The Texas Capitol is an example of late 19th century public architecture.
(AP Photo/Harry Cabluck)

Senate Bill 7, which was signed into law by Governor George Bush in 1999, significantly changed Texas’ electricity market. The Bill allowed for competition in the retail sale of electricity and established statewide renewable energy standards.

The ideas were not new. Started by the Adenauer government in Germany 1961, and refined by the Thatcher government in the 1980s, privatization/deregulation was part of a larger public policy trend affecting not only electricity markets but also airlines, telecom and banks. The goal was to create a public policy that would raise revenue for the state, promote economic efficiency, reduce government interference in the economy and subject state-owned enterprises to market discipline.

Prior to deregulation the Texas electric power industry operated as a monopoly within its designated service area - it generated power, transported over its own power lines, and billed its customers.  Senate Bill 7 changed all that, making power generation and retail electric services subject to market forces and required former monopoly providers to separate its operations into three distinct entities. (Although the new companies could remain under the same ownership).

• A power generating company that owns and operates the electric power plants and sell its power into the deregulated market. (for example, Luminant)
• A regulated transmission and distribution company that owns and operates the wires and transport power from the plant to all customers within a certain geographical area. (for example, Oncor).
• A deregulated retailer that purchases power from power generating companies and re-sells the power to customers. (for example, TXU Energy). However, a retail provider may not own power generation.

Senate Bill 7 requires the Public Utility Commission of Texas  (PUCT) to oversee the electricity market, and exempted municipally-owned utilities and cooperative utilities.