clear that selling electricity in Texas was a declining-cost industry: “With declining costs and the strong load growth in the State, it is likely that the commission could find itself facing a never-ending stream of rate cases in an attempt to harness utility over-earnings.”

In 1999, the Texas Legislature thought that by passing a deregulation law, they could get rid of electric company monopolies and reduce government control of electricity rates. Since 2002, approximately 85% of commercial and industrial customers in Texas had switched power providers at least once and about 40% of residential customers in deregulated areas of the state have switched from the former incumbent provider to a competitive REP. Since 2002, over 60 startup firms have been formed specifically for the Texas electricity market with about on-half focused on Texas residential users.

Over the past 10 years Texas has become a leader in the development of wind power. Texas is set to spend approximately $7 billion to build transmission lines to serve wind generators in West Texas and the Panhandle.

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