Beatrice Lang
Texas has six transmission and distribution utility (TDU) companies that service the areas of the state that have a retail electric choice (the deregulated markets). Each TDU has an assigned territory in Texas, which means that while Texans can choose their electricity retailer, they cannot choose their utility company. The TDUs in Texas are responsible for maintaining the infrastructure in a particular region and delivering power to electricity consumers. They own, maintain, and repair all the lines, wires, poles, and meters in their service area.
| Characteristics | Values |
|---|---|
| Grid Name | ERCOT (Electric Reliability Council of Texas) |
| Grid Management | Managed by 6 TDUs (Transmission and Distribution Utilities) |
| TDU Examples | AEP Texas Central, AEP Texas North, CenterPoint Energy, Oncor, Texas-New Mexico Power, and Sharyland Utilities |
| TDU Function | Owns, maintains, and repairs all the lines, wires, poles, and meters in its service area |
| Retail Electricity Providers (REP) | Gexa Energy, Champion Energy, Green Mountain Energy, First Choice Power, etc. |
| Consumer Choice | Consumers can choose their REP but not their TDU |
| Deregulation | Texas has a deregulated energy market, allowing consumers to choose their energy provider |
| Federal Regulation | The Texas grid is independent and not subject to federal regulation |
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What You'll Learn
The Electric Reliability Council of Texas (ERCOT)
The Electric Reliability Council of Texas, or ERCOT, is a membership-based, non-profit council that provides electric power to approximately 23 million people in Texas, or 90% of the state's electric load. ERCOT customers use about 85% of the state's electric power. Texas's electric grid is not connected to the rest of the national grid.
ERCOT was formed in 1970 to comply with NERC requirements. It is the successor to the Texas Interconnected System (TIS), which was formed at the beginning of World War II to provide power for aluminium smelting companies located along the Gulf Coast. In 1981, ERCOT became the central operating coordinator for Texas electricity. Later, in 1996, ERCOT became the original electric utility industry Independent System Operator (ISO) in the U.S. and is one of nine ISOs in North America.
ERCOT manages the flow of electric power on the Texas Interconnection, which is an alternating current (AC) power grid – a wide-area synchronous grid – that covers most of the state of Texas. The Texas Interconnection is one of three minor grids in the North American power transmission grid. The grid is maintained as a separate grid for political, rather than technical reasons, but it can draw some power from other grids using direct current (DC) ties.
ERCOT works with the Texas Reliability Entity (TRE), one of eight regional entities within the North American Electric Reliability Corporation (NERC) that coordinate to improve the reliability of the bulk power grid. As the ISO for the region, ERCOT dispatches power on an electric grid that connects 46,500 miles of transmission lines and more than 550 generation units.
Power demand in the ERCOT region is typically highest in summer, primarily due to air conditioning use in homes and businesses.
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Retail Electricity Providers (REP)
Texas has a deregulated energy market, which means that consumers have the power to choose their Retail Electricity Providers (REPs). REPs are companies that buy electricity at wholesale prices from the wholesale market and sell it directly to consumers at retail prices that they control. They are not responsible for electricity infrastructure or generation.
REPs play a crucial role in the Texas energy market by facilitating the sale of electricity to retail customers. They purchase electricity at wholesale prices from power generation companies and sell it to consumers at retail rates, with the difference between the two prices forming the foundation of their revenue. REPs must forecast demand and buy enough electricity to cover it, using their market knowledge and expertise to secure favourable wholesale prices. They also determine the retail electricity prices for consumers to purchase from them, offering various electricity plans and services tailored to their needs.
REPs are the companies that contract with customers to switch on (or off) electrical services and pay for them. They are the direct point of contact for customers, addressing inquiries and ensuring a smooth customer experience. REPs are responsible for billing customers based on their electricity usage and the agreed-upon pricing structure, as well as collecting payments and handling the administrative processes associated with revenue collection.
REPs in Texas employ a range of strategies to generate revenue and sustain their operations within the energy deregulation landscape. They derive their income from multiple sources within the electricity supply chain, including wholesale electricity purchases, delivery service negotiations, and retail price setting. They negotiate delivery services with Transmission and Distribution Utilities (TDUs) or Transmission and Distribution Service Providers (TDSPs), ensuring the efficient transmission and distribution of electricity to consumers.
It is important to note that REPs are different from TDUs or TDSPs, which deliver power to everyone within a given region and maintain the power lines and infrastructure. Each TDU has an assigned territory in Texas, which means that while consumers can choose their electricity retailer, they cannot choose their utility company.
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Transmission and Distribution Utilities (TDU)
The Texas energy market is divided into groups of companies with different responsibilities. Transmission and Distribution Utilities (TDUs) are responsible for delivering power to customers and maintaining the power lines and infrastructure in a particular region. They are also known as Transmission and Distribution Service Providers (TDSPs) or electric utility providers. TDUs are funded by pass-through fees that are included in every electricity bill in Texas.
