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Understanding the Principles behind Energy Deregulation

July 18, 2010

When energy deregulation was initiated in pilot states like Texas during the late 1990s, it elicited mixed emotions from various sectors each having contrasting views about what they perceived energy deregulation to be. Some protested its implementation, particularly the electric company executives who feel threatened by the concept of giving the populace the power to choose their electricity providers.

On the other hand, consumer groups and business entities feel that the traditional utility regulation is flawed particularly the fact that for decades the big utility companies control the three main components of their Texas electricity services: generation, transmission and distribution. Many welcome the open competition that energy deregulation can bring about as new electric companies and retail electric providers vie for consumers attention and patronage for their quality of service.

However, many people still do not understand the principles behind energy deregulation aside from the perception that it can give them cheap electricity at last. The following is a short dive into the energy deregulation concept in a bid to provide readers a basic understanding of what energy deregulation really is.

The Structure of the Energy System in Texas

The term energy deregulation does not mean that all electric companies in the state or local level will all be jumbled up together and provide services to the people at first come, first served basis. In reality, only the Retail Electric Providers or REPs were directly affected by energy deregulation. These electric companies are responsible for directly interfacing with the consumers, turn on/off their electric services, take care of billing services and other customer service activities.

Energy generation is not deregulated and is still under the power generation companies. They in turn sell generated electricity wholesale to the Retail Electric Providers for consumer consumption. In a similar manner, the electric companies responsible for the transmission of electricity from the generation plant to the various localities, the TDSPs or the Transmission/Distribution Service Provider remain the same.

Important Things to Understand about Energy Deregulation in Texas


There are certain things that the consumer should understand with energy deregulation. First and foremost is the fact that only the retail providers will be affected by deregulation while the transmission, utility companies and the electricity or natural gas generation companies remain the same and controlled by the Public Utility Commission. They will continue to provide the same electricity as you did before and will perform repairs or maintenance to your utility infrastructure as needed.

Electricity bills will come from the Retail Electric Providers, which will contain both the electricity distribution charges and the charges from the power supplier. These Retail Electric Providers compete for customers’ attention by various offers, incentives and payment schemes as well as maintaining high quality services to the state’s constituents. It would be up to people which electric company to choose to provide their electric power.

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