The old cliché “everything is bigger in Texas” seems to apply to energy choices as well.
Texas is a deregulated state, and most residents can choose from their energy supplier — more than 130 retail electricity companies to be exact, according to the Public Utilities Commission of Texas.
Texas' energy choice market is unique but complex. Some experts say it offers strong competition, low prices, a variety of plans, and unique billing options. Others believe Texas is the “best of deregulation,” meaning there are too many options and consumers can be overwhelmed with choices, resulting in higher electricity bills.
“The complaints are usually about clunkiness, complexity and too many choices,” says Michael Kreiten, director of accounting program initiatives at the University of Houston's C.T. Bauer College of Business. “These are the same people who walk into the cookie aisle at the store and complain. They say, 'I just want a box of Oreos,' but there are five dozen different choices and no clear way to compare them. It's a valid complaint, but there's a good reason why the choices are there.”
While both statements may be true, the reality is that if you live in Texas or run a business in Texas, you have no choice but to choose your energy supplier.
Texas Business vs. Residential Electric Rate Comparison
In a deregulated energy market, consumers have the ability to choose who supplies the energy that powers their home or business. While you're still locked into a power company in a deregulated market, in theory, the more energy suppliers competing for your business, the better the deal you could potentially get. However, as mentioned above, consumers run the risk of paying a higher price if they don't do their research up front.
According to the latest data from the U.S. Energy Information Administration (EIA), the average commercial electricity rate in Texas is 8.85 cents per kilowatt-hour, lower than the national average of 12.39 cents. Meanwhile, the average residential electricity rate in Texas is 14.58 cents per kilowatt-hour, also lower than the national average of 15.73 cents.
It's clear why Texans enjoy lower rates: In many states, only a single utility can sell energy, but in the Lone Star State, energy companies compete for customers, which means savings for consumers. Of course, there are also unscrupulous operators who will take advantage of customers who don't read the fine print. Businesses typically use more electricity than homeowners, so smart business owners and executives can use their influence to broker better deals.
The average commercial electricity rate in Texas has been consistently lower than residential electricity rates for the past 20 years.
U.S. Energy Information Administration (EIA)
Factors Affecting Business Electricity Rates in Texas
The two biggest differences between commercial and residential energy tariffs are the cost and the sign-up process.
Shopping for a home electricity plan is relatively simple: In Texas, you log into a comparison site like PowerToChoose or SaveOnEnergy, enter your zip code, and choose from the options available in your area based on rate, plan type, energy type (such as renewable), and other factors. Then you apply online or over the phone.
Businesses with high energy consumption can get cheaper rates, but the sign-up process is complicated. “It's not just about the total amount of energy or the absolute amount of energy, it's about when you need the energy and what the rate structure is that you've agreed to,” Klaten said. “These are all supply and demand factors that affect how much you pay.”
These are factors that will affect the cost and type of plan you choose for your business or commercial property.
Industry
There is a big difference between a factory with electrically powered machinery and a professional services office where most of the electricity is for computers and lighting: the latter consumes less energy while the former consumes more, depending on its size, consumption and load factor, and so may be able to negotiate better rates and terms.
consumption
Most businesses use more energy than homes do, and typically, the more energy they project to use, the more negotiating power they have to get a lower price per kilowatt-hour. “If you're running a business, you have a lot more responsibility,” Klaten says. “As with most other purchases that such businesses make, they have enough leverage in the marketplace to be able to strike an amicable deal.”
Load factor
When a business enrolls in an energy program, it's placed into one of three load factor categories: high, medium, or low. Each category indicates how much demand the business is expected to draw from the grid and affects overall costs in two ways:
Load factors (high, medium, low) are how utility companies plan for when and how much energy will be needed. A higher load factor means less demand and a lower price per kilowatt-hour.
Load factors affect the demand charges that companies pay in addition to the price per kilowatt-hour. For example, a higher load factor results in lower demand and a lower demand charge. Demand charges are set by the utility company or ERCOT and are categorized by projected demand.
High Load Factor: A business that uses energy efficiently, predictably, and in a consistent flow. Examples of high load factors, low demand include grocery stores and schools that have long and predictable hours of operation. This type of business tends to have lower energy bills and lower demand charges.
Medium load factor: A business that has volatile demand with periods of high and low usage. Retail stores and healthcare facilities can have a medium load factor and medium demand because they don't use a lot of electricity to operate.
