Texas Electricity Rates: Understanding The Three-Tier System

Texas has a deregulated energy market, which means that Texans can compare electricity rates and plans from third-party electricity providers to find the best deal for their home or business. The Public Utility Commission of Texas (PUCT) requires retail electricity providers to create an Electricity Facts Label (EFL) for every plan they offer, disclosing the average price of electricity at three levels of energy consumption: 500, 1000, and 2000 kWh. These rates are not unit prices and do not correspond to a range of energy usage but rather represent the price per kWh if that exact amount of electricity is used in a billing period. The average price per kWh is calculated by combining the energy charge, the utility charge, and any monthly base charge.

The average price per kWh for 3 usage levels

Texas has three electricity rates that are based on average usage levels of 500 kWh, 1000 kWh, and 2000 kWh. These rates are not unit prices and do not correspond to a range of energy usage. Instead, they represent the average price per kWh that would be paid if that exact amount of electricity were used in one billing period, which is highly unlikely. The average electricity usage in Texas is 1200 kWh per month, with the average monthly usage being 1094 kWh.

The three electricity rates are displayed on the Electricity Facts Label (EFL), which is required by the Public Utility Commission of Texas (PUCT) for all retail electricity providers. The EFL includes the average price of electricity at three levels of energy consumption: 500 kWh, 1000 kWh, and 2000 kWh. These prices are calculated by combining the energy charge (the price per kWh paid to the electricity provider), the delivery rate (the price per kWh paid to the utility company), and the delivery charge (a fixed monthly charge paid to the utility company).

The average price per kWh for the three usage levels can vary depending on the electricity provider and the specific plan chosen. For example, bill credit plans may offer a low average price at 1000 kWh, but the actual price may be higher when the details of the Electricity Facts Label are examined. Additionally, the average price per kWh can be affected by factors such as the size, age, and energy efficiency of the home, personal habits, and the number of occupants.

500 kWh:

• The average price per kWh for 500 kWh usage is advertised by electricity providers and can be used to estimate the cost for this usage level. However, it is important to read the fine print and understand the details of the EFL to determine the actual cost.
• The average electricity rate in Houston, Texas, as of July 31, 2025, was 17.79 cents per kWh, based on a typical home using 1300 kWh. This rate is higher than the average in Texas, likely due to the larger home sizes and higher usage for cooling in Houston.

1000 kWh:

• 1000 kWh is considered a common usage level for a large apartment or small home.
• Bill credit plans often advertise low average prices at this usage level, but it is important to carefully review the EFL to understand the actual cost.

2000 kWh:

• 2000 kWh is typically the usage level for a medium-to-large-sized home.
• The average electricity bill for a 4000-square-foot home in Texas, based on an electricity rate of 15.55 cents per kWh (as of April 2025), would be $351 per month.

It is important to note that these estimates may not reflect the actual cost, as the average price per kWh can vary depending on various factors, such as the specific electricity plan, the region within Texas, and the characteristics of the home.

The Electricity Facts Label (EFL)

Texas has a deregulated energy market, meaning Texans can compare electricity rates and plans from third-party electricity providers. The Public Utility Commission of Texas (PUCT) has developed a set of rules and requirements for retail electricity providers (REPs) to follow. One of these rules is that every REP must disclose an Electricity Facts Label (EFL) for each plan they offer. The EFL is designed to disclose the details of those plans to customers.

The EFL shows the average price of electricity on a plan at three levels of energy consumption: 500, 1000, and 2000 kWh. These three prices do not refer to a unit price paid per kWh and do not correspond to a range of energy usage. Instead, they represent the average price per kWh that would be paid if exactly 500, 1000, or 2000 kWh were used during a billing cycle. This is calculated by combining all aspects of a bill, including the energy charge (what is paid per kWh to the electricity provider), the delivery rate (what is paid per kWh to the utility company), and the delivery charge (a fixed monthly charge).

The EFL also shows other items that may be included in your bill calculation, such as tiered rates, bill credits, minimum use charges, or flat-fee electricity up to a certain usage level. It is important to understand how your electricity bill is calculated, as some plans may result in customers being overcharged by paying for estimated usage rather than actual energy used.

The average price per kWh displayed on the EFL allows customers to compare how much they will pay for each electricity plan. However, it is important to note that electricity rates in Texas are not set by ERCOT or the PUC but by the various electricity providers. Therefore, it is recommended to use a platform that helps compare plans and providers based on specific electricity goals.

