Regulating Franchise Areas
When they were formed, utility companies were assigned an exclusive franchise area in which only they could provide a defined service to the public. Because there was no competition for customers in their service territory, a governmental regulatory scheme was employed as a surrogate for competition.
Regulatory agencies approved the terms and conditions of service a utility company provided and set the rate of return the company could earn for the service it offered the public. This utility model has evolved with the passage of time.
Current Oversight Authority
The present state of oversight of utility companies in Texas has come about since the telephone industry was subjected to restructuring beginning in the 1970s. The change in telephone regulation was driven by a combination of technological change, court decisions and changes in federal policy that permitted competitive entry into most telecommunications markets.
Aspects of the restructuring of the telephone industry were subsequently adopted and used in deregulating other utility services. Oversight by the regulatory authority over a utility has evolved to support the changing regulatory scheme.