Low Load Factor: Uses large amounts of electricity irregularly over short periods of time. This type of load factor is unpredictable and requires high demand from the grid. Small businesses such as restaurants and houses of worship tend to fall into the low load factor and high demand category because their opening hours are cyclical and inconsistent. Small businesses with low load factors tend to pay more for their demand.
position
That's an important factor across the country, but even more so in Texas. Texas is “so big, so diverse, it's a microcosm of the country,” Klaten said. Each region in Texas serves different business interests — energy in Houston, agriculture in Dallas, technology in Austin — so Klaten said energy suppliers in each region will do their best to cater to their particular types of businesses.
Each local distribution utility also has its own taxes, demand charges, and delivery costs. For example, a commercial rate for energy supply may be one price, but if your business is in the utility service area of Oncor and Centerpoint, your total cost of energy may be different.
Contract period
Typically, the shorter the contract term, the lower the rate. The longer the contract term, the higher the rate. Klaten said market forces cause utilities to make long-term assumptions and factor that risk into the rates themselves. In a “catastrophically uncertain world,” consumers would end up paying more to hold rates steady for a longer period, Klaten said.
Market factors
The overall U.S. or global economy can affect your energy bills. For example, Russia's war in Ukraine has caused oil and natural gas prices to fluctuate, which has a global impact on energy costs. Less visible factors, like energy-intensive cryptocurrency mining, can create unexpected increases in energy demand, driving up your energy costs.
Government Regulations
State government agencies can raise or lower utility fees or state tax rates, which can affect your overall electricity bill. For example, TDU rates (the cost of delivering electricity) are regulated by the Public Utilities Commission of Texas.
Types of Electric Plans for Businesses in Texas
Flat rate plan
These types of plans offer energy consumers a degree of predictability: the price per kilowatt-hour is known in advance and remains fairly constant for the life of the contract. For businesses that need energy all day and expect a consistent bill, fixed-rate plans are worth considering.
Variable rate plan
For business owners who want to go with the flow, variable rate plans have no contractual obligations and charge rates based on market conditions. These rates fluctuate, usually from month to month, based on seasonal market changes. Electricity bills may be higher in the summer and winter, when demand is high and businesses and homes use heating and cooling. Conversely, rates tend to be lower in the fall and spring, when load and demand are lower.
Renewable Energy Plan
Texas is a big player in renewable energy, allowing companies to choose “green” plans that get some or all of their electricity from solar, wind or hydroelectric power.
Companies can participate in the REC program (Renewable Energy Certificates) to showcase their environmentally friendly efforts.
Time-based plans
Like variable rate plans, time-of-use plans vary the price of energy depending on the time of day. Energy prices are higher during the day when demand is high, drop at lunchtime, then rise again and drop again in the evening when demand is lower. If businesses can adjust the times when they use energy, it can result in savings.
Demand Response Programs
In demand response programs, energy suppliers use financial incentives to encourage the shifting of electricity usage away from peak demand hours. If a business chooses to participate in a demand response program, it can receive financial compensation during periods of high demand or energy conservation events.
Index Pricing Plans
These plans are similar to variable plans in that energy prices can fluctuate. However, instead of prices being based on demand, indexed pricing plans are tied to a commodity index. Indexed pricing plans can be complicated and time-consuming. Make sure you understand the formulas that work before signing up for these plans.
How to find the best electricity tariff for your business
If you want to get the best electricity price for your business, the first step is to understand how you use electricity. Dig into your bill and break down your energy usage over the past year to see what times of day you need the most electricity. Create a look back over the past 12 months and a forecast for the next 12 months. With this information, a commercial energy consultant can guide you to the plan that best suits your business' consumption profile.
Ask for multiple quotes from several different providers with different contract lengths. Ask for quotes in writing so you can see if they are willing to price match you.
FAQ
Why are business electricity rates cheaper than residential electricity rates?
Commercial facilities generally have higher electricity usage and different load factors and demand profiles, which means businesses pay lower electricity rates than residential. Buying in bulk generally results in a lower price per unit. However, if your usage is not consistent, you may end up paying more depending on your demand.
Why can’t I search for business rates online just like I can at home?
Businesses typically consume more electricity than homes, and there are too many factors to consider when comparing rates online. Use this contact form to contact a business or commercial energy expert