The Texas electricity market is the most successful experiment in retail electricity competition in the United States — and one of the most misunderstood. To shop intelligently, you only need to understand a handful of moving pieces. This is the explanation that gets you there.
The three-piece split (1999)
Before 1999, one company in your area owned the power plants, the wires to your house, and the right to bill you. Texas Senate Bill 7, signed by Governor George W. Bush, broke that monopoly into three separate businesses:
- Generation. Power plants — gas, coal, nuclear, wind, solar, batteries. Sold into a wholesale market run by ERCOT.
- Transmission & Distribution (the TDU). The wires, poles, transformers, and meter at your house. Owned by Oncor, CenterPoint, AEP Texas, TNMP, and a few smaller utilities. Regulated monopolies — you can’t pick.
- Retail (the REP). The company whose name appears on your bill. They buy wholesale power, package it as plans, and sell to customers. Over 100 of them are licensed in Texas.
What ERCOT does
ERCOT — the Electric Reliability Council of Texas — is the non-profit that operates the grid for about 90% of Texas load. It runs the wholesale market where power plants sell electricity in 5-minute and day-ahead windows, schedules generation to match demand in real time, and manages reserves. ERCOT does not sell electricity to customers, set retail rates, or own any generation or transmission. It’s overseen by the Public Utility Commission of Texas (PUCT) and, since 2021, the Texas Legislature’s Sunset Commission.
What’s actually on your bill
Your monthly bill has four components:
- Energy charge — the per-kWh price your REP charges. This is what they advertise. It’s the only number REPs compete on.
- TDU delivery charge — also per kWh. Set by the PUCT. Identical across every REP in your area.
- Base / monthly charge — flat fee. Can come from the REP, the TDU, or both.
- Taxes — sales tax, plus any local franchise fees.
Total bill = (energy charge + TDU delivery) × your kWh + base charges + taxes. The TDU portion is non-negotiable. When one plan looks cheaper than another, the difference is 100% in the energy charge and base fees.
What you can and can’t shop
You can shop your REP. You can switch any time your contract allows. You can pick by price, term length, renewable content, customer rating, billing structure, or any combination. The TDU stays the same regardless. Your meter, your wires, your power-out emergency number — all those belong to the TDU.
Roughly 85% of Texans live in deregulated territory. The exceptions are mostly municipal utilities (Austin Energy, CPS Energy in San Antonio, El Paso Electric) and rural electric cooperatives that opted out in 1999. Those areas have no retail choice — the city or co-op is your only option.
Why the market is the way it is
Texas’s grid has been "islanded" since the 1930s — limited DC interconnections to the Eastern and Western Interconnections specifically to avoid federal jurisdiction under the Federal Power Act. That means Texas regulators have unusual latitude to design the market however they want. The 1999 deregulation, the energy-only market design (no capacity payments), and the 2021 post-Uri reforms all happened inside Texas without federal sign-off.
Texas chose to make electricity a competitive consumer product. The upside: real competition on retail rates. The downside: the customer is responsible for shopping.
What this means for you
You don’t need to memorize ERCOT’s market rules to save money on your electric bill — you just need to know that the energy charge on your EFL is the only thing your REP can move. Compare plans at your real usage, ignore the marketing copy, and re-shop every 12 months. See plans available at your address and let the EFL data do the work.