The road to deregulation - Wholesale and retail compotition
Before 1995, electric utilities in Texas operated as monopolies with guaranteed regulated incomes. Under the regulated system, electric utilities had a monopoly over the generation and transportation of electricity as well as the ultimate relationship with the buying customer. Under the regulated system, utilities were statutorily required to serve all customers in their service area, regardless of the cost.Because they were obligated to serve their customer's demands at all times and to ensure system reliability, utilities would maintain excess capacity. Consumers under the regulated system were required to purchase electric power from the utility licensed to serve in their area at rates set by Texas' Public Utility Commission. This regulatory compact system was meant to provide Texans with guaranteed, reliable, and reasonably priced electricity wherever the customer resides. In return, utility companies faced little risk because they receive guaranteed profits.
Most of Texas electricity is generated from plants that burn either natural gas (46 percent) or coal (41 percent). Coal-fired power plants are a major reason why Texas is leading the U.S. in emissions of carbon dioxide. The top 16 major electric generating plants in Texas account for a little over 80 percent of all criteria pollutant emissions—particulate matter, carbon monoxide, sulfur dioxide, nitrogen oxides, volatile organic compounds (VOCs), and lead—from power plants; and approximately 36 percent of all criteria pollutants from all industrial sources in Texas
The push in the 1990s for wholesale and retail deregulation in the electric utility market grew out of new low-cost technology, federal regulatory change, and the deregulation of other industries. Texas began to change its system with the enactment of the Public Utility Regulatory Act of 1995, which allows wholesale competition in providing electricity.
With the passage of the 1995 wholesale deregulation bill, the business of supplying electricity was divided into two functional roles: the generation of electricity, which could be provided by the existing utilities or a new entity called exempt wholesale utility generators (EWGs), and distribution and sales, wherein the existing utility oversees transmission of electricity and markets electricity to the retail consumer. The exempt wholesale generators (EWGs) are allowed to generate electricity and sell electricity to distributors, which in turn could package their own generation along with the electricity generated by the EWGs to sell to retail customers. In 1995, 13 percent of electricity sold in Texas was on the wholesale market. Wholesale competition is advantageous for utilities needing more capacity but not wanting to build new power plants. This approach could result in lower prices for consumers if it allows utilities to lower capital costs.
In 1999, the Texas Legislature adopted a new law to introduce retail competition in the sale of electricity where consumers are no longer obligated to buy power from their incumbent utility but can choose to purchase power from a new set of companies called retail electric providers (REPs). Full retail competition began in Texas on January 1, 2002.Under retial deregulation, consumers can choose their electric company, and they can also use to choose to buy renewable energy. The Texas Electric Restructuring Act of 1999 included a requirement that electric retailers develop 2000 MW of new renewable energy sources by 2009. Under the restructuring rules,the amount of renewables that each utility must produce are allocated on the basis of the utilities annual sales. The retail restructuring bill also included a model credit trading program.
Also, in the rules governing retail competition is a labeling regulation that requires utilities to disclose fuel mix and environmental information associated with a company's electricity. For instance a utility customer can determine whether one utility or another is generating electricity from wind, solar, natural gas, coal or nuclear. In addition, the customer can learn about the type and amount of emissions, such as carbon dioxide, particulates, etc. This information will appear in customers' bills and be available the Public Utility Commission's web site.
Consumer advocates are concerned with the details of deregulation. Proponents of deregulation believe that a deregulated market could provide lower prices for consumers. But consumer advocates are concerned that consumers could experience higher residential rates while large industrial customers get the best deals.
The restructuring of the electric industry also poses many questions for the environment in Texas. The primary question is whether conservation programs will suffer. Previously, the only way utilities serving a single area could delay building new power plants was by promoting conservation measures. Because utilities make more money by building more plants and selling more electricity, there is no internal incentive for utilites to promote energy efficiency. It was up to the Public Utility Commission to order utilities to promote energy efficiency. Under competition, the PUC takes a smaller role in utility affairs so conservation programs are likely to be reduced.
However, competition may benefit the environment if customers purchase electricity products generated by renewables.
