The Texas Deregulation Electricity experiment stands as one of the biggest ever shifts of an entire sector from quasi-public services to the private industry. The law (SB 7) deregulating the state's electric power supply market came into force on Jan 1, 2002. Its provisions were gradually phased in over several years.
The way it works and how effective the new market-based system has been is discussed below. Before Jan 2002, utility customers in a given area had no choice and were forced to accept the rates and level of service from that one provider. SB 7 allowed consumers all over the state to choose from among multiple companies, as long as the existing utility was not a municipal or cooperative concern.
The monopoly of a single utility over everything from power plants to transmission, sales and billing was replaced with multiple providers. These companies, known as REPs or retail electric providers, would compete among themselves to acquire and retain customers just like any other industry. Customers could shop around, chose the one they liked best and ditch their old utility.
An Electric Reliability Council was created to ensure healthy competition among REPs. ERCOT, as the council is known, also had a mandate to monitor the system and make sure grid reliability was not affected as the changes were made. In short, the state expected the deregulated market would be more competitive, providing customers with wider choices and better service levels at lower rates.
The initial utility which held the monopoly before SB 7 was still a part of the system and would continue to own the power lines and other infrastructure in its service area. Customers would call just this one company in the event of a power failure. However, the original provider was now a part of the market and would have to compete with other REPs to provide the remaining services.
There were other innovations such as brokers and aggregators that arose because of the new system. With REPs competing against each other, customers started teaming up under aggregators to get lower rates as a group. Brokers with links and affiliations to various REPs made it easy for customers to do some comparison shopping and get hold of the best available deal.
With all this innovation and competition in play, consumers in Texas started moving away from their old utilities. Among commercial and industrial electricity users, a minimum of 85 percent have changed their electric power provider at least once since SB 7 was enacted. Among residential customers, 40 percent have moved to another REP.
If nothing else, the Texas Deregulation Electricity project has converted a few bloated utilities into a market full of nimble private operators. Any REP that does not perform gets the boot as customers have many more options. On the other hand, this market-based system allows providers to hike rates based on demand. With the Texas economy thundering along nicely, there's a huge demand for electricity as the number of new businesses and homes keeps increasing. As of now, the average rates charged by the deregulated REPs are higher than the regulated rates under municipal utilities such as the one in Austin.
The way it works and how effective the new market-based system has been is discussed below. Before Jan 2002, utility customers in a given area had no choice and were forced to accept the rates and level of service from that one provider. SB 7 allowed consumers all over the state to choose from among multiple companies, as long as the existing utility was not a municipal or cooperative concern.
The monopoly of a single utility over everything from power plants to transmission, sales and billing was replaced with multiple providers. These companies, known as REPs or retail electric providers, would compete among themselves to acquire and retain customers just like any other industry. Customers could shop around, chose the one they liked best and ditch their old utility.
An Electric Reliability Council was created to ensure healthy competition among REPs. ERCOT, as the council is known, also had a mandate to monitor the system and make sure grid reliability was not affected as the changes were made. In short, the state expected the deregulated market would be more competitive, providing customers with wider choices and better service levels at lower rates.
The initial utility which held the monopoly before SB 7 was still a part of the system and would continue to own the power lines and other infrastructure in its service area. Customers would call just this one company in the event of a power failure. However, the original provider was now a part of the market and would have to compete with other REPs to provide the remaining services.
There were other innovations such as brokers and aggregators that arose because of the new system. With REPs competing against each other, customers started teaming up under aggregators to get lower rates as a group. Brokers with links and affiliations to various REPs made it easy for customers to do some comparison shopping and get hold of the best available deal.
With all this innovation and competition in play, consumers in Texas started moving away from their old utilities. Among commercial and industrial electricity users, a minimum of 85 percent have changed their electric power provider at least once since SB 7 was enacted. Among residential customers, 40 percent have moved to another REP.
If nothing else, the Texas Deregulation Electricity project has converted a few bloated utilities into a market full of nimble private operators. Any REP that does not perform gets the boot as customers have many more options. On the other hand, this market-based system allows providers to hike rates based on demand. With the Texas economy thundering along nicely, there's a huge demand for electricity as the number of new businesses and homes keeps increasing. As of now, the average rates charged by the deregulated REPs are higher than the regulated rates under municipal utilities such as the one in Austin.
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