Texas is one of the states that have a free to choose energy market – thanks to its energy deregulation laws. Unlike most states, where energy regulators set the electricity rates, Texas electricity rates are set by electric companies. These companies compete for customers by offering competitive rates and attractive electricity plans. With this set-up, the consumer has the power to choose the type of electricity plan he or she wants. This, therefore, gives you (the consumer) the opportunity to minimize your utility expenses by comparing electricity rates and selecting the best deal.
Before 2002, Texas energy rates were controlled by a public utility, and energy was provided by a single provider who owned the power plants, the distribution lines, and the transmissions. The provider was also responsible for the billing and customer service functions. This however changed in 2002, where the monopoly system was changed and the different utilities were separated into three i.e., retail electricity providers (tasked with handling customer service and billing), the power plants, and the distribution and transmission companies.
This act resulted in a competitive energy market where retail electricity providers compete for clients by offering favorable terms and prices. The retail electricity suppliers purchase wholesale electricity directly from power generators and then sell them to the consumers.
Who Has the Cheapest Electricity Rates in Texas?
Finding the cheapest electricity rate in Texas can be quite challenging considering that there are several electricity providers and all have different plans with different rates. However, there are many websites that you can use to compare rates and identify a plan that best suits your needs. All you need to do is to enter your zip code on the search section of the website, and a list of all companies offering electricity services in your area will pop-up. You can then use this list to compare electricity rates in your area.
But first, before you even think about the prices, there are a number of things that you need to consider. For instance, you need to identify your needs, your energy consumption rate, the type of electricity plan you need i.e., prepaid or postpaid, and your budget range. Additionally, it is also wise to understand how electricity companies charge for their services.
Once you have gathered all this information and you are certain of what you want, you can then go online to check and compare the prices. As you search for the best or the cheapest electricity plan, you’ll notice that the plans are displayed in terms of price per kilowatt-hour (kWh). In most cases, they are usually listed in numerical order beginning with the lowest price to the highest. Also, note that the rate displayed is in kWh is not always the final price. Taking note of only the price in kWh without considering other details is one of the common mistakes that most people make when choosing an electricity plan.
This is also a common mistake that consumers make when looking for the cheapest electricity rate. Let’s take an example of a company (let’s call it A) that has an electricity plan whose rate is 8 cents per kWh and the other companies that are offering similar plans are charging a rate ranging from 9 to 11 cents per kilowatt-hour. On face value, company A appears to be offering the cheapest price on the market. But what is not visibly shown is that the 8 cents per kWh only applies when you consume energy that exceeds 1500 KWh per month. If you consume electricity less than 1500kWh, the rate will be much higher than what was displayed.
From the above explanation, it is important to note that every electricity plan is different. They might be offering the same package, but the structure of payment might be different. There are some electricity plans that contain a minimum usage clause on their contract, while some plans are automatically renewed at a higher rate, without giving you a notice of the price change. There are also others that charge a higher rate during the day, and a lower one during the night. It is therefore crucial that you carefully go through the contract and understand all the details before you sign it.
Electricity Rates Are Always Changing
One thing with electricity rates, particularly in Texas, is that they are never constant. What might be the cheapest rate today might not be the cheapest 12 months later. This is because of many factors such as the unpredictable market forces, changing oil prices, weather conditions, just to mention a few. Another thing that sometimes affects the electricity rates is the entry of new players who come in with new plans and rates or the existing industry players (retail energy providers) who either change the existing electricity plan they are offering or introduce new, cheaper, and better electricity plans.
This is a vital point to note because most electricity consumers have a ‘set and forget’ tendencies. Whereby, once they’ve subscribed to an electricity plan, they are no longer concerned. An example is an electricity consumer who takes time to research the best electricity plan available on the market, makes arrangements for payment, and monthly automatic deductions, and after all this trouble, he/she forgets about it. This ‘set and forget’ behavior can cost you money. As stated earlier, electricity rates are almost always changing. And since you are no longer watching out for the best electricity deal, you would not know when a new plan that is cheaper and better suited for you is introduced in the market.
Prepaid versus Postpaid
Electricity rates also vary depending on the type of electricity plan you choose. Generally, there are two main types of electricity plans, and that is prepaid and postpaid plans. The postpaid plans, in most cases, require you to have a good credit score, flexibility, and a deposit which can sometimes be difficult for some families. Prepaid plans, on the other hand, give a different option of electricity payment and usually don’t require a credit check or an initial deposit payment. However, you will be required to pay beforehand and to maintain a certain minimum balance. As to which is cheaper between the two, I’d say it depends on your preferences.
