How Is Electricity Priced

As kids, most of our decisions were probably pretty inconsequential. The flavor of Popsicle we chose or the cartoon characters on our pajamas probably wouldn’t make or break whether we went to college or got a car, even if we regretted it a bit later.

As adults, however, our decisions come with a little more weight. Something as small as the electricity provider we choose could make or break our vacation fund or whether we can get our pets a new toy next weekend. Making a decision is especially stressful when there are nearly limitless options – in this case, over 130 options in Texas alone!

How are you supposed to compare the prices without knowing what all goes into them? What about comparing totally different types of plans? Is there even a way you can figure out the best electricity plan without making it your full-time job?

Yes: Use Power Wizard!

Below, we’ll get into the factors that influence electricity and how you can find out for yourself. But why spend all that time reading about it when you can get your answer in seconds with the Shopping Tool?

How are Electricity Prices Determined in Texas?

In most of Texas, the electricity market is deregulated. This allows electricity companies to compete for your business by offering different plans and prices.

Deregulation changes the way electric companies price electricity.

This can work in your favor if you are shopping for who has the cheapest electricity per kWh.

Sarah looks at her electric bill every month and wonders, “Where do these numbers come from?”

She can see the total but she isn’t sure just how her REP comes up with the price per kWh.

So she starts to do some research.

Deregulation of Electricity

In 2002, the Texas Senate passed a bill implementing the deregulation of electricity.

Deregulation means that customers do not have to purchase electricity from local utility companies at government-regulated prices.

Customers can pick their Retail Electric Provider, or REP, from dozens of companies.

You get to choose the provider, plan, and price that works best for you.

How Deregulation Affects Electricity Prices

When Texas deregulated electricity, they removed rules about how much electricity companies can charge customers.

Instead of the price being set by the government, REPs have to compete for your business. The idea was to lower prices through competition.

Now, providers have to compete for your business by offering a variety of plans and pricing. You can find a plan that meets your unique needs.

Different plans have different price structures. You’ll probably see different electricity prices per kWh depending on the plan you choose.

Some types of plans available are:

• Fixed-rate
• Variable-rate
• Indexed Rate
• Prepaid
• Month-to-month

Whether or not you save money on a certain plan depends on if it suits your lifestyle.

Comparing rate plans to know how much you are paying and if you are getting a good deal is important.

Main Factors that Influence How Electricity is Priced

Everything is bigger in Texas. Especially the summer heat.

This can mean high electricity demand.

That hot Texas sun is one of the things that can affect electricity prices.

But it isn’t the only thing.

There are quite a few variables that go into determining the price of power.

The main factors that influence how electricity is priced are:

• Power Source
• Time of Year
• Type of Customer
• Location

Power Source

When a lot of electricity is being used, like the massive heatwave in 2019, electricity providers have to use alternative sources of energy to meet demands.

Natural gas is the primary source of energy in Texas.

Let’s look at some common sources of energy and how they affect the price of your electricity.

Three common power sources in Texas are:

• Natural gas
• Coal
• Renewable energy (wind, solar, etc)

They each have different costs associated with converting that energy into electricity.

Texas is rich in natural resources.

These resources make Texas the #1 energy producer in the country. That is something to be proud of.

Of those natural resources, most of the state’s energy for electricity comes from natural gas.

But when electricity usage is high, they have to use other sources.

And guess what? They usually cost more.

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Natural Gas

We get a lot of our electricity from natural gas.

It’s a good thing Texas produces so much.

A lot of the same things that determine electricity prices factor into the price of natural gas.

A few factors include:

• Availability of competing suppliers
• Consumer demand
• Distance from where natural gas is produced or stored
• The ability of transmission pipelines to transfer the natural gas to distribution centers from:
  • Producing areas
  • Storage facilities
  • Trading hubs
• Costs of distribution, taxes, and other charges

Because most of our electricity comes from natural gas sources, anything that affects the price of natural gas affects the price of electricity.

REPs have to consider this when determining what to charge you for electricity.

Coal

Coal isn’t as abundant in Texas as natural gas. Texas only produces about one-third of the coal it uses, with the rest coming from Wyoming.

It’s also not as efficient at producing the energy needed to make electricity.

The cost can be higher if REPs are having to rely on coal power to meet demands.

Coal costs more not only monetarily but also environmentally – producing almost double the carbon emissions as natural gases.

Using coal is not cost-effective for electricity companies, so when they have to use this source, the cost is usually passed on to you, the customer.

