Texas: Electricity Prices Explained
The cost of electricity is calculated by multiplying the price per Kilowatt-Hour (kWh) by the amount of electricity consumed. But how is the price per kWh calculated? Though it differs from one provider or plan to the next, the average price per kWh in Texas continues to evolve over time along with market changes.
How does Texas Compare?
The average 2014 retail price of electricy per kilowatt-hour for residential customer is 11.82 cents in Texas, according to the US Energy Information Administration. In 2014, Texas ranks 26th for average residential electricity price per kilowatt-hour among 51 US territories (including DC), higher than than the national average of 12.5 cents per kilowatt-hour.
|District of Columbia||12.57||12.78|
Texas' energy markets were deregulated in 2002 in order to help decrease the cost of electricity and gas. This increased competition and gave most Texans the freedom to choose their own electricity provider. Texas' electricity prices have increased well above the national average during the phase-in of the electricity deregulation, but this trend has reversed since 2010, where electricity prices have gone back to their level below the national average.
What Makes Up the Price of Electricity per kWh in the Texas?
In essence, three main charges which determine the cost of electricity per kWh are: Delivery, Supply, and Taxes & state surcharges.
Delivery is the process of transporting physically the electricity to the customer. The electricity will go from the point of production (power plant, hydroelectric plant, wind farm, etc.), through the high voltage transmission network, through the low voltage distribution network, and into your home. Your local utility will cover this part of your service no matter which Retail Energy Provider you choose to purchase electricity from. Althourgh delivery charges do not vary with market variations, your delivery charges may evolve over time.
Supply charges vary based on which REP you choose when moving into a new home. These prices include the real market cost of electricity (the wholesale cost of electricity), as well as the overhead costs associated with doing business, such as customer service.
Your electricity tax rates vary based on where you live, and can include:
- Local Sales & Use Taxes: these can range anywhere from 6.25 to 8.25% in Texas
- Utility incurred taxes: these are taxes charged by the state to the utility company. The utility company will then charge the customer in order to reimburse the expense.
- Energy taxes: these are taxes directly charged by your local government to fund new policies, new incentive programs (such as renewable energy funding), assistance programs (such as programs for people affected by natural disasters) and so on.
These charges are included in the cost of electricity per kWh, and are the same regardless of the REP you choose.
Different plans are offered by providers
Fixed-Rate Versus Variable-Rate Plans
Both fixed and variable-rate plans have their advantages, although Callmepower would rather recommend fixed rates. With Fixed-Rate Plans, the cost of electricity per kWh is fixed for the duration of the contract (6, 12, 24 months or more). The advantage of fixed rates is that consumers can benefit by locking the rates at the beginning of their contract, and not have to worry about the volatility of electricity prices.
Under Variable Rate Plans, the price of electricity per kilowatt-hour change every month. Prices may fluctuate due to changes in weather, demand, and other factors. The benefit of variable rate plans is that consumers can take advantage of price decreases. Nevertheless, there are many cases of customers seeing the price of the kWh increasing to excessive amounts. Most complaints towards Retail Energy Providers are due to abusive variable rates. Nevertheless, reputable providers can usually be trusted, even with variable rates.
Time of Use plans
Time of Use plans are a type of variable rate plan, where the price of electricity will be fixed at one price during the day, and fixed at another price during the night. With these types of plans, your provider will normally have a schedule including peak rates, when demand and prices are higher (during the day), and off-peak rates, when lower use delivers significantly lower prices (during the night). This can be advantageous to consumers who are able to shift their electricity usage to off-peak times.
Green energy offers
If you choose to sign up to a green electricity offer with your REP, you will pay a little extra in order to guarantee electricity from renewable source (find out more about the Impact of green offers). Please note that this is different to renewable charges which your utility company may bill you in the delivery section of your bill. Renewable charges (in your delivery charges) are compulsory to all customers, whereas green energy offers are not.
Variations in Electricity Prices
Cost of Generation and Delivery
Demand can change the cost of generation and delivery, as increases in consumer use decrease available resources and overwhelm generation and transmission equipment. New legislation and policy can also affect costs, and so can aging infrastructure.
The cost to generate and deliver electricity can vary based on the weather. Often Texans use more electricity in the summer, to power air conditioning units, and this spike in demand can increase the cost of electricity. Further, extreme weather events can damage generation and transmission equipment and increase the cost of getting electricity to the consumer.
Time of Day
During times of higher demand, the price of electricity per kilowatt-hour can be drastically higher than times of lower demand.
How Have Electricity Prices Changed Over Time in Texas?
In 2002 Texas opened the electricity market to competition, in the hopes that this would help to reduce prices. Consumers could choose their own provider, but electricity prices increased above the national average between 2002 and 2010. However, since 2011, Texas' electricity prices have once again decreased below the national average.