How the Texas Electricity Market Works

Last updated: October 18, 2026  ·  8 min read

If you live in Houston, Dallas, Fort Worth, Corpus Christi, or one of about a hundred other Texas cities, you get to choose the company that sells you electricity. Most Americans don't. That choice is supposed to save you money — and it can, but only if you understand the three different companies hiding behind every Texas electricity bill.

Who Actually Delivers Your Electricity?

Your TDU does. Not the company on your bill. Texas split these jobs up back in 2002 when the deregulated market launched, and most people still find it confusing.

Here's the simple version. Generators (gas plants, wind farms, solar farms, nuclear plants, batteries) produce electricity. The TDU moves it across high-voltage transmission lines and then down through neighborhood distribution lines to your meter. The REP buys electricity wholesale from ERCOT and sells it to you as a packaged plan. Three different companies, one electron.

TDU	Service Area	Customers	Outage Line
Oncor	Dallas, Fort Worth, Arlington, Plano, Midland	3.9 million	888-313-4747
CenterPoint Energy	Houston, Galveston, Katy, Sugar Land	2.8 million	800-332-7143
AEP Texas	Corpus Christi, McAllen, Abilene, Laredo	1.1 million	866-223-8508
TNMP	League City, Lewisville, parts of West Texas	270,000	888-866-7456

What Is ERCOT and What Do They Do All Day?

ERCOT — the Electric Reliability Council of Texas — is a nonprofit that runs the Texas grid in real time. Their control room near Taylor, Texas, dispatches generators every five minutes, balances supply against demand, and runs the wholesale electricity market. They serve about 90% of the state's electric load.

ERCOT does not generate or sell electricity. They are the air traffic control of the Texas grid. When you hear about an ERCOT conservation appeal on the news in late August, that's the agency asking everyone to cool it down a bit because reserves are running tight. When wholesale prices hit the $5,000 per MWh cap, that's ERCOT's market clearing at maximum.

Why Is the Texas Grid Its Own Thing?

The U.S. has three major grids: the Eastern Interconnection, the Western Interconnection, and ERCOT. Texas chose to stay almost entirely within its own borders starting in 1935, specifically to avoid federal regulation under the Federal Power Act. The grid connects to neighbors only through five small DC ties — useful for emergencies, far too small for routine power sharing.

That independence is a big part of why Texas can run a competitive retail market at all. It's also part of why Winter Storm Uri in 2021 was so bad: ERCOT couldn't easily pull large amounts of power from neighboring grids when its own generators were freezing up.

What's a Retail Electric Provider (REP)?

A REP is a company licensed to sell you an electricity plan. There are about 90 licensed REPs in Texas right now. The big names — TXU Energy, Reliant, Direct Energy, Constellation, Champion — were mostly created or spun off when the old vertically integrated utilities were broken up in 2002. The smaller, cheaper providers — 4Change, Pulse Power, Frontier, Discount Power — came later and tend to compete hardest on price.

A REP buys electricity in the ERCOT wholesale market, packages it with the TDU delivery charge into a plan, and sells it to you. Their margin is small. Their differentiation is plan design — fixed vs variable, bill credits, free nights, time-of-use — and customer service. Every major Texas electricity provider compared goes deep on the differences.

What's an EFL and Why Should I Care?

Every plan published by every Texas REP comes with a one-page Electricity Facts Label (EFL), mandated by the Public Utility Commission of Texas (PUCT). The EFL shows the average per-kWh price at exactly three usage levels: 500 kWh, 1000 kWh, and 2000 kWh. It also lists the contract length, early termination fee, base monthly charge, and renewable content.

The 1000 kWh figure is the one every provider advertises. It's also the one Power to Choose sorts by. Here's the problem: real households almost never use exactly 1000 kWh in a month.

This is why TexasPowerCost.com exists. Our ZIP search tool interpolates between the three EFL price points to estimate your real rate at your actual usage — not the marketing number at 1000 kWh.

How Does the Bill Get Built?

Every Texas electricity bill breaks into three layers. The energy charge comes from your REP — that's the per-kWh number from your EFL. The delivery charge comes from your TDU — a fixed monthly customer charge plus a per-kWh rate, both regulated by the PUCT. Then taxes and small statewide fees sit on top.

Want to walk through your own bill line by line? How to read your Texas electricity bill opens every section up.

Can You Switch Providers Without Losing Power?