Renewable Energy Sources

Renewable energy like wind and solar can be cheaper in some instances because there is no cost associated with the fuel itself.

The only cost of acquisition is the equipment needed to harness it.

The upfront cost for the REPs is higher, but in the long run, renewable energy sources, like wind and solar, are generally cheaper.

That’s why more and more Texas energy providers are turning to renewable energy.

When energy can be produced for less money, it can be sold for less money.

And unlike coal, renewable energy is cleaner and has less of an impact on the environment.

It sounds like a win-win.

How Electricity is Priced Based On the Time of Year

Electricity is a supply and demand market. This can affect electricity prices.

And the weather often determines the demand.

The more demand there is, the lower the supply goes, and the higher the cost is likely to be.

It’s not unlike other markets.

Do you remember when everyone was running out to purchase the Nintendo NES Classic Edition?

Some of the lucky few who got them before they sold out were able to sell the systems online for 2-3x the original cost.

Why? High demand and low supply.

There weren’t enough systems to meet the unexpected and overwhelming demand.

Power companies often charge more for electricity during high usage seasons, like summer and winter, because they have to produce more to meet overwhelming demands.

When the Texas sun is blazing, we need our AC.

And in the winter, we want to come home and enjoy a nice, warm home.

If the weather is unexpectedly extreme, supply may run low and not be able to meet demands.

During milder seasons, like spring and fall, lower demands might create lower prices.

This is part of how the price of electricity is determined.

How Electricity is Priced During Summer

Electricity demands are expected to be higher in summer. Especially in Texas.

Texas power grid operators try to forecast electricity demands to make sure everyone stays nice and cool.

But producing more energy using less cost-effective sources, like coal, can raise the overall cost of electricity.

Remember Sarah? She also wants to conserve power and save money on her electricity bill at home.

Sarah looks at her bills from the last year and notices that the average cost of electricity is the highest for her family in the summer.

Knowing this, she can choose to adjust the thermostat a couple of degrees during the summer to have the biggest impact on her family’s yearly costs.

How Electricity is Priced During Winter

We know Texas gets hot, but some parts of the state do get cold in the winter.

It is not uncommon to see snow in the panhandle during the winter months.

With uncomfortably cold temperatures comes higher energy consumption as we crank up those heaters to stay warm.

Just like with summer, winter usually sees higher electricity cost. Winter is the second-highest season for electricity usage.

Melissa and her husband Danny own a ranch in northwest Texas. They work together to manage the property and tend to their cattle.

At the end of a long, cold January day, they just want to come inside and warm up.

They can look back at their electric bills for the past few years and see that they consistently use more electricity in the winter.

The cost is usually higher than spring or fall because the demand is much greater.

Type of Customer

Prices can also vary based on the type of customer – commercial customers tend to have lower per kWh prices because they use so much more electricity than residential customers.

Just like going to your local Costco, electricity is typically cheaper when you buy it in bulk.

The average cost of electricity per kWh in December 2019 for residential customers was about $0.12. In comparison, the average cost of one kWh of electricity for commercial customers is $0.08.

The difference is due to several factors, but commercial electricity customers usually pay less per kWh than residential customers.

The type of electricity needs, residential or commercial, is a factor in determining the cost of electricity in Texas.

Residential Customers

Residential customers are people just like you.

They are buying electricity to power their homes.

How much electricity you use will vary depending on:

• Type of home
• Age of home
• The energy efficiency of appliances
• Number of people living in the home
• Zip code
• Etc.

Residential customers are only paying for the electricity for their own homes.

You aren’t powering a massive building or multiple structures.

Because you are buying a relatively small amount of electricity, you are likely to pay a little more than the big business a couple of streets over.

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Commercial Customers

Commercial customers are buying electricity to power their businesses.

A business usually requires more electricity than the average home.

When a business is purchasing a large amount of electricity from a REP, they can usually get lower prices because they are essentially guaranteeing a bigger account with the provider.

If Ginny wants to find an electric plan for her large real estate firm with multiple offices, she isn’t going to pay the same rates as she does to power her home.

How Electricity is Priced Based on Your Location

Prices can also vary based on location.

The electricity demand, and therefore price, can be different depending on where you live.

If you live in southern Texas, you might pay more in the summer.

But if you live in the panhandle, winter could be more expensive.

But remember, proximity to pipelines is also a factor. The closer you are to the supply, the cheaper electricity is likely to be.

How Electricity is Priced in Corpus Christi

Electricity prices in Corpus Christi are determined by the grid operators and how readily available energy sources are.

