Texans take retail electricity competition for granted. We shouldn’t. The market we shop in today is the product of a deliberate, contested, and ongoing political project that started in the late 1990s and has been course-corrected at least three times since.

Before 1999: the monopoly era

For most of the 20th century, electricity in Texas worked the same way it worked everywhere else: a regulated monopoly utility owned the power plants, the wires, and the right to bill you. In Texas this meant TXU (formerly Texas Utilities) in DFW and Central Texas, Houston Industries (the parent of Houston Lighting & Power) on the Gulf Coast, and a handful of other vertically integrated utilities. The PUC set the rates; you didn’t shop, you just paid.

By the late 1990s, the conventional wisdom in energy policy circles was that competition could lower prices the way it had in long-distance telephone and natural gas. California passed the first major electricity deregulation in 1996. Texas was watching closely.

Senate Bill 7 (1999)

Then-Governor George W. Bush signed Texas Senate Bill 7 into law on June 18, 1999. The bill ordered the existing vertically integrated utilities to "unbundle" — split into three separate companies covering generation, transmission, and retail — and opened the retail side to competition. The transition took two years; full retail competition began on January 1, 2002.

The bill made several key choices that still shape the market:

  • Municipal opt-outs. Cities that owned their utilities (Austin, San Antonio, Garland, Bryan, Brownsville, others) could choose whether to deregulate. Most chose not to. That’s why Austin and San Antonio residents still have one electricity provider.
  • Co-op opt-outs. Rural electric cooperatives could opt in or stay out. Most stayed out. About 75 Texas co-ops still operate as regulated monopolies in their areas.
  • Energy-only wholesale market. Generators would be paid only for energy sold, not for capacity. This design has been controversial ever since — it’s blamed for tight reserve margins and praised for encouraging efficient generation investment.
  • The PUCT and ERCOT split. The PUCT regulates retail rates and rules; ERCOT operates the grid. Both bodies got new responsibilities under SB 7.

The first decade: bumpy

Early deregulation didn’t deliver the promised savings. From 2002–2008, residential rates in deregulated Texas territories rose faster than in regulated territories. Natural gas prices spiked in the mid-2000s. Critics argued deregulation had failed; defenders argued the market just hadn’t had time to mature.

The picture changed after the 2008 shale gas boom. Cheap natural gas pushed wholesale prices down hard. Texas built tens of gigawatts of wind generation in West Texas. By 2015, residential rates in deregulated areas were tracking — and sometimes beating — rates in the regulated areas, and customer choice was contributing to consistent rate compression in the cheapest fixed-rate offerings.

Winter Storm Uri and Senate Bill 3 (2021)

The biggest reform moment came in February 2021. Winter Storm Uri exposed how thinly the energy-only market was operating: 30 GW of generation tripped offline; 4.5 million customers lost power; hundreds died. Wholesale prices hit the $9,000/MWh cap and stayed there for five days, producing residential bills in the tens of thousands for variable-rate customers.

Uri did to Texas electricity what the 2008 financial crisis did to U.S. banking — it forced reforms that the political system had spent a decade refusing to consider.

Texas Senate Bill 3 (2021) mandated winterization of generation and gas-supply equipment, lowered the wholesale price cap, banned residential indexed-rate products, and required REPs to offer a "Power to Choose"-type comparison resource. The PUCT followed up with new disclosure rules, additional reserve margin assessments, and clearer EFL standards.

2026: a maturing market

Twenty-five years after SB 7, Texas has the most competitive retail electricity market in the United States. Over 100 REPs are licensed; the average residential customer can choose from 50+ plans at any given moment; the cheapest fixed-rate plans price below national averages. The market is not perfect — bill-credit gimmicks, deceptive marketing, and renewal-rate increases remain real issues — but the basic premise that consumers who shop save money has held up.

What this means for you

Deregulation gave you the right to shop. Whether you save money depends on whether you actually do. See plans available at your address at your real kWh usage, and the 25-year experiment starts working in your favor.