Texas electricity deregulation was sold as a consumer victory. Competition would drive down prices. Freedom to choose would empower consumers. The market would sort everything out.
Twenty years later, the reality is messier. Yes, competition exists. Yes, the cheapest rates in Texas beat most regulated states. But the industry has also spent two decades perfecting the art of confusing you—with tiered pricing, bill credits that only apply at exact usage thresholds, “free” nights plans with punishing daytime rates, and contracts designed to trap you into expensive renewals.
Here’s how the system actually works, who profits from the confusion, and how to navigate it without getting played.
The Real Reason Texas Deregulated
Before 2002, most Texans got electricity from their local utility. One company, one price, no choices. The Texas Legislature decided that competition would be better for consumers, so they passed Senate Bill 7.
The idea was simple: separate the companies that generate electricity from the companies that deliver it. Let new companies compete to sell power to consumers. Competition drives down prices. Everyone wins.
What actually happened: Prices did drop initially. Then providers got creative. The market now has over 100 companies and thousands of plans—and many of them are designed to look cheaper than they are. The best deals in Texas are genuinely excellent. The worst are borderline predatory. And telling the difference requires understanding how the game is rigged.
The Three Players in Your Power
1. Power Generators
These are the companies that actually make electricity—natural gas plants, wind farms, solar installations, nuclear facilities. Names like NRG, Vistra, and NextEra.
You never deal with generators directly. They sell wholesale power into the market, and retail providers buy from them.
2. Transmission and Distribution Utilities (TDUs)
TDUs own and maintain the physical infrastructure—the power lines, substations, and meters that deliver electricity to your home.
The TDUs in Texas:
- Oncor: Dallas-Fort Worth area
- CenterPoint: Houston area
- AEP Texas: South and West Texas
- TNMP (Texas-New Mexico Power): Various areas across Texas
You don’t choose your TDU—they’re assigned by your address. They’re regulated monopolies because it doesn’t make sense to have multiple sets of power lines running down every street.
TDU charges appear on your bill regardless of which retail provider you choose. That’s why “delivery charges” are roughly the same across providers in your area.
3. Retail Electric Providers (REPs)
This is who you actually sign up with: TXU Energy, Reliant, Rhythm, Green Mountain, and roughly 100 others.
REPs buy electricity wholesale, package it into plans, and sell it to you. They handle billing, customer service, and marketing. They’re the ones competing for your business. See how top REPs compare in matchups like TXU vs Reliant or Reliant vs Rhythm.
Key point: REPs don’t own any infrastructure. The electricity flowing through your wires is the same regardless of which REP you choose. You’re choosing who you write the check to and what plan structure works best for you.
The Role of ERCOT
ERCOT (Electric Reliability Council of Texas) manages the power grid for about 90% of Texas. They’re not a company you buy from—they’re the referee.
ERCOT’s job:
- Match electricity supply with demand in real time
- Manage the wholesale electricity market
- Ensure grid reliability (yes, even after Winter Storm Uri)
- Process switching between retail providers
The Texas grid is intentionally isolated from the rest of the country. That independence has pros (less federal regulation) and cons (can’t import power during emergencies).
Why Prices Vary So Much
Walk into the electricity market and you’ll see rates ranging from 8 cents to 20+ cents per kWh. Why the huge spread?
Wholesale Price Fluctuations
REPs buy power at wholesale rates that change constantly. A provider who locked in cheap contracts looks smart when prices spike. One who bet wrong passes the cost to customers.
Plan Structure Games
That 8-cent rate might have a minimum usage fee that makes it expensive for apartments. That 12-cent rate might include delivery charges that others list separately. Comparing rates requires reading the Electricity Facts Label (EFL), not just the headline number.
Risk Tolerance
Fixed-rate plans charge a premium for price certainty. The REP is taking on the risk that wholesale prices could spike. Variable rate plans are cheaper upfront but can jump during demand peaks.
Marketing Costs
Those TV commercials and stadium naming rights aren’t free. Premium brands like TXU and Reliant spend heavily on marketing and bake it into their rates. Discount providers like 4Change Energy or Discount Power skip the ads and pass savings to customers.
Green Energy Premiums
100% renewable plans from providers like Green Mountain Energy often cost more because RECs (Renewable Energy Certificates) and green sourcing add costs.
Understanding the Electricity Facts Label (EFL)
Every Texas electricity plan comes with an EFL—a standardized disclosure document. This is where the truth lives.
What to look for:
Average price per kWh at 500, 1000, and 2000 kWh: This shows how the plan performs at different usage levels. Some plans penalize low usage; others get cheaper the more you use.
Base charges and minimum usage fees: A plan advertising 10 cents might have a $10 monthly base charge that makes it 12 cents at typical usage.
Contract length and ETF: How long are you locked in, and what does it cost to leave early?
Renewable content: What percentage of the electricity comes from renewable sources?
Ignore the marketing. Read the EFL. Compare apples to apples.
Deregulated vs. Regulated Areas
Not all of Texas is deregulated. Some areas are still served by regulated utilities:
Deregulated (choose your provider): Most of Houston, Dallas-Fort Worth, Austin suburbs, Corpus Christi, and other major metros.
Regulated (no choice): San Antonio (CPS Energy), Austin city proper (Austin Energy), Lubbock (LP&L), most rural electric cooperatives.
If you’re in a regulated area, you have one provider and one rate. No shopping required, but also no competition to drive down prices.
The Pros and Cons of Deregulation
The Good
Lower baseline rates: Competition has generally kept Texas rates below the national average.
Choice: Different plans for different needs—green energy from providers like Green Mountain Energy, prepaid options from Payless Power, and cheap rates for budget shoppers.
Innovation: Texas has some of the most creative plan structures in the country. Time-of-use pricing, solar buyback programs, indexed rates tied to wholesale markets.
The Bad
Complexity: There are over 100 providers and thousands of plans. Analysis paralysis is real.
Predatory practices: Some providers use confusing fee structures, teaser rates, and high renewal prices to extract money from customers who don’t pay attention.
Market volatility: Remember February 2021? Variable-rate customers saw bills in the thousands during the winter storm.
The Ugly
Marketing over substance: The most-advertised providers aren’t necessarily the best. They’re just the ones spending the most on advertising—and passing that cost to you.
Constant attention required: Contracts expire, rates change, providers go bankrupt. You have to actively manage your electricity or risk overpaying. Learn what happens when your contract ends in our guide on electricity contract expiration.
How to Win in the Deregulated Market
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Know your usage: Check your past bills. Do you use 500 kWh or 2000 kWh monthly? This determines which plans work for you.
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Read the EFL: Never sign up based on an advertised rate alone.
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Set contract reminders: Mark when your contract ends. Shop before you’re forced onto expensive month-to-month rates.
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Ignore the noise: That company with the NFL sponsorship isn’t necessarily better than the one you’ve never heard of.
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Compare regularly: Rates change. What was a good deal last year might not be today.
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Consider your priorities: Cheapest rate? Best customer service? Green energy? No deposit required? Different providers excel at different things.
The Bottom Line
Texas electricity deregulation gives you choices, but those choices come with responsibility. You’re not just a customer—you’re a market participant who needs to actively manage your electricity to avoid overpaying.
The system works well for engaged consumers who understand how it works and shop strategically. It works less well for people who sign up once and never think about it again.
Now you understand the system. Use that knowledge. Check out our provider comparisons to see how specific companies stack up, or browse our best-of lists to find the right provider for your needs.