If you lived in Houston in 1999, Reliant Energy called the shots. The company owned the power plants that generated your electricity, controlled the wires that delivered the electricity, and billed you for every watt of electricity you used. If you didn’t like that setup, too bad. As the parenting saying goes: you get what you get, and you don’t throw a fit.
Senate Bill 7 changed all that. Under the banner of deregulation (“dereg” for short), the bill proposed getting rid of most of the state’s electricity monopolies and creating a competitive marketplace that would, in theory, encourage companies to generate low-cost power. Though the move was promoted and cheered on by Enron—the now disgraced apostle of go-go deregulation—plenty of other parties endorsed it. Large businesses liked the idea of negotiating lower prices for their operations. Consumer advocates were cautious but mollified by protections against price rises. Rural co-ops and city-owned power companies were exempted, which helped get them on board. The bill passed with bipartisan support during the 1999 Lege session and was signed into law by a very enthusiastic Governor George W. Bush.
David Sibley, a Republican state senator from Waco who coauthored the bill, promised that putting energy in the hands of entrepreneurs would deliver low-cost electricity. “If all consumers don’t benefit from this, we will have wasted our time and failed our constituency,” he said. At first glance you might think Sibley and his colleagues didn’t waste their time at all. In 1999 Texas residential electricity prices were 7 percent lower than the national average. Today they’re 11 percent lower, which sounds like a pretty good deal. But peek beneath the top-line numbers and a more complicated scenario emerges.
There’s compelling evidence that residential customers who remained in municipally owned power monopolies (CPS Energy, in San Antonio, for instance) fared better than folks who had to select a new retail provider. A lot better. The Wall Street Journal analyzed the data and concluded that consumers in deregulated markets paid $12.6 billion more over a ten-year span than they would have if there had been no deregulation.
This analysis, which has been disputed by many supporters of the bill, argued that consumers got confused by the profusion of deals—Free nights and weekends! Low introductory rates!—and ended up paying too much when those special offers expired. Sophisticated commercial customers, who were more likely to pay attention to the small print, made out just fine.
But deregulation was about more than utility bills. It forced old coal plants to compete with new, more efficient gas plants—and coal got its ass whupped. (That’s one reason environmentalists also supported the bill.) As a result, the state’s air is cleaner today than it was in 1999. The law also ushered in an era of renewable energy. (That’s another reason environmentalists supported the bill.) Bush, encouraged by some large backers who saw an investment opportunity, made a big push for wind power, and the law set a preposterously ambitious goal: increasing Texas’s wind power capacity from 880 megawatts to nearly 3,000 megawatts in a decade. As it turned out, it wasn’t preposterous at all: by 2009 Texas had added more than 8,000 megawatts. Today Texas gets nearly a quarter of its electricity from wind.
And the innovation didn’t end there. During the twentieth century Texas was the United States’ energy powerhouse because of its oil fields. But the twenty-first century belongs to electricity, and Texas is at the center of this shift too, thanks in part to deregulation encouraging new ways of doing business.
Consider what Maura Yates is doing at her Houston outfit Mothership, which might best be described as an electricity retailer that got an advanced degree in data analytics, spent a few years as a Wall Street commodity trader, and then got a master’s in risk management. Yates says Mothership, which is on the cutting edge of how companies procure electricity, is based in Texas for good reason. Where other grids, such as the California Independent System Operator, require years of study and working groups before they approve projects, the Electric Reliability Council of Texas “doesn’t put up roadblocks, it removes them.” She regards our grid as years ahead of other grids.
Not all of this was predicted, even by the law’s architects. “It spawned an enormous number of businesses, but we had no idea,” said Steven Wolens, a former Democratic lawmaker from Dallas who coauthored the bill with Sibley. In 1999 Wolens and his colleagues were consumed with a gnawing fear that Texas would soon face brownouts because not enough power plants were being built. Encouraging entrepreneurs, they thought, might clear out that logjam. “We weren’t looking to make this a showpiece of legislation; we were dealing with an immediate need.”
But in 2023 the gnawing fear most Texans feel in the pit of their stomachs is a repeat of the 2021 blackout that shut down much of the state and killed an estimated seven hundred people. Though innovation is all well and good, at bottom, people want to feel confident that their lights and their heat and their air-conditioning will stay on, even in extreme situations. Almost three years ago the state’s grid failed that test. Was deregulation partly to blame?
Tim Morstad, a longtime ratepayer advocate in Texas, says yes; a free market has lots of upsides, but it’s not likely to guarantee that things will go smoothly day in and day out. “Having no one in charge,” he said, “is not a winning proposition.”
Pat Wood III, who was chair of the Public Utility Commission when dereg passed, says the state needs to create robust minimum safety standards. “Competitive markets discourage you from spending money on certain things,” he says, such as building on-site backup fuel depots in case the gas-pipeline delivery system falters, which it did in 2021. “We have to weigh in on behalf of the public and say [to the electricity producers], ‘You ain’t cutting [corners] here.’ ”
No one will ever mistake what goes on under the dome at the northern end of Austin’s Congress Avenue for Athens at the dawn of democracy. And the bill passed by the Lege nearly a quarter century ago offers plenty of confirmation that our state government can be both venal and incompetent. Many Texans have lost a great deal of money thanks to the downsides of dereg. But legislators, perhaps without quite knowing exactly what they were doing, got a lot right too.
This article originally appeared in the November 2023 issue of Texas Monthly with the headline “When the Legislature Changed the Energy Game Forever.” Subscribe today.