Abbott Targets Municipal Utility Monopolies in Texas

Estimated Time to Read: 9 minutes

Competition has been one of the defining features of the Texas electricity market for nearly a quarter century, but millions of Texans remain outside of it. Gov. Greg Abbott (R) now wants to change that.

Abbott recently announced that he intends to pursue legislation allowing Texans served by municipally owned electric utilities to choose their electricity provider, specifically highlighting Austin Energy and San Antonio's CPS Energy. The proposal would also seek to prevent municipal governments from using utility revenues to subsidize unrelated government spending. "We must address the cost of electricity that is putting a growing strain on Texas households," Abbott said in announcing the proposal. "That's why I'm proposing legislation to end the monopoly control that cities like Austin and San Antonio have over electricity services and give Texans the freedom to choose the provider that works best for them."

The proposal could represent one of the most consequential changes to the structure of Texas's competitive electricity market since deregulation began more than two decades ago. It also raises a basic question for lawmakers: Why should millions of Texans be denied the benefits of competition simply because their local government owns their electric utility?

Abbott Targets Municipal Utility Monopolies

Texas lawmakers fundamentally restructured the state's electricity market in 1999, eventually allowing millions of customers to choose among competing retail electric providers. Municipally owned utilities, however, were largely left outside that competitive system unless they chose to participate. Abbott's proposal directly challenges that arrangement.

According to the Governor's plan, more than five million Texans live in areas served by a single municipal power provider, and more than 60 percent of those customers are served by Austin Energy or CPS Energy. Abbott wants to open those municipal utility territories to retail electric competition, allowing residents to choose their electricity provider rather than being assigned one based on where they live.

The economic argument for competition is straightforward. Competition forces providers to compete for customers. It rewards innovation, encourages cost control, and gives dissatisfied consumers somewhere else to go. Businesses that fail to provide consumers with competitive prices or adequate service risk losing those customers to somebody else.

A government-protected monopoly faces no comparable market discipline. Customers cannot simply take their business elsewhere.

For Austin Energy customers, that distinction is particularly significant. The City of Austin owns the utility, exercises control over it and financially benefits from its revenues, while residents within its service territory generally cannot choose a competing electricity provider. Rather than requiring supporters of competition to explain why Austin Energy should face competitors, defenders of the existing arrangement should explain why Austin residents should continue being denied a choice available to millions of other Texans.

Abbott Predicts Lower Electric Bills

Gov. Abbott argues that competition would produce significant savings for customers in Austin and San Antonio.

According to the Governor's proposal, Austin residential ratepayers would save an average of 10 percent on their electricity bills, while San Antonio residential customers would save an average of 13 percent. Affected commercial customers could save nearly 22 percent, potentially amounting to as much as $3,000 annually. Those figures should be treated as estimates rather than guaranteed outcomes. Electricity prices are influenced by generation costs, fuel prices, transmission expenses, weather, regulation and numerous other factors.

Competition does not guarantee that every consumer will always pay a lower price. What competition provides is something monopoly customers fundamentally lack: an alternative.

If one provider raises its prices, consumers can shop around. If another offers better contract terms or products, customers can switch. Providers have an incentive to innovate and control costs because they must earn customers rather than inherit them through a government-protected geographic monopoly.

That market pressure matters regardless of whether Abbott's eventual savings estimates prove exact.

Utility Transfers Raise Hidden Tax Questions

Abbott's proposal goes beyond electric competition. It also targets how municipal governments use money collected through their utilities. The Governor wants to prohibit municipal utilities from imposing charges unrelated to electric delivery and prevent utility profits from being treated as what his proposal calls a city "slush fund."

That issue deserves attention independent of the debate over retail electric choice.

Austin and San Antonio both rely on revenues generated by their municipally owned utilities to support broader city government operations. The result is that some of the money collected from utility customers does more than finance electricity generation, infrastructure and service. That creates a serious transparency problem.

An electric bill should pay for electricity and the infrastructure necessary to reliably deliver it. It should not become an indirect mechanism for financing unrelated municipal government operations. If city officials want more money for general government spending, they should have to appropriate that money transparently and identify how taxpayers will pay for it. Residents can then evaluate both the spending and the taxes or fees used to support it. Using a monopoly utility as a revenue-generating mechanism makes that relationship considerably less transparent. Consumers see a utility bill rather than a tax bill, even when some of the money ultimately finances general government.