Energy charge, utility charge, and monthly base charge

Texas electricity customers are billed by their electric providers for both the electricity used (energy charge) and the delivery of electricity (utility charge). The energy charge is based on monthly electricity usage measured in kilowatt-hours (kWh). The more energy one uses, the higher this charge will be. The utility charge, also known as the delivery charge, is a fixed monthly cost paid to the Transmission and Distribution Utility (TDU) or Transmission and Distribution Service Provider (TDSP) that operates the power lines in one's area. The monthly base charge is a fixed monthly fee that does not depend on energy usage.

The energy charge and utility charge are sometimes shown separately by the provider and sometimes combined and referred to as a bundled energy charge. The average price per kWh is calculated by combining the energy charge, utility charge, and monthly base charge.

The Public Utility Commission of Texas (PUCT) requires retail electricity providers to create an Electricity Facts Label (EFL) for every plan they offer, disclosing the average price of electricity at three levels of energy consumption: 500 kWh, 1000 kWh, and 2000 kWh. These three prices represent the average price per kWh one would pay if they used exactly that amount of electricity in one billing period, which is highly unlikely. The average monthly usage in Texas is 1094 kWh. The three usage levels are meant to give customers an idea of what their average price may be based on their home size.

Texas's deregulated energy market

Texas has a deregulated energy market, which means that the government does not control the market, and consumers can choose their energy suppliers. This is in contrast to the remaining areas of Texas, which have a regulated electricity industry, where electricity is delivered by a single utility company.

Texas was an early adopter of deregulated retail electricity, with the Public Utility Commission of Texas (PUCT) developing a strict set of rules and requirements for retail electricity providers (REPs) to follow. PUCT is the state agency responsible for regulating and overseeing the Texas electricity market. Texas also has its own energy-governing agencies, ERCOT and PUCT, and a unique electricity market as it is disconnected from other intercontinental grids.

The goal of deregulation is to increase competition, foster innovation, and provide consumers with more choices, lower prices, more plan options, and better customer service. In the first decade of retail electric deregulation in Texas, the market experienced dramatic changes in both the number of firms and the variety of products. In 2002, residential customers in the Dallas-Fort Worth area could choose between 10 retail electric providers offering 11 price plans. By the end of 2012, there were 45 retail electric providers offering 258 price plans to residential customers in that market.

However, there are some risks associated with deregulated energy markets. Consumers might face price volatility, misleading marketing practices, and less protection. In some cases, deregulation can even cause infrastructure issues, as with Texas’ 2021 Winter Storm crisis, where wholesale electricity prices shot up in some places by 10,000%. Additionally, according to a 2014 report by the Texas Coalition for Affordable Power (TCAP), "deregulation cost Texans about $22 billion from 2002 to 2012. And residents in the deregulated market pay prices that are considerably higher than those who live in parts of the state that are still regulated."

Natural gas costs, company operating costs, and consumer usage

Texas has a deregulated energy market, which means that businesses and consumers can choose their electricity provider and plan. Retail Electric Providers (REPs) purchase electricity from generators and resell it to customers. They bill customers for both the electricity used (energy charge) and the delivery of electricity (utility charge).

The three electricity rates displayed on the Electricity Facts Label (EFL) are the average price per kWh for three usage levels: 500 kWh, 1000 kWh, and 2000 kWh. These rates are not unit prices and do not correspond to a range of energy usage. They are the price a consumer would pay per kWh if they used that exact amount of electricity in one billing period, which is highly unlikely.

Natural gas costs are a factor in electricity rates. Texas is the nation's largest producer of natural gas, yet it charged consumers the highest electricity prices in the nation in 2023. This is due to the flawed market design used by ERCOT, the Electric Reliability Council of Texas. For eight out of ten years before ERCOT's failure in 2021, the average wholesale price received by generators was less than the cost of building and operating new generating plants, specifically natural gas turbine units. As a result, investors refused to build new power plants and cut back on maintaining existing coal and natural gas power plants.

Company operating costs are also a factor in electricity rates. REPs must follow a strict set of rules and requirements set by the Public Utility Commission of Texas (PUCT). One rule is that every REP must disclose an EFL for every plan they offer, which includes displaying the average price per kWh for the three usage levels mentioned above.

Consumer usage plays a role in determining electricity rates. Businesses and consumers should consider their energy consumption patterns, peak demand times, and budgets when choosing an electricity plan. Fixed-rate plans, variable-rate plans, and renewable energy plans are among the options available. By choosing the right plan, businesses and consumers can optimize their energy usage, reduce costs, and minimize their carbon footprint.

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