There are 5 or 6 major TDUs in Texas, each with a defined area in which they operate as local monopolies. The TDUs are:
- CenterPoint Energy: Serving Houston and the surrounding cities
- Oncor: Serving much of North Texas, including the Dallas/Fort Worth Metroplex, and most of East Texas
- AEP Central: Covering McAllen, Corpus Christi, and other cities in South Texas
- AEP North: Covering San Angelo, Abilene, and other cities
- TNMP: Covering Lewisville, Angleton, Glen Rose, and other cities, as well as serving parts of East and Central Texas
- Sharyland Utilities
As a Texan living in a deregulated area, you can choose your retail electricity provider, but you have no choice in what TDU delivers your power.
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Texas Interconnection
Texas is the only U.S. state with its own electric grid, known as the Texas Interconnection. The Texas Interconnection is an alternating current (AC) power grid, or a wide-area synchronous grid, that covers most of the state of Texas. The grid is managed by the Electric Reliability Council of Texas (ERCOT), a nonprofit corporation overseen by a board of directors and subject to the Public Utility Commission of Texas (PUC) and the Texas Legislature.
ERCOT manages the flow of electric power on the Texas Interconnection, supplying power to 26 million customers, or 90% of the state's electric load. The Texas Interconnection is one of three minor grids in the North American power transmission grid, the other two being the Quebec Interconnection and the Alaska Interconnection. The two major interconnections are the Eastern Interconnection and the Western Interconnection.
The Texas Interconnection is maintained as a separate grid for political reasons, primarily to avoid federal oversight. However, it can draw power from other grids using direct current (DC) ties. The Texas Interconnection is tied to the Eastern Interconnection with two DC ties, to NERC (North American Electric Reliability Corporation) systems in Mexico with two DC ties, and has one AC tie switch in Dayton, Texas.
ERCOT works with the Texas Reliability Entity (TRE), one of eight regional entities within NERC, to improve the reliability of the bulk power grid. ERCOT manages an electric grid that connects 46,500 miles of transmission lines and more than 550 generation units. In addition to managing the flow of electricity, ERCOT also performs financial settlements for the competitive wholesale bulk-power market and administers retail switching for 7 million premises in competitive choice areas.
The Texas Interconnection has a generation capacity of more than 145,000 megawatts and more than 52,700 miles of high-voltage transmission lines and substations. While ERCOT manages electricity across 214 of Texas's 254 counties, select areas, including El Paso, parts of the Texas Panhandle, and counties bordering neighbouring states, are served by neighbouring grids.
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Deregulation
Texas has a deregulated energy market, allowing consumers to choose their Retail Electricity Provider (REP). This has introduced competition into the marketplace, with REPs offering various rates, plan types, and different levels of flexibility to consumers. However, it is important to note that Texas has its own power grid, called ERCOT (Electric Reliability Council of Texas), which manages the flow of electric power and is beyond the jurisdiction of federal regulators.
The deregulated market in Texas is not uniform across the state, with some areas being exempt from deregulation. For instance, San Antonio, Austin, and Brownsville are among the 72 cities that do not participate in the competitive market. In these areas, residents are limited to a single electricity provider, such as El Paso Electric in El Paso.
The history of deregulation in Texas dates back to the early days of electric utilities in the state. Initially, there was no regulation, leading to a lack of organization and monopolization by large utility companies. Texas has sought to maintain its independence from federal regulation, and in 1970, ERCOT was formed to manage grid reliability. The 2002 deregulation bill furthered this by forcing investor-owned Texas utilities to deregulate, while municipal and cooperative utility companies had a choice.
The impact of deregulation in Texas has been significant, with over 400 cities now members of the free energy market, including major cities like Fort Worth, Dallas, and Houston. The current competitive market has the potential to drive down prices and save consumers money on their electricity bills. However, it has also raised concerns about the reliability of the Texas power grid, particularly in the wake of the February 2021 winter storm.
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Frequently asked questions
TDU stands for Transmission Distribution Utility. They are responsible for the transmission and distribution of electricity to homes and businesses within a service area. There are six TDUs in Texas: Centerpoint, Oncor, Texas-New Mexico Power, AEP North, AEP Central, and Sharyland. Each TDU has an assigned territory in Texas.
Deregulation allows consumers to choose their energy provider and plan type. It introduces competition into the marketplace, giving consumers more flexibility and a wider range of options. Over 400 cities in Texas are members of the free energy market, including Fort Worth, Dallas, and Houston.
ERCOT stands for Electric Reliability Council of Texas. It manages the power plants and energy flow of more than 100 private Texas utility companies, supplying power to 26 million Texas customers. ERCOT was formed in 1970 to manage grid reliability and is beyond the jurisdiction of the Federal Energy Regulatory Commission.
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