Yes. Switching just changes who bills you. The same TDU keeps delivering electricity. Most switches process within one to three business days of your chosen start date, and you do not need to call your old provider — the new one handles the transfer through ERCOT's official switch protocol. Just arriving in Texas? How to set up electricity when moving to Texas covers turning on power at a brand-new address.

Switching within 14 days of your current contract's end date waives any early termination fee. Switching when you move out of the service area also waives the fee. Outside those two windows, an ETF of $150 to $295 typically applies.

What About Austin, San Antonio, and El Paso?

Three big Texas markets do not have retail choice. Austin Energy (the City of Austin) and CPS Energy (San Antonio) are municipal utilities that opted out of deregulation. El Paso Electric is a regulated utility outside the ERCOT grid entirely. Customers in those areas pay whatever the utility's approved tariff sets, and shopping for a provider is not an option.

Most of Texas's rural electric cooperatives — Pedernales, Bluebonnet, Bandera, and dozens of others — also stayed out of deregulation. If your bill comes from a cooperative or a city-owned utility, you don't shop. You do, however, still benefit from understanding what's on the bill and how to lower it through efficiency.

The Texas-Specific Bottom Line

Three facts cover almost everything a Texas electricity customer needs to know. One: the company on your bill is not the company that owns the wires. Two: the advertised 1000 kWh rate is a marketing number — your actual bill depends on your real usage and the plan's structure. Three: switching costs nothing and never interrupts service, but holdover rates after a contract expires can quietly double your bill — so shop before your contract ends, not after.

Common Questions Texans Ask

Is Texas really the only state where I can pick my electricity company?

Not the only state — about 17 states have some retail competition. But Texas is the largest and most fully deregulated. Roughly 85 percent of Texas customers can choose their own retail electric provider. The exceptions are Austin (Austin Energy), San Antonio (CPS Energy), El Paso, and most rural electric cooperatives, where you pay whatever the local utility sets.

Who actually delivers the power to my house?

Your transmission and distribution utility (TDU) does. The four TDUs in deregulated Texas are Oncor (Dallas–Fort Worth), CenterPoint Energy (Houston), AEP Texas (South and West Texas), and TNMP (smaller pockets). The TDU owns the poles, wires, and meter. Your retail electric provider (REP) just handles the plan and the bill.

What is ERCOT and why do they make the news every summer?

ERCOT — the Electric Reliability Council of Texas — is the nonprofit that runs the Texas grid in real time. Their control room near Taylor, Texas dispatches generators, balances supply and demand, and runs the wholesale electricity market. They make the news when grid reserves get tight, usually during August heat waves or winter freezes.

Why is the Texas grid disconnected from the rest of the country?

Three U.S. interconnections exist: Eastern, Western, and ERCOT. Texas kept its grid mostly within state lines from 1935 onward to avoid federal regulation under the Federal Power Act. ERCOT connects to neighboring grids only through five small DC ties with limited capacity — useful for emergencies, too small for routine power sharing.

What is an EFL and why does it matter to me?

An Electricity Facts Label is the one-page disclosure every Texas REP must publish for every plan. It shows the average price per kWh at exactly 500, 1000, and 2000 kWh, contract length, early termination fee, and renewable content. The 1000 kWh figure is the one everyone advertises — but it almost never matches what your actual bill will look like.

If I switch providers, will my lights go out?

No. Switching only changes who bills you. The same TDU keeps delivering electricity, so there is zero service interruption. Most switches process within one to three business days of the start date you choose. You do not need to call your old provider.

Should I be worried about another Winter Storm Uri?

The post-Uri reforms — generator weatherization rules, a lower wholesale price cap, and the new ECRS reserve product — made the grid more cold-resilient. The risk is not zero, but it is meaningfully lower than it was in February 2021. The single best protection for a household is a fixed-rate plan, which insulates you from wholesale price spikes during scarcity events.

Key Texas Electricity Terms

Deep-dive definitions for the terms used in this guide:

ERCOT · REP · TDU Charge · PUCT · EFL · Deregulated Electricity · Fixed-Rate Plan · Variable-Rate Plan · ETF · Effective Rate · Full Glossary →

Your Next Move

Now that the market makes sense, you've got three places to go. If you're shopping right now, the ZIP search tool on the homepage gives you the cheapest plan for your real usage. If you want to understand the plan types themselves before you shop, read every type of Texas electricity plan, explained. If you're trying to verify a confusing bill, jump to how to read your Texas electricity bill, line by line. The TDU delivery charges guide covers the regulated fee layer that nobody can avoid.