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Blog Dec 3, 2020

Texas Electricity Rates History

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The history of electricity in Texas is almost similar to all other states in the U.S, until 2002 when deregulation happened and everything changed.

The whole idea about electricity began in the 1800s, and to be specific, in 1879 when Thomas Edison monopolized the light bulb. This was the beginning of the widespread distribution of electricity across the United States, Texas included. The earliest electricity power plant was developed in Galveston, Texas during the early 1880s.

A huge proportion of Texas’s big cities such as Houston, Waco, Austin, and Dallas were connected to electricity by the late 1800s. In 1920, Texas recorded the highest electricity consumption of 679 million kilowatt-hours (kWh) during those early periods. Barely 15 years later, the state yet again surpassed that record by posting a new record of approximately 2.5 trillion kWh. The only issue during this period was that electricity was concentrated only in the urban area and to be more specific the major cities. However, this changed in the period around 1900 -1940 when president Franklin Roosevelt initiated the Emergency Relief Act of 1936 whose focus was on the distribution of electricity to the rural parts of the United States.

The major transformation in the Texas electricity industry happened in 2002 when the bill on energy deregulation was passed. This single act created a massive change in Texas’s electricity “landscape” allowing for competition in the wholesale energy market. It brought about the emergence of several Retail Electric Providers (REPs) and gave the consumers the freedom to choose their preferred electricity providers.

Historical Analysis of Texas Electricity Rates

What were the electricity rates before deregulation? What were the electricity prices? And what are the rates today?

First off, finding information on electricity rates and prices pre-deregulation is quite difficult as the information available is scanty at best. Nonetheless, we managed to find some useful information to give a picture of the prices before deregulation, and is as follows.

According to the Texas State Historical Association, the average cost of electricity in Texas in 1945 was roughly half of the recorded price in 1925. This can be explained by the fact that Texas in the early 1900s had very few power plants distributed across the state. And in 1925, Texas was yet to realize economies of scale as its electricity production capacity was still low.

As the years went by, the Texas electricity industry continued to evolve and as a result, the electricity prices dropped. However, since then, the price of electricity has been increasing every ten years to the current average rate of 11.86 cents per kWh. This could be explained by the ever-growing electricity demand and the expansion of the industrial sector which consumes a significant amount of electricity produced in Texas.

What is a good rate per kWh in Texas?

A good residential electricity rate per kWh in Texas is any rate that is below the average electricity rate which currently stands at 11.67 cents per kWh. The best rates per kilowatt-hour have dropped in the past couple of weeks and are now retailing at 5 to 6 cents per kilowatt-hour. However, it is important to note that rates are dynamic as they change with seasons. They are usually affected by the ever-changing market forces and therefore they are likely to increase as the energy commodity cost improves. In this fluctuating Texas energy market, choosing a fixed-rate electric plan when the prices are low is the right thing to do.

There are several factors that determine a good rate such as policies and regulations, weather, location, fuel cost, transmission, and distribution. Texas usually experiences a surge in electricity prices during the summer period when the demand for electricity significantly increases. The rate also varies depending on the town or city your home or business is located in. 

Other factors that have an influence on the electricity rate are the taxation laws and electricity policies. In Texas, 95% of the state is deregulated but the remaining 5% still have a regulated electricity market. Therefore, there is a notable difference in electricity prices between the regulated and deregulated parts of Texas.

A good rate does not necessarily mean a good price. The cost of electricity is largely dependent on your consumption. The higher your consumption, the higher the cost. Moreover, the rate for 1000 kWh consumption levels may not be the same as the rate for a consumption level of 2000 kilowatt-hour.

Who has the cheapest electricity rates in Texas?

The answer is that it depends on several factors such as the type of electricity rate (variable-rate, fixed-rate, tiered rate, or indexed), the duration of the plan whether short term (3,6, 9 or 12 months) or long term (34, 48 and 60 months) and lastly the type of the plan whether it is a prepaid, renewable or postpaid. One of the best electric providers with the cheapest prepaid rates is Payless Power with its SmarTricity Premier 12 and SmarTricity Easy choice prepaid plans.

The SmarTricity Premier 12 plan offers no deposit, no credit check, and a 12 month fixed-rate electricity plan. It offers a rate of 0.141 cents per kilowatt-hour although this varies between cities. The SmarTricity Easy Choice, on the other hand, is a month-to-month prepaid plan and just like Premier 12, it doesn’t require any deposit or credit checks. It offers a rate of 15.1 ¢/kilowatt-hour for 1000 kilowatt-hour usage rate.

Are electricity rates going up in Texas?

Residential Retail Electric rates in Texas have been increasing every 10 years and there are clear signs that this will continue. According to the Electric Reliability Council of Texas (ERCOT), electricity prices in Texas are expected to rise even as the year comes to an end. This is because of the delayed power generation projects that were set to be finalized before the end of the year. There are also some power plants that have been shut down because of old age. Additionally, it is predicted that electricity demand will continue to increase putting pressure on the available energy resources.

It’s been argued time and again that ‘the past is not necessarily an indicator for the future‘. This might be true, and just because the electric rate has been rising for the past couple of years, doesn’t necessarily mean that it will continue with this trend. Nonetheless, there is not a single sign that the residential electric rate will decrease any time soon.

Looking beyond 2020

The market prices of natural gases have increased over the last couple of weeks, a move that is in anticipation of demand and supply rudimentary changes. Natural gas storage levels are predicted to decrease below the five year average come December 2020. This is far quicker than what was expected and it’s predicted to maintain the same low levels for the near future. Low storage basically means high prices. It usually takes a series of high prices before it stabilizes and if the recovery is slow, the high prices can remain until winter 2021.

The use of coal to generate electricity could increase through 2021 because of the high gas prices. This will assist in balancing out some of the demands of natural gas. Moreover, the COVID-19 pandemic will also contribute to the unpredictability and volatility to the market.

Why are electricity prices so high in Texas?

The high electricity prices witnessed in Texas are caused by many factors, the main one being an increase in energy demand compared to supply. Just like in any other market, when the demand for a certain product is more than what the market is able to supply, the prices automatically increase. This principle also applies to electricity, and there has been a decrease in energy supply this year (2020) due to a shut down of three of Texas’ biggest coal-powered electricity plants.

Another factor that usually contributes to high electricity prices in Texas is the weather. You see, extreme temperatures cause an upsurge in electricity demand. This consequently leads to an increase in residential electricity rates. Additionally, with the high temperature comes the need for cooling which in turn leads to an increase in energy consumption. High electricity consumption equals high electricity costs. However, to avoid the high summer prices, you can subscribe to a fixed-rate electricity plan when the rates are low.

ERCOT usually holds a reserve margin of around 13.75 percent to act as a back-up just in case there is a generator breakdown or when the electricity demand supersedes the predicted levels. For this to be successful, ERCOT has to make an accurate prediction in addition to identifying generation units or plants that are being faced off and the new plants that are coming online. It is a tricky balance that they have to get right.

However, a problem occurs when something that was not planned happens. A good example is what happened in the Summer of 2018, when a number of unplanned events happened. First, there was a delay in the completion of the new power generation units then followed by the old generation units being faced off. This resulted in a major drop in electricity supply which in turn led to an increase in electricity prices.

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