For example, if you need an electricity plan that is long term and has a fixed rate, then fixed postpaid plans might be the ideal plan for you. However, if you find for some reason you are unable to pay the deposit fees, then prepaid plans have some good options for you. The best thing about prepaid plans is that you have the power to decide how much you’d want to spend on electricity per month. It gives you that sense of control, unlike the postpaid plans which some might have hidden charges.
Payless Power Prepaid Plans
If you choose a prepaid plan, Payless Power offers some of the cheapest electricity rates in Texas. Our popular prepaid plans include: 1) Premier 12 with a guaranteed fixed rate for 12 months or 2) Easy Choice, a month-to-month variable rate plan that provides needed flexibility when moving to a new home or before choosing the best fixed-rate plan for your electricity use.
Payless Power’s prepaid electricity plans mean convenience with our simple, pay-as-you-go structure. Customers pay for electricity in advance and deposit money into their account when it’s convenient for their household budget. A minimal connection fee is required, but those funds go directly toward the cost of your electricity, unlike the hefty deposit fees required by many other companies. Customers appreciate our transparent, simple pricing structure. Our month-to-month Easy Choice plan doesn’t require credit checks or a deposit, only a connection fee. And with no cancellation fees or contract term, this plan is ideal for residents who are in Texas for a short time or those who need flexibility.
Variable and Fixed-Rate Plans
The prepaid and postpaid plans are categorized into two types i.e., fixed-rate or variable rate plans. With fixed-rate plans, the electricity rates are constant for as long as the contract is valid. Variable-rate plans, on the other hand, are the complete opposite of fixed-rate, as the rate changes depending on the market forces. You might find your electricity to be high when the demands are high e.g. during the summer and winter period, but way cheaper when the demand is low. Between the two, electricity plans with a fixed-rate, are the most preferred type as they are more stable and predictable than the variable plans.
Understand the Difference Between Electricity and Energy
There is a difference between electricity and energy. Most people shop for power and electricity simultaneously. However, it is vital to understand that there is a difference. Below are some popular energy sources available in Texas.
Geothermal Energy: People who depend on geothermal energy require geothermal heat pumps, also referred to as GHP. The geothermal heat pump enables you to convey heat from the ground to your home. You can also use it to reverse the process.
Natural Gas: This is one of the most popular energy sources apart from electricity. In fact, Texas uses the highest amount of natural gas to produce electricity than any other state. Texas contributes 15% of the total natural gas produced in the U.S.
Wind Energy: Wind turbines are an uncommon phenomena in most Texas homes. They are pretty expensive to set-up and it’ll take quite some time for you to recoup your investment. However, it will save you the trouble of paying an electricity bill every month.
What Is a Good Rate per kWh in Texas?
Electricity rates vary from city to city, state to state, provider to provider, and the time of the year. So, how can you identify a good electricity rate?
Well, as mentioned earlier, there are several factors that have an impact on electric rates. And for you to identify a good rate, you first need to understand these factors and what you, as a consumer need. Some of these factors include:
Business versus Home Rates
The first thing you need to consider to identify a good rate is your consumption needs. Are you a commercial or a residential customer? Residential customers pay a higher rate than commercial and industrial customers because the cost of transmission and distribution of electricity to residential customers is higher compared to their commercial and industrial counterparts. You see, businesses and industries use more electricity than residential electricity usage, and they receive electricity at a higher voltage, which makes it efficient and cheaper to distribute power to them.
Other Determinants of a Good Electricity Rate
There are many other factors that have a direct impact on both business and residential electric rates. In some cases, the consumers have the ability to determine the rates, while in some situations, this ability is beyond them. Some of these factors are:
Weather: The cold winter and hot summer weather increase the electricity demand as consumers need electricity for heating or cooling. The higher electricity demand causes an increase in electricity rates and energy prices.
Fuel Cost: Power plants consume a significant amount of fuel to generate electricity; therefore, an increase in fuel cost results in an increase in the cost of production, which in turn, causes an increase in electricity rates and vice versa.
Policy and Regulations: Most states in the U.S. have similar regulations and policies governing the production and distribution of electricity. However, there are some states with different policies. For instance, some states such as Texas have unregulated prices while some states have regulated prices.
Transmission and Distribution: One of the key components of an electricity system is transmission and distribution. A consumer can’t receive electricity if the transmission and distribution network is faulty or not working. The cost of maintenance, repairs, and sometimes upgrade is ultimately paid by the consumers. The higher the maintenance or upgrade cost, the higher the electricity rates.
Location: Electricity rates are different in different states. The cause of this difference in electricity rates has more to do with the ease of transmission, population size, cost of fuel, service areas among others.
