Most Texas homes have enjoyed the power to choose their electricity provider since 2002. More recently – consumers have seen rising Texas electricity rates. Over the years, there has been a learning curve for both electricity providers and consumers. The most popular product in the market has been the 12-month fixed price electricity plan. Consumers seem to prefer shopping for electricity on an annual basis and not having any bill surprises during the year. However, many consumers are in for a shock when they go shopping this year. Texas electricity rates are rising and have increased by 2 to 4 cents per kilowatt-hour. What is behind this sudden increase and what is the best strategy to keep your electric bill under control?
ERCOT Plans for Supply and Demand
ERCOT maintains the electricity grid serving about 90% of Texas. As the grid operator, they make sure supply meets demand. Typically, ERCOT maintains a 13.75% reserve margin. Reserve margin serves as a backup in the event a generator breaks down or demand exceeds the forecast. To make all of this work, ERCOT needs to have an accurate forecast of electricity demand. It also needs to know which generation units are retiring and what new generators are coming online.
The problem arises when something deviates from ERCOT’s planning process. For the summer of 2018, a perfect storm of unplanned events is driving electricity prices higher. First, a number of new generation projects supposed to be completed before this summer have been delayed. Second, more existing generation units retired than expected. Finally, ERCOT is predicting record-setting demand for this summer.
Oncor Plans
Centerpoint Plans (CNP or Reliant)
AEP North Plans (AEPN)
AEP Central/West Plans (AWPC)
Texas New Mexico Plans (TNMP)
Coal-Fired Generation Not Competitive
The biggest unplanned event for ERCOT was the retirement of 7 coal-fired power plants in January and February. The media often battered these power plants over their environmental impact. However, these generation units provided a significant stabilizing force for the power grid. In the end, fuel economics more so than environmental concerns shuttered the coal-fired generators. Lower natural gas prices made coal generation too expensive to operate.
It was expected that the coal units would slowly phase out in the coming years. This would give time for construction of more natural gas-fired and renewable generation to fill the void. Unfortunately, the economics of the generation industry did not allow for a smooth transition. Generation supply is going to be tight in Texas this summer but should improve somewhat in the coming years.
Impact on Electricity Shopping
Given the magnitude of the changes, our crystal ball is little foggy. However, there are several common sense approaches to protect you from bill shock or at least minimize it.
- Do not exceed the term of your current electricity plan. Your electricity company typically bills you at a market rate when you remain with them past the term of your plan. Texas is more susceptible to electricity pricing spikes this summer than usual. Not renewing or choosing a new provider could get you burned.
- Avoid month-to-month pricing plans. We are not big fans of these except in certain cases like when you have plans to move soon. Any electricity plan where the price fluctuates on a monthly basis could be bad news for your wallet.
- Hold off on long-term electricity plans. ERCOT expects summer reserve margins to improve to over 11% for 2019-2021. As that happens, prices should moderate. You don’t want to be stuck paying “crisis” rates forever.
- Look for opportunities during the market transition. As the Texas generating fleet continues to transition to clean gas technologies and renewable energy, there should be good opportunities to lock in your electricity rate for longer terms. Following this summer, keep your eye out for longer-term electricity deals (24 to 36-months) at rates that are more reasonable. The timing of lower rates depends on how Summer 2018 plays out.
The next several months will be difficult for Texas electricity consumers. The market will eventually rebalance itself and prices should moderate somewhat. In the meantime, make sure you are protected by a fixed rate plan even if it is higher than what you have historically paid.
Take a look at the price of electricity in Texas over the past five years in this chart below. As you can see – we are currently on an upward trend, and with the current market conditions and the already explained supply and demand, we expect this to continue. Continue to check back with this page as we periodically update the graph below and add more information.
Source: EIA.gov
Why are Texas electricity rates increasing?
The price of electricity in Texas has been on the rise in recent years, and it’s showing no signs of slowing down. In fact, according to the Electric Reliability Council of Texas (ERCOT), the average retail price of electricity in the state is expected to increase by about 9% this year.
There are a number of factors that are driving up the cost of electricity in Texas, including:
1) Winter Storm Uri in February 2021:
This catastrophic winter storm caused widespread damage to the electric grid, leading to higher electricity prices for all Texans. The rates stayed at $9000 per megawatt-hour for periods of time! The Public Utility Commission lowered the price cap power generators could charge in response to Winter Storm Uri.
2) The Electric Reliability Council of Texas:
The Electric Reliability Council of Texas is the state’s electric grid operator. They are a nonprofit organization that is responsible for managing the flow of electricity to more than 26 million Texans. In recent years, the cost of running the electric grid has increased, which has led to higher electricity prices for all Texans.
3) The Retirement of Coal and Nuclear Plants:
As these plants retire, the state must turn to more expensive sources of electricity to meet demand. This includes natural gas, which generates about half of Texas’s electricity.
4) The Cost of Renewables:
The cost of renewable energy, such as wind and solar, has been declining in recent years. However, they are still quite expensive to put online. These renewable sources still make up a smaller percentage of the state’s overall electricity mix. As more energy is added to the grid, the cost of electricity is expected to continue to decline. If there is less power on the grid – it can lead to higher prices for all Texans.
What Can You Do to Lower Your Electricity Bills?
There are a few things you can do to lower your electricity bills, including:
1) Use less electricity:
You can reduce your electricity consumption by using energy-efficient appliances and turning off lights when you leave a room. Setting your thermostat to a higher temperature in the summer and a lower temperature in the winter will also lower consumption.
2) Shop around for a better deal:
You can shop around for a better deal on and compare energy rates from different providers. Make sure to compare apples to apples so you’re getting the best deal possible.
3) Switch to a fixed-rate plan:
You can switch to a fixed-rate electricity plan, which will protect you from price increases in the future.
4) Participate in demand response programs:
You can participate in demand response programs, which allow you to reduce your electricity consumption during periods of high demand. This can help lower your electricity bills and also help the state avoid blackouts.
5) Install solar panels:
You can install solar panels on your home or business to generate your own electricity. You may be eligible for state and federal incentives.
Conclusion
Texas electricity rates are increasing for a variety of reasons. However, you don’t have to be a victim of these rate hikes. You can protect yourself and your family from the increased cost of electricity by following these tips.