The problem becomes particularly pronounced when customers have no alternative provider. The same government that benefits from the revenue also controls the monopoly collecting it. Electricity bills should not become shadow tax bills.

Nor should a city's dependence on utility revenue become an argument for maintaining the monopoly. If opening a market to competition threatens a municipal revenue stream, policymakers should ask whether that revenue should have been extracted from captive utility customers in the first place.

Texas Lawmakers Have Considered Utility Reform

The underlying concern is not new to the Texas Legislature.

During the 88th Legislative Session (2023), State Sen. Charles Schwertner (R-Georgetown) filed Senate Bill 1110 (SB 1110) to restrict municipal utility transfers. The legislation would have prohibited a municipality from transferring municipal utility revenue into its general fund when the transfer would result in a rate increase or financial deficit for the utility. It also would have prohibited general fund transfers from being included in a municipal utility's cost-of-service study. SB 1110 received a hearing in the Senate Committee on Business and Commerce but ultimately did not advance.

The concern has since expanded beyond electricity.

In May, the Texas Senate Committee on Water, Agriculture and Rural Affairs was specifically charged with studying large municipalities' practice of transferring water and wastewater utility revenue into general funds. Lawmakers were directed to consider the impact of those transfers on delayed projects, infrastructure maintenance backlogs and water loss mitigation, along with recommendations for limiting transfers and keeping ratepayer funds dedicated to utility infrastructure.

The broader policy question therefore extends beyond Austin Energy and CPS Energy. Should government-owned monopoly utilities be permitted to use captive ratepayers as a revenue source for unrelated government spending?

The Legislature could address that question regardless of how lawmakers ultimately structure Abbott's retail competition proposal. Restrictions similar to those contemplated by SB 1110 could provide greater transparency and ratepayer protection even where municipal utilities continue operating.

Ratepayers should be customers of a utility, not captive revenue sources for city hall.

Competition Is Simple, Implementation Is Not

The economic principle behind Abbott's proposal may be straightforward, but implementing it will be more complicated.

Austin Energy and CPS Energy are not merely retail electricity sellers. Municipal utilities have generation and distribution assets, infrastructure obligations, outstanding debt and existing contractual commitments. Opening their territories to retail competition will require lawmakers to determine how those responsibilities interact with a competitive retail market.

Questions involving generation assets, distribution infrastructure, stranded costs, municipal debt and existing obligations should receive careful legislative scrutiny. Those complications are arguments for carefully designing the legislation, not for preserving government-protected monopolies.

The objective should not be for the state government to replace municipal control with another centrally engineered electricity system. It should be to remove government-created barriers that prevent consumers and providers from participating in a competitive market while respecting legitimate property, debt and contractual obligations. Lawmakers should also carefully scrutinize the mechanics of whatever legislation Abbott ultimately proposes rather than treating projected savings as a substitute for policy analysis.

Texas can favor competition without ignoring the difficult questions involved in transitioning historically integrated municipal utilities into a competitive environment.

Texas Should Choose Competition Over Monopoly

Abbott's proposal will undoubtedly face resistance from municipal governments with significant financial interests tied to their utilities. Lawmakers should scrutinize the eventual legislation, particularly how it treats existing infrastructure, debt and contractual obligations. But those questions should not obscure the fundamental issue.

Competition spurs innovation, disciplines prices and gives consumers alternatives. Monopoly does the opposite.

Austin Energy illustrates the problem particularly well. The City of Austin owns the utility, controls the utility, financially benefits from the utility and prevents its residents from choosing a competitor. Customers who dislike the rates, policies, or service cannot simply take their business elsewhere.

That arrangement should not receive a presumption of protection simply because government created it.

The same principle applies to the use of utility revenue for unrelated municipal spending. If cities want residents to finance additional government programs, elected officials should make that case openly and levy the necessary taxes or fees transparently. They should not be able to obscure some portion of the cost of government inside the bills of captive utility customers.

Texas policymakers should begin with a presumption in favor of consumer choice, competitive markets and transparent government. The details of Abbott's eventual legislation will determine whether his proposal achieves those objectives. Existing obligations must be respected, infrastructure must remain reliable, and the state should avoid merely replacing one form of government control with another.

But preserving a government-protected monopoly should not be the default. For millions of Texans still denied electric choice, Abbott's proposal presents an opportunity to bring market competition and greater accountability to municipal utilities.

---