AUSTIN, Texas — A proposal from Gov. Greg Abbott to end Austin and San Antonio’s municipally owned electric utilities could cost the cities hundreds of millions of dollars in annual revenue if the Legislature approves the plan, while supporters argue competition could lower electricity bills.
Austin Energy and San Antonio’s CPS Energy are the state’s two largest city-owned electric utilities. The utilities operate as nonprofit entities and return revenue to their respective cities, which use the funds for services such as libraries, parks and public safety operations.
Austin Energy transferred about $125 million to the city in 2025, while CPS Energy budgeted a $559.7 million payment to San Antonio for fiscal year 2027.
Abbott’s campaign announced the proposal last month as affordability became a major issue during the election season. The proposal would end municipal control of the utilities and introduce private competition, which Abbott said would reduce electricity costs.
Abbott said the plan would save Austin and San Antonio residents 10% on their average electricity bills and provide even greater savings for small businesses.
“City-owned utility cartels should stop using ratepayers as a piggy bank to fund unnecessary social programs,” Abbott campaign press secretary Eduardo Leal said. “They should serve their customers, not the other way around.”
Austin and San Antonio officials oppose the proposal and said deregulation could increase costs for customers and cities.
Austin Mayor Kirk Watson said changing Austin Energy’s structure would require a multiyear process and cost more than $1 billion, with customers paying the cost.
“Fundamentally changing our utility through deregulation would have broad and significant consequences to those we serve,” Watson said.
CPS Energy spokesperson Miguel Vargas said the utility’s nonprofit structure supports local jobs, energy resilience, small businesses and customer assistance programs.
Texas has 72 municipally owned utilities that serve about 5.1 million residents, or 15% of the state’s population, according to the Texas Public Power Association. The utilities own and maintain infrastructure such as poles, wires and meters and purchase and sell electricity within their service areas.
Municipally owned utilities generally hold a monopoly within their service areas, but local governments own and oversee them, including setting electricity rates.
Supporters of Abbott’s proposal argue that utilities should use excess revenue for utility needs rather than city budgets. During a May hearing before the Texas Senate Water, Agriculture and Rural Affairs Committee, opponents of the municipal model said utilities should direct additional revenue toward projects such as transmission infrastructure.
Abbott said rising electricity costs prompted his proposal. Statewide residential electricity rates increased from an average of 11.50 cents per kilowatt-hour in 2020 to 16.11 cents in 2026, according to ElectricChoice.
Experts and advocates have questioned whether ending municipal ownership would reduce residential electricity costs. A study of 2024 federal data from the American Public Power Association found that customers of public utilities paid an average of 14% less than customers of other utility types.
Houston, the largest Texas city without a municipally owned electric utility, operates in the state’s deregulated retail electricity market. Houston-area customers can choose among retail electricity providers, while transmission and distribution utilities maintain the infrastructure that delivers electricity.
Despite that competitive market, the Houston region has some of the highest electricity rates on the ERCOT grid. Elite Energy Consultants attributed the higher costs in part to Houston’s large population and limited local generation, which can create transmission congestion.
Texas fully deregulated its power market in 2002. The law allowed existing municipally owned utilities and electric cooperatives to enter the competitive market or opt out. Austin and San Antonio chose to remain outside the competitive market.
Lawmakers have since introduced proposals to expand competition.
State Rep. Ellen Troxclair, R-Austin, filed legislation in 2023 that would have required public utilities to give customers the option to shop for retail electricity rates. She introduced the bill after a February 2023 ice storm left hundreds of thousands of Central Texas customers without power for several days.
Troxclair said communities such as Bee Cave and Lakeway, which receive Austin Energy service but lack representation on the Austin City Council, expressed particular concern after the outages.
The legislation did not advance out of committee.
Troxclair said Abbott’s proposal would increase accountability and transparency for customers.
Austin Energy has argued that its municipal structure allows it to prioritize the community it serves and warned that legislatively required deregulation could impose costs on customers and the city.
Cyrus Reed, legislative and conservation director of the Sierra Club Lone Star Chapter, said the environmental organization opposes Abbott’s proposal because it would remove local control without community input.
Reed said deregulated markets are not necessarily more expensive than municipal utilities but argued that Abbott’s proposal would not address Texas’ broader electricity costs.
“Electricity costs in Texas have gone up over the past 5 years in all markets, deregulated or in the municipal market,” Reed said. “(Abbott’s proposal) is counterintuitive.”
