The role of electric demand is important in understanding Texas commercial electricity bills. Electric demand is the rate at which electricity is used. It is measured in kilowatts (kW) or kilovolt amperes (kVA). A common analogy is that electric demand (kW or kVA) is like a speedometer while electric energy (kWh) is comparable to an odometer. Electric energy reflects how much energy the customer consumed while demand represents the maximum rate they consumed that energy. Below we’ll learn what determines the cost per commercial kilowatt hour in Texas.
Texas Electricity Market
Among deregulated retail electric markets, Texas is known for its “energy-only” market structure. Other states such as New York, New Jersey, Pennsylvania, Ohio, and Connecticut, the electricity markets include an electric demand component in their pricing structure. Those markets, retail electric rates are significantly affected by the customer’s demand. Texas, however, electric demand only affects the delivery (wires) charges and not the competitive energy rate.
Texas Commercial Electricity Price
According to The U.S. Energy Information Administration (EIA) – the average commercial cost per killowatt hour in Texas in February 2022 was 8.47 (Cents per Kilowatthour) – down siginificantly from the average price of 14.92 (Cents per Kilowatthour) listed for February of 2021. However, with the recent increase of natural gas prices this cost per commercial killowatt hour in Texas is expected to rise.
Electricity Delivery Charges
Delivery charges are determined by Transmission and Distribution Utility tariffs. Texas retail electric customers should understand how demand affects their overall electricity bill. As most Texas commercial customers have smart meters, two demand metrics apply. First, the non-coincident peak (NCP) demand is the highest demand reading measured during any 15-minute interval during a billing month. Second, there is the 4-month coincident peak (4CP) demand. This is the customer’s average demand for the 15-minute intervals corresponding to the ERCOT system peak demand during the months of June, July, August, and September of the previous calendar year. A good way think of this is that it represents how much the customer contributed to those times in the summer months when the power grid was at its most stressed levels.
Transmission charges are tied to the 4CP demand while distribution charges are tied to the NCP demand. For distribution charges, the demand used for billing is typically the greater of that billing month’s NCP or 80% of the NCP established in the 11 months prior to the current billing month. This is commonly referred to as a demand ratchet.
Demand Charge Examples
Contrasting two hypothetical customers can aid in understanding the role of demand in Texas commercial electric bills. Customer-A uses energy in a constant and consistent manner throughout the day. Customer-B is similar but has a process that uses energy at a significantly higher rate for just a few minutes each hour (e.g., a hydraulic press or steel stamping machine).
Customer-A uses a constant 20 kW on a 24/7 basis and will consume 14,440 kWh in a 30-day period. Customer-B consumes 10 kW for 23 hours and 100 kW for a total of 1 hour each day. This customer will consume 9,900 kWh in a 30-day period.
Both customers are served by the same Transmission and Distribution Utility and have the same great electric rate of 10 cents/kWh. Their bills will differ in two important ways. First, the customers will pay different energy charges. For fixed price retail electric plans, the energy charge is simply the amount of kWh used multiplied by the electricity rate. In this example, Customer A would pay an energy charge of $1440 for the 30-day period while Customer B would pay an energy charge of $990. This difference of $450 simply reflects their different energy usage amounts.
Second, their difference in demand will also lead to significantly different delivery charges. Customer A has an NCP demand of 20 kW while Customer B has an NCP demand of 100 kW. Assuming the distribution charge tariff is $5 per kW, Customer A will be assessed $100 while Customer B would have a charge of $500 for a difference of $400.
Demand Charge Summary
In summary, Customer A pays $440 more in energy charges while Customer B pays $400 more in delivery distribution charges. This means that the two customers would have comparable electric bills even though their operating and electric usage characteristics are very different. Selecting a low electric rate for your business will not affect your delivery charges. Commercial customers, however, should still consider the role of demand in their delivery charges and its impact on their overall electricity bill.
Average Commercial Electricity Rate in Texas
From the chart below – you can see how the average commercial electricity rate in Texas has changed over the past 10 years. As you can see – in February of 2021 prices rose dramatically with the winter freeze. We are currently seeing a rise in prices – by no means as substantially as we saw in Feb. 2021 – but we are seeing a rise in prices due to the economic, political and inflationary environment. Check out the chart below.
Ready to save money on your business electricity plan? Of course, you are! Texas is a competitive market for business electricity, so it’s important to compare rates and plans to make sure you’re getting the best deal. Whether you’re looking for a new plan or just want to make sure you’re still getting the best rate, shop around and find the right deal for your business. You’ll be glad you did!