Ronald and Sheila just moved to Corpus Christi. After they bought their house, they had to choose a REP.

One of the first things Ronald noticed is that the REP he had used for years wasn’t available in his new city.

Not every REP is available in every city.

Ronald has a lot of research to do to find a new REP and plan that fits their needs.

Ronald needs to consider the weather and how different seasons can affect prices.

He also needs to look at what type of energy source is most easily available. He wants to know if renewable energy sources are used in high-demand seasons.

Ronald might spend days or weeks looking at how electricity cost is determined so he can find the best plan for their family.

How Electricity is Priced in Dallas

If you live in Dallas, you probably love the beautiful weather and scenery.

It isn’t usually as hot as Houston or Austin and doesn’t get quite as cold as Amarillo.

The somewhat milder weather can impact the electricity prices in Dallas.

Mateo and Miranda love living in Dallas. They love the big city excitement with the same type of welcoming people found in small towns.

Their apartment is small, but it is new, so they feel like it is a great place for a young couple.

Mateo has lived in Dallas all his life, but Miranda grew up in Galveston and they have very different ideas about what is a “comfortable temperature.”

Miranda isn’t bothered at all by having the thermostat set to 74 but Mateo is uncomfortable at that temperature and prefers to have it set to 68.

Dallas isn’t far from the natural gas pipeline, and the city uses a lot of renewable energy.

The source of the energy that creates their electricity helps to determine the cost of electricity in Dallas.

Mateo and Miranda will have to consider how much electricity they use (and who gets to control the thermostat) when they compare electricity plans.

Other Factors that Affect How Electricity is Priced

How hot (or cold) it gets and where you live aren’t the only factors in determining electricity prices.

A few other things can play a role in how electricity is priced:

• Supply and demand
• Proximity to power plants
• Government regulations

Each of these plays a role in how the power companies decide what to charge you for electricity.

Supply and Demand

Supply and demand. You’ve heard the terms. But how do they help determine the cost of electricity?

High demand and low supply cause prices to rise; low demand and high supply cause prices to fall.

When people are using electricity faster than grid operators can replenish the supply, costs tend to rise.

Energy companies have to seek fuel from less efficient or more expensive sources to meet the demand and maintain their supply.

When electricity is not in high demand, supply stores may be abundant and to make room for continued production, energy companies can lower rates.

The added cost or savings is often reflected in the cost of electricity for you.

Proximity to Power Plants

If you live closer to something, the cost of transport is probably lower.

Proximity to power plants can affect pricing.

Increased transportation costs can lead to increased per kWh prices to the consumer.

If transportation is easily available and affordable for energy companies, it costs less to get the fuel to the power plant, and then to you.

If you live close to the power plant, it doesn’t cost the electricity company as much money to send that electricity to your home.

Government Regulations

State and federal regulations can change supply & demand, which can impact prices.

Even though electricity is deregulated in most of Texas, there are other regulations that can affect pricing.

There are:

• Environmental regulations
• Transportation regulations
• Import/export regulations
• Taxes

While the price of electricity isn’t regulated, factors that can affect the price do face regulations.

How to Choose the Best Electricity Plan

Unfortunately, there is no “best” plan – what’s “best” for you will differ based on your own unique circumstances.

But you do have a few options on how to find the right plan for you and your family.

You can do a manual search to compare REPs, plans, and prices on your own.

Or you can let an unbiased third-party program, like Power Wizard, do it for you.

Manual Search – It’s Like Walking Through Quicksand

Finding an electricity plan that is right for you can’t be that hard, right?

Well…

Here’s what you’ll need to find:

• • Every REP in your zip code
  • Every plan available from every REP
  • What types of plans are available
  • How the different plans are priced
  • Contract lengths
  • All additional fees (they vary from plan to plan and REP to REP)
  • How they determine electricity prices (we already helped you here)
  • Cancellations fees and policies
  • How outages are handled

• And so much more

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Power Wizard’s Automated Search – Speed Skate Your Way to a Better Plan

You’re busy and have better things to do than sit at a computer every free moment for days or weeks looking at electricity plans.

Letting someone else do the heavy lifting for you lets you work smarter, not harder.

You’ll find the same information in a very small fraction of the time – about 5 minutes.

Power Wizard’s Savings Tool asks a few questions and then compares every REP and plan in your zip code to find options that are right for you.

Not your neighbor.

Nor your sister.

Not your cousin’s doctor’s uncle’s friend.

YOU.

Do you know what you can do with all that extra time?

Anything you want.