Selecting Your Electricity Plan: Texas Electricity Primer

A Brief History of Texas Energy Deregulation

The state of Texas has experienced a long and sometimes tumultuous relationship with energy. Through most of the last century, each city or region had only a single energy supplier that produced, sold and supplied electricity to individual customers as a public utility. This has often left consumers no other options if they were unhappy with service, pricing or anything else.

By 1975, state lawmakers passed PURA (the Public Utility Regulatory Act) to provide more oversight of the utility companies, encourage equitable rates and regulate some parts of the industry. The additional oversight did little to help consumers; and for the next twenty years, utility companies continued to enact dramatic price increases unseen in other parts of the country.

By 1995, Texans and lawmakers had worked together to form a bill requiring changes to the entire energy industry. They started with ERCOT, the Electricity Reliability Council of Texas. At the time, ERCOT was only partly responsible for energy regulation but had and still has as its main responsibility the management of electricity flow to most of Texas through an electric grid.

Despite some opposition, by 2002 Senate Bill 7 was passed, and ERCOT emerged as an independent entity (appointed by the Public Utility Commission) whose job was to reliably maintain electricity operations and oversee a deregulated or free market electricity industry. One of the first things required for electricity companies by ERCOT was for electricity monopolies (aka traditional utility providers) to separate services into three parts to discourage monopolies of any kind.

How Texas Electricity Market Works

One of the reasons that healthy deregulation of the energy industry in Texas occurred was that electricity services were divided into three entities. Rather than having only one energy company in an area to source energy, provide the product to consumers and maintain the poles, wires and other necessary physical components needed to provide service, now multiple companies need to work together. Although complex initially, the three components were separated in the following way: 1. Retail Electrical Providers

Your electric company or Retail Electrical Providers (REPs) are the privately-owned entities that sell and provide energy to the consumer. Electricity markets are controlled by these alternative suppliers, who bill the customers and pass TDSP charges (utility delivery charges) from the customer to utility companies (#2, below). Each REP has to register with the Public Utility Commission of Texas and be approved as a provider. Basically, the REP purchases energy from a power generation company (see #3, below), repackages it and sells it to a consumer. 2. Distribution and Transmission

Your utility company is the distribution and transmission segment of service and refers to the company that actually delivers the electricity and services the poles and wires that deliver it. This aspect remains highly regulated. Depending on your energy plan, you may see TDSP utility charges on your bill, or they may be included in your electric company plan. 3. Power Generation

A company that sources energy must also register with and be approved by the Public Utility Commission of Texas. Power can be generated through a variety of means, but natural gas and wind energy remain popular ways to provide much of the state's energy resources.

Different Electricity Plan Types

REPs provide a variety of basic plans to fit a variety of needs.

1. Fixed rate plans have a set rate per kWh used and include utility TDSP charges in your rate. For example, if you used 500 kWh at 10 cents/kWh, you would pay $50.

2. Flat rate plans offer a set rate for up to a certain usage (say, $75 for the first 1000 kWh). Then, another flat rate is charged for the next tier of use ($75 more for the next 1000 kWh). After that 2000 kWh is reached, consumers pay a per usage rate (15 cents/kWh). Flat rate plans typically work well for owners of larger properties. Owners could also expect additional TDSP fees on the bill that will be passed on to the utility provider.

3. Bill credit plans charge a rate per kWh (say, 15 cents/kWh) up to 1000 hours, at which point the rate drops to 7.5 cents/kWh. A bundled plan like this is usually per cycle (two months) rather than every month and includes TDSP rates.

4. Bill credit with cap plans are similar to bill credit plans except that the bill credit doesn't apply if you use more than the stated kWh rate during the specified cycle. Usually, this type of plan is also bundled, meaning that TDSP rates are already included.

Customer Credit--Prepaid Plans

Prepaid plans can be beneficial for those who just want to pay as they go, dislike contracts and want same-day service for a low price. Overall rates tend to be higher, and additional fees abound for everything from placing funds into your account to communicating with customer service. A plan of this type is set up so that customers are alerted 1-7 days before their accounts are depleted.

Miscellaneous Fees

As always, miscellaneous fees can crop up, surprising even the most well-informed energy user. Some companies charge monthly fees for not enrolling in auto-pay or for paying your bill online or by phone. If a customer happens to use less than the specified threshold in one billing cycle, the customer may be charged minimum usage fees. Forward switches are switches that happen on a future predetermined date, as opposed to standard switches that happen in the 3-7 days after customer enrollment. These are generally not free and incur small fee that can vary by utility.

A good rule of thumb is to always read the EFL (Electricity Facts Label) before you sign a contract.


In response to high rates and monopolies in the electricity industry, Texans insisted on change. It happened slowly, but the free market eventually saw success in lowering energy costs. Now, in 85% of the state, multiple providers work with both wholesale and retail customers to provide the best electricity rates and service options for Texas residents.

If you are ready to compare your options, you can start here..

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