Competition Is (Still) Working in the Texas Electricity Market

In 1999, the Texas Legislature elected to radically change the way the state’s electricity market operated. Previously, Texans received their electricity from regulated monopolies. Under the new legislation, however, Texas opened its market up to competition, joining a host of other states participating in electricity deregulation. Texas’ approach was nevertheless unique. Instead of instituting a capacity market structure—which imposes additional regulation and tax expense to subsidize the construction of new generation capacity—Texas opted for an energy-only marketplace. So named because generators receive payment only for the electricity they provide, the energy-only model offered Texas the opportunity to further reduce the government’s presence in the market for electricity. As a result, the Texas electricity market under ERCOT is the most-free market in the nation—and one of the most free markets in the world.

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