How To Shop Texas Business Electricity Plans?
There are a few things to keep in mind when shopping for business electricity plans in Texas.
1) Know Your Rate Structure:
Understanding your rate structure will help you identify which electricity plan is best for your business. Be aware that most commercial plans have a higher base rate (which includes transmission and distribution costs) than residential plans. This means that even if two businesses use identical amounts of energy, they may pay very different rates per kWh. Rates are demand based, you’ll see them go up and down based on time of day, weekly/monthly seasonal changes.
2) Know Your Usage Pattern:
Knowing your electricity usage pattern helps you make decisions when choosing a service provider. If you know how much power your business uses on a monthly basis, you’ll be able to figure out the best term. For example, if your business typically uses 1,500 kWh each month, it may make sense to choose an 18-month contract so that you have enough electricity each month at the lowest cost.
If your business has a high peak demand for one month (for example, 10% or more of your annual energy use occurs during one billing cycle), you might want to consider shorter terms to take advantage of lower off-peak rates. Businesses are billed based on energy use over time rather than one bill. As such, shorter contracts may result in higher per-bill costs because they require more frequent business payments.
3) Choose The Right Payment Option:
When it comes to payments, it’s often a case of you getting what you pay for. If a client says they want an e-check or that they’ll pay you at a later date, be careful; it might be a ploy so that they can stall paying your invoice until their check clears. The best way to avoid issues is by making sure you clearly outline payment terms when entering into new business relationships. This includes setting up automatic withdrawals from bank accounts or credit cards and requiring checks (which should then be sent via overnight mail). A business should include late fees for late payments.
4) Compare Business Electricity Rates:
Not all electricity providers offer the same commercial electric rates, so it pays to shop around. Look for a provider that offers competitive prices and a plan that fits your business needs. And don’t forget to read the fine print; some providers charge hidden fees or have others. Catches that can end up costing you more in the long run.
5) Review Your Contract:
When you’ve found the right electricity provider, it’s important to review your contract before signing. This will help you understand the terms and conditions of your service agreement. Pay close attention to the cancellation policy, as some providers charge high fees for early termination. It’s also a good idea to have a lawyer review your contract to make sure you understand all the legal jargon.
6) Look Beyond The Basic Electricity Rate Plan
Choosing a basic electricity rate plan might sound like a no-brainer. When you’re getting started with your small business, but it’s important to remember that each utility company has its own list of different rate plans. By taking a closer look at your options, you can often find a plan that will benefit your business more than one designed with individual residential customers in mind. Some common differences include things like longer billing periods, added fees, or ancillary services offered by your utility.
7) Calculate Your Business Electricity Costs:
The price of electricity is not the only factor that affects your business’s bottom line. There are also transmission and distribution charges, which your local utility company assesses. These fees can vary depending on where your business is located and how much power you use. These charges make up a significant portion of your overall electric bill in some cases.
8) Understand How Seasonal Pricing Works:
Seasonal pricing is another way that businesses can save on their electric bills. This type of pricing means that the per-kilowatt-hour (kWh) price for electricity changes throughout the year based on demand. For example, during the summer months, when air conditioning use is high, the price of electricity will usually be higher than it is during the winter. This is because it costs more to produce electricity during periods of high demand. However, if your business uses a lot of electricity during the summer months, you may be able to negotiate a lower rate with your electricity provider.
9) Compare Prices From Different Providers:
When you’re shopping for a new electricity provider, it’s important to compare prices from different companies. This will help you ensure that you’re getting the best deal possible. However, it’s also important to remember that the price is not the only factor to consider when choosing an electricity provider. You should also look at things like customer service, billing options, and contract terms before making your final decision.
10) Consider A Fixed-Rate Electricity Plan:
If you’re worried about rising electricity rates, you may want to consider a fixed-rate electricity plan. Fixed Rate plans will be lock your rate for the contract term.. This can give you peace of mind knowing that your rate will not go up during your contract period, even if the overall price of electricity increases.
11) Get Help From An Energy Consultant:
An energy consultant can help you understand the deregulated electricity market and find the best plan for your business. Energy consultants are independent professionals who work with businesses to identify their needs and recommend the best Electricity plans. Many consultants offer free services, so there’s no risk in seeking out their advice.
When you’re shopping best small business electricity rates in Texas, it’s important to compare all your options and choose the plan that’s right for your business. Use Electricitymatch.com/business to compare rates and plans from leading providers in your area. Thanks for reading our blog post on shop business electric rates in Texas.