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In a regulated system there is one vertically-integrated utility that generates the electricity, transmits the electricity, and provides retail services to customers.  The energy provider was usually a municipality, a group of investors, or an electric co-op, and the price of electricity was regulated by law.

In Texas, the wholesale market for electricity was deregulated in 1995.  The retail market for electricity was later deregulated in 1999 by then, Governor of Texas, George W. Bush.  We note that some utilities already in existence did not opt into the deregulated market.  A deregulated system increases competition with the goal of ultimately decreasing prices.  The maps shown below highlight which areas are regulated (grey map areas), and which are deregulated in both the wholesale and retail markets.  The electricity market is now broken down into three general segments: 1) generation, 2) transmission, and 3) retail.  In each segment companies can compete without being in any of the other segments.  Additionally, retailers of electricity can buy energy from generators anywhere in the state, not just in their locality, and customers can choose between different retailers.

Results

The amount of renewable energy options available to the retail market is affected by the structure of the market.  In regulated markets the public utility must build renewable generators for consumers to have access to that type of power.  However, in deregulated environments, renewable generation can be added by any competing company that wishes to provide the power, and customers have the option to choose their provider.  Customers make their selections for a variety of reasons, including price consciousness.  Over the last decade, natural gas has seen a resurgence, because a new technology allowed it to be the most cost-effective option.  When renewables are less expensive than traditional forms of energy, there will be parties in the deregulated market that will want to buy and sell electricity produced from renewable energy sources.  In sum, deregulation has benefitted renewable resources, because it gave customers the ability to choose their energy provider and created a more price conscious system.  Additionally, the same legislation that deregulated the market in Texas also included a renewable portfolio standard that required utilities to obtain certain amounts of power from renewable sources. 

Significance

The last two and a half decades have brought giant changes to the electricity market in Texas.  The plethora of variables affecting the grid, including an influx of natural gas for power generation, have made it difficult to determine whether deregulation has been a success in all facets.  However, deregulation has enabled a system, that encourages growth in the renewable energy sector. 


Authors

Lauren K. King

John M. Byrom

Table of Sources

Dylan Baddour, Texas’ Deregulated Electricity Market, Explained, Hou. Chron. (June 8, 2016),  https://www.houstonchronicle.com/local/explainer/article/texas-electric-deregulation-ERCOT-TCAP-7971360.php

Kate Galbraith, Alternating Current, Texas Tribune (June 12, 2010), https://www.texastribune.org/2010/07/12/has-electric-deregulation-helped-or-hurt-texans/.

U.S. Electricity Grid & Markets, EPA, https://www.epa.gov/greenpower/us-electricity-grid-markets (last visited August 24, 2020).

Informational Purposes Only

The information is provided for informational purposes only and is not legal advice, nor does reading anything that we author or post on our website constitute legal advice or create an attorney-client relationship. Additionally, we may periodically update the content of our website, but the content is not necessarily complete or up to date. Likewise, information posted on our website may not be applicable to all jurisdictions.

McCarn & Weir, P.C. is comprised of attorneys and professional staff highly experienced in transactions and litigation involving the Energy, Real Estate, Corporate, Banking and Finance industries. Our firm has multiple attorneys Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization, along with attorneys licensed in Texas, Oklahoma, New Mexico and California. Our goal is to provide high quality and cost-effective legal services, while maintaining the flexibility to adapt to the ever-changing needs of the industries we represent.


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