Why Does Texas Have Its Own Power Grid

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Texans may not realize that most of the state operates on its own power grid, and are only keenly aware when their air conditioning is keeping up with the hot Texas summers or when they’re left in the dark like the winter storm of February 2021. With only three power grids across the continental US, Texas is unique in its self-contained power structure. The main driver? Independence from federal regulation and jurisdiction.

We’ll review the structure of Texas’s power grid and how it directly impacts customers’ costs, energy reliability, and potential outages.

The three power grids in the United States are the Eastern US Interconnection, Western US Interconnection, and the Electric Reliability Council of Texas (ERCOT) Connection. ERCOT’s responsibilities include maintaining grid reliability, facilitating competitive retail and wholesale markets, and ensuring open access to transmission. While providing power to 26 million Texans (or 90% of the state’s electric load), ERCOT doesn’t cover El Paso, the upper panhandle, and part of East Texas.

History of Independent Texas Power

In the late 1800s, Texas electricity companies started in order to keep ice plants running. The electric companies then sold excess power to local businesses and residents. Small power plants popped up all around Texas. During the first world war, these companies began to join together. The Federal Power Act, signed by President Franklin D. Roosevelt in 1935, charged the Federal Power Commission with overseeing interstate electricity sales. 

The Lone Star state wanted to stay free from federal oversight, which was accomplished by keeping their power from crossing state lines, thus creating an “electrical island” with its own Texas power grid. Further, the Texas electricity market was deregulated in 1995, meaning no single company owns all the power plants, transmission lines, and distribution networks. A majority of Texas residents now choose from dozens of power companies from an open market. For more, read Understanding the Texas Electricity Market.

How Texas Residents Get Power

Three major players are responsible for getting electricity into Texas homes:

• Electricity generators – Approximately 550 of these exist in Texas (like NRG and Vista). Customers don’t interact directly with this source. These are the power sources that generate power to send to transmission companies.
• Retail electric providers (REPs) – These are the independent companies (like Payless Power) who sell electricity directly to residents and businesses. More than 100 REPs exist to offer competitive rates in Texas’s deregulated market. The REPs coordinate connecting your electricity, offer different plans and rates, help customers monitor usage, and bill consumers directly. 
• Transmission companies – Transmission companies transport power and maintain the power lines and poles. Five main utility companies serve most of Texas (Oncor, CenterPoint, AEP North, AEP Central, and TNMP). 
  • These companies are compensated by a set fee on customers’ bills from their electric provider. Customers cannot choose their utility transmission company.
  • The transmission company is who to call when your power goes out, but you are current on your bill. Customers can look at their power bill to see who the TDSP is. It’s advised to program this number into your phone before you need it.
  • Transmission utility companies are also referred to as Transmission and Distribution Service Provider (TDSP) and Transmission Distribution Utility (TDU).

For the Texas power grid, ERCOT manages supply and demand, plus the price of power. ERCOT and electric utilities report to the Public Utility Commission of Texas, which is appointed by the governor and answers to the state legislature. Texas lawmakers can pass laws that regulate the system. 

Winter Outages – What Happened in February 2021?

February 2021 brought extended record-low temperatures, snow, and ice to Texas. While Texas utility companies started to prepare about a week in advance for the winter storm, it was unfortunately too late and left millions without power for days. It’s still fresh on the minds of many Texans, especially as winter approaches.

ERCOT ordered utility companies to reduce the strain on energy demands with planned rolling outages, but the storm kicked too many plants offline and available power had to go to essential health and safety facilities like hospitals. Natural gas pipelines froze, and many roads were impassable to get more gas to power plants. Wind turbines and solar panels were also inhibited by ice and snow. The Texas power grid was less than five minutes away from a complete shutdown due to low availability and high demand. (Practical Engineering offers a comprehensive overview of the outages.)

Less availability spiked energy costs, in some cases, to more than 100 times its normal costs. Average wholesale energy prices of $30-$50 per megawatt-hour spiked to $9,000 per megawatt-hour and stayed at that level for days during the storm. Some flex rate power customers saw $16,000 power bills! During the storm, however, Payless Power customers, (even those with variable rate plans) did not pay those exorbitant rates because we do not sell indexed, variable price plans subject to a volatile market. This spring, Texas lawmakers passed a bill to stop any power company from passing on wholesale energy prices to customers.

To address future weather-related outages, Texas lawmakers approved legislation to order weatherization for power generators and lines to better withstand extreme weather. The governance of the ERCOT board was also adjusted.Through our prepaid plans, Payless Power is committed to keeping low-cost power running in Texas homes. Our daily alerts help you control your usage and adjust your energy consumption to lower costs. In extreme weather events, we offer tips to help you conserve energy and point you to resources in case of outages.

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