Texas 3 electric rates

Why Does Texas Have Three Electricity Rates?

If you’re shopping for the cheapest electricity rate in Texas, you might decide to pick the company that advertises the lowest rate. Makes sense, right? But wait, you soon discover it’s not as straight forward as you’d hoped. There are separate electric rates for 500 kWh, 1000 kWh, 2000 kWh, and sometimes the advertised rate is called an energy charge. With so many electric choices and different electric rates, how do you decide? Before you blindly click on the plan with the lowest advertised rate, read this article.

Why Three Electricity Rates for Each Plan?

Texas was an early adopter to deregulated retail electricity and it has been very successful.  The Public Utility Commission of Texas (PUCT) developed a strict set of rules and requirements for retail electricity providers (REPs) to follow. One of the rules is that every REP must disclose an Electricity Facts Label (EFL) for every plan they offer. The information on the EFL also follows a specific set of requirements set forth by the PUCT which includes displaying the average price per kWh for 500 kWh, 1000 kWh, and 2000 kWh usage levels. As a result, Texas electricity providers are required to display three electricity rates.

What do the Three Electricity Rates Mean?

The three electricity rates on the EFL are the average price per kWh for the most common usage levels: 500 kWh, 1000 kWh, and 2000 kWh. These rates are not unit prices and they do not correspond to a range of energy usage. These rates are the price you would pay per kWh if you happen to use that exact amount of electricity in one billing period, which is nearly impossible.

Texas is unique in the way that electricity customers are billed by their electric providers. The REPs bill customers for both the electricity used (energy charge) and the delivery of the electricity (utility charge). The combination of the energy charge, the utility charge, as well as any monthly base charge is the average price per kWh.

For each electricity plan, the provider will sometimes show the energy charge and the utility charge separately, and sometimes they will combine the two and call it a bundled energy charge. To make things more confusing, the providers may advertise the 500 kWh, 1000 kWh, or 2000 kWh average price per kWh or the bundled energy charge, and you have to read the fine print to figure out which one it is.  Until you dig down into the details of the EFL, you really don’t know what you’ll be paying for electricity.

How Do I Choose the Right Electricity Rate?

The most important thing when choosing the right electric rate is knowing how much electricity you use. In Texas, your electricity usage may make dramatic swings between summer and winter. Understanding your peak usage in the summer, and also where you shake out the rest of the year will help you narrow your search for the perfect electricity rate.

When you get a better understanding of your electricity usage, you will be able to estimate your electric bill for any plan. The most important variable in calculating your electricity bill is your monthly kWh usage. 

Typical Electric Bill Formula:

(Energy charge * kWh used) + (Utility charge * kWh used) + Fixed Utility charge + Base charge or minimum usage fee = Electric bill (before taxes or fees)

or

(Bundled energy charge * kWh used) + Base charge or minimum usage fee = Electric bill (before taxes or fees)

Average price per kWh Formula:

Electric bill / kWh used = Average price per kWh

The average price per kWh formula above is how electric providers calculate their 500 kWh, 1000 kWh, and 2000 kWh advertised rates.

Navigating the Electricity Rate Minefield

Have you ever shopped for an electricity plan and one stands out with an unusually low rate for a particular usage level? Beware because it is likely a plan that features a well-placed bill credit. For instance, a $100 bill credit at 2000 kWh usage can drop the advertised average price per kWh dramatically. This advertised rate is not a unit price for electricity over 2000 kWh. While the bill credit may be beneficial to you, it can also mislead you into thinking that you get a fabulous low rate for energy usage over and above that level.

At ElectrictyPlans we provide the tools to help you make the best informed decision about the right electricity plan for you.  You can refine your electricity plan search by standard usage levels: 500 kWh, 1000 kWh, and 2000 kWh.  The advertised electric rates will be apples to apples.

Want a better understanding of how a particular plan is priced? Easy, just click on the plan details and pricing link on the plan shopping page. We’ve done the research for you. Everything you need to know about an electricity plan is outlined in the plan details. We’ll let you know any unusual features about the plan’s pricing such as bill credits, minimum use charges, or flat-fee electricity up to a certain usage level. We know finding the right electricity plan can be overwhelming, but we do everything possible to level the playing field and make sure you have the information you need to make an educated choice.