It’s Time for Texas to Get Competitive on Transmission Development

Texas operates the most competitive wholesale electricity generation market in the United States. Every day, hundreds of power generators compete in ERCOT-run auctions to deliver the cheapest power to homes and businesses. The retail electric market is equally robust, with retail electric providers (REPs) vigorously competing for customers based on price, service, and preferences. The PUCT’s www.powertochoose.org website makes it easy for Texans to shop among hundreds of REPs.

Thanks to customer choice and competition, electricity consumers in the ERCOT region of Texas have saved millions of dollars over the past 25 years. Yet one critical segment of the Texas electric market remains untouched by competition: the local transmission and distribution utilities (TDUs). These incumbents operate as a “Soviet-like” monopoly. When new transmission lines are needed, incumbent TDUs are automatically awarded the projects in their service territories with no competitive bidding. They recover all costs plus a healthy return on invested capital. A 2019 law reinforced this monopoly by restricting new transmission ownership and construction to companies that already own and operate transmission lines in Texas. 

The 5th Circuit Court of Appeals struck down this law, noting the absurdity with a pointed analogy: “Imagine if Texas—a state that prides itself on promoting free enterprise—passed a law saying that only those with existing oil wells in the state could drill new wells. It would be hard to believe.” The U.S. Department of Justice under President Trump’s first term supported the court’s ruling. Nevertheless, the status quo persists: only existing transmission owners get to build new lines.

Enough is enough. Over the next five to ten years, Texas electricity demand is projected to double. To keep pace, ERCOT is planning massive new transmission projects. The “Permian Basin Reliability Project” and the “STEP Eastern backbone,” for example, are expected to cost $33 billion—the largest and most expensive transmission initiatives in Texas history. Under the current system, these projects will simply be handed to the incumbent TDUs on a “cost-plus” basis.