The Texas Power Grid, Explained

Three companies are involved every time you turn on a light switch in Texas. None of them are the same company. Most Texans think they're paying one bill to one provider for one service — but the system underneath has three layers, and knowing how they fit together changes how you shop, what you pay, and who you call when something breaks.

The three-layer model

Texas runs a separated electricity market — what the industry calls "unbundled." Three distinct businesses handle three distinct jobs:

Generation. Power plants. They burn natural gas, harvest wind, capture solar, and produce electricity in bulk. ERCOT runs the market where they sell it.

Transmission and Distribution (TDU). The wires. The poles. The transformers in your neighborhood. The meter on your house. The TDU owns and maintains all of it. There are six TDUs in deregulated Texas: Oncor (DFW, Central Texas, most of West Texas), CenterPoint (Houston), AEP Texas Central (South Texas, the Valley), AEP Texas North (West Texas), TNMP (scattered pockets), and LP&L (Lubbock — the newest entrant, joined the competitive market in 2023).

Retail. The Retail Electric Provider (REP) you have a contract with. They buy electricity wholesale from generators, pay the TDU to deliver it, mark it up, and sell it to you under a plan name. There are roughly 130 active REPs in Texas.

Before 2002, all three layers were one regulated monopoly per city. After deregulation, they were forced apart. The TDU lost the right to sell electricity. The retail companies lost the right to own wires. The generators got a competitive wholesale market.

You can shop the retail layer. You cannot shop the other two.

Who owns your wires

The TDU that serves you is determined by where you live. You don't pick it. You can't switch off it.

If you live in Dallas, Fort Worth, Tyler, Waco, Midland, or any of the hundreds of cities in north-central or west Texas, Oncor delivers your electricity. If you're in Houston or the surrounding counties, it's CenterPoint. South Texas down to the Rio Grande Valley is AEP Texas Central. The Big Country and Panhandle (mostly) is AEP Texas North. TNMP serves a handful of geographic pockets — Galveston, parts of southeast Texas, a few far-flung areas.

The TDU is who you call when your power's out. They restore service. They read your meter. They handle the physical infrastructure between the substation and your house.

The TDU charge on your bill — typically 4–5¢/kWh plus a few dollars per month — is what they're paid for that work. It's identical for every REP that serves your address. That charge is set by the PUCT in periodic rate cases. Your REP passes it through with no markup.

If two plans show different TDU charges for the same address on their EFLs, something is wrong.

How a kilowatt-hour reaches your outlet

You flip a switch. What happens next, in compressed form:

1. Demand registers at the grid level. ERCOT's real-time market is constantly balancing supply and demand. When you turn on the AC, your usage joins millions of others. ERCOT's algorithms detect the aggregate load and signal generators to dispatch more electricity.

1. A generator produces it. Depending on the time of day and the season, the marginal kWh might come from a natural-gas plant in East Texas, a wind farm in the Panhandle, or a solar facility in West Texas. Texas leads the U.S. in both wind generation and battery storage.

1. High-voltage transmission moves it long distances. Texas has thousands of miles of high-voltage lines connecting generation to load centers. These are owned by transmission companies (often the TDUs themselves, plus a few specialized players).

1. Distribution drops it to local voltage. Substations in your area step the voltage down. Distribution lines (the poles you see along the street) carry it to your neighborhood.

1. The meter at your house measures it. Texas has near-universal smart meter coverage. Your meter reports usage in 15-minute intervals to your TDU. Your TDU passes it to your REP. Your REP bills you.

The whole journey takes a few milliseconds. The billing comes later.

Why Texas is "islanded"

The Texas grid is mostly disconnected from the rest of the U.S. There are limited DC interconnects to Mexico, the Eastern Interconnection (a tie to Louisiana and the SPP region), and a small DC link to the Western Interconnection — but the total capacity of those interconnects is a small fraction of Texas's peak demand.

That's a 1930s choice with modern consequences. Texas didn't want to be regulated by the federal government, so it kept its grid contained. The benefit: more autonomy over rules. The cost: when Texas is short on generation, Texas can't import meaningful amounts of power from neighbors.

This is the structural reason Winter Storm Uri became a disaster. Other states facing the same cold weather imported power. Texas couldn't.

After Uri, there's been ongoing discussion about expanding interconnects. Politically and economically, it's complicated — more federal authority comes with more interconnection. As of 2026, the Texas grid remains mostly islanded.

What reliability actually means

Reliability is measured in reserve margin: the gap between expected peak demand and total available generation. ERCOT targets a 13.75% margin in summer planning.

A 13.75% reserve margin means: at peak summer demand, you have about 1.14 megawatts of capacity for every 1 megawatt of expected load. That cushion absorbs unplanned outages (a plant trips offline, a transmission line goes down, demand exceeds forecast).

Tight margins mean more wholesale price volatility. When the system is running close to its limits, even small disruptions cause big price spikes. Loose margins are safer but cheaper to maintain only if you have abundant baseload capacity — which Texas, with its mix of gas, wind, and solar, manages but doesn't have to spare.

The 2025–2026 reserve margin sits right at target. Heat waves push it lower. Wind variability pushes it down further during low-wind hours. Battery storage (now 8+ GW in Texas) provides some buffer during transition windows.

Reliability is dynamic. The grid is fine until it isn't, and the difference between fine and not-fine can be a single afternoon of unexpected demand.

What you actually do with this information

For shopping a Texas electricity plan:

• Know your TDU. It's on every bill and every EFL. Lookup tools at the PUCT website map TDU to ZIP code.
• Recognize that the TDU charge isn't competitive — only the energy charge is. Your REP can't lower the TDU.
• Pick a fixed-rate plan to insulate yourself from wholesale market volatility. The grid will have stress events. You don't want to absorb them.
• Don't worry about which generation source serves your home — physical electricity blends on the grid. If you care about renewable energy, that's about REC-backed plans, not which power plant is upstream.

The grid is the substrate. The plan is the contract. Get the contract right; the grid will do its job.

The honest close

The Texas power grid is one of the most-watched utility systems in the U.S. It's been studied, criticized, defended, and reformed. There's an entire industry of analysts who do nothing but track its margins and prices.

You don't have to be one of them.

You have to know: who delivers your power (your TDU), who sells you the plan (your REP), and who balances supply and demand at the grid level (ERCOT). Three jobs, three different bodies. Get the wrong one on the phone and you'll waste an hour.

That's the working knowledge. Everything else is detail.

» MORE: What is ERCOT? · Texas deregulation explained