After taking all the above factors into consideration, a good electricity rate is one that is relatively cheaper and reflects the true situation on the market. Additionally, the rate has to offer a sense of stability. It has to be consistent, fair (to both the consumer and supplier), and affordable. With a good electricity rate, you can be able to predict how much you’ll pay in the next billing circle based on your consumption rates. This makes it possible for you to plan and budget for your electricity.
What Is the Average Cost of Electricity in Texas?
According to the U.S. Energy Information Administration (EIA), the average residential cost of electricity as of August 2020 was 11.74 cents per kilowatt-hour. This reflects a slight drop from the same period last year when the average rate was 11.76 cents per kilowatt-hour. The commercial average rate as expected was way lower than the average rate as it was recorded to be 7.78 cents per kilowatt-hour. These rates apply to both deregulated and regulated electricity markets in Texas and it’s inclusive of the delivery cost.
There are electric companies that offer rates that are lower than the average rate. Currently, as of the month of October 2020, the electricity rates in Texas ranges from as low as 7.6 ¢/kWh (based on the 2000 kWh in Oncur) to as high as 14 ¢/kWh. If you are off contract – which happens when you do not renew your electricity plan after the end of the previous one, you might be forced to pay as high as $0.18 per kilowatt-hour or even more.
What Is the Average Texas Electricity Consumption Rate?
Generally, the residential electricity consumption rate in Texas is higher than the country’s average and this is because of two things. First, the homes in Texas are bigger compared to other states. And secondly, the cooling cost impacts heavily on our electricity usage levels.
An average household in Texas according to EIA, consumes 1,176 kWh per month which totals up to 14112 kWh per year. To establish how much an average home in Texas spends on electricity per month, you can multiply the average cost and the average consumption rate. Using the figures we have, the average electricity bill in Texas is $138.06 per month which translates to $1,656.75 per year.
Why Are Electricity Rates So High in Texas?
The high electricity rates in Texas are brought about by many factors, some of which are controllable while others are beyond control. Some of these factors affect the production aspect of electricity generation (cost of production) while others affect the supply and distribution of electricity (cost of delivery).
But before we talk more about the high electricity rates, it is important to first understand what electricity prices entail. Electricity prices are basically a reflection of the cost to build, maintain, finance, transmit, and operate both the electricity plant and the power grid. An increase or decrease in the cost of any of the above mentioned services be it, maintenance, operation, or distribution, will have an impact on the overall cost.
For instance, in 2019, the Electricity Council of Texas (ERCOT) projected an increase in electricity rates due to super high demands, closure of two power plants, and some delayed power supply projects. The same thing happened at the beginning of this year (2020), where it was predicted that the electricity rates will significantly increase due to a shut down of three of Texas’ biggest coal-powered operating plants. The closure of these three plants caused a significant decrease in the state’s power reserves. Another reason that was given for the high electricity prices was a delay in wind power and natural gas projects that made it difficult for ERCOT to meet its targets.
From the brief explanation, the factors that contribute to the high electricity rates are weather, high energy demands that overwhelm supply, breakdown or closure of power plants, increase in the cost of production due to high fuel cost needed to run the generators, and lastly, high cost of transmission.
With high electricity demands, available supply, and its effects on the electricity rates, those most impacted by price increases are industries and businesses, who often purchase power at the market price. Residential consumers are fairly protected, especially those who have fixed-rate plans. A fixed-rate plan like Payless Power’s Premier 12 gives customers predictable pricing and affordable rates.
By joining a fixed-rate prepaid plan, you’ll save yourself from high electricity prices brought about by the ever-changing market forces, but you need to do it today.
Other things you can do to avoid or minimize a high electricity bill include:
- Never overrun your electricity contract. Electricity companies normally charge you the market price when you remain with them past the duration of your contract or plan. As you probably know, Texas is one of those states that are prone to electricity price spikes especially during the summer and winter periods. If you don’t renew your electricity plan on time, you can be sure as hell that you’ll get burned.
- Where possible, avoid the variable month-to-month electricity plans. If you are in town for a short period, a month to month plan is an ideal option. However, you need to carefully read and understand the terms. Only choose a month to month plan from a reputable electricity provider. However, if you are looking for a long-term plan, then month to month plan is not advisable as it will mess up your budget.
- Stick to a long term plan. ERCOT has predicted a 17.3 percent improvement in its reserve margins for the period 2020-2021. If this happens, electricity prices in Texas will moderate. You don’t have to continue paying ‘crisis’ prices and rates forever.
- Don’t be afraid to abandon traditional postpaid plans and move to less expensive prepaid plans. The flexible payment structure allows you to track your usage and save money by reducing your electricity consumption. A fixed-rate plan gives you predictable rates for the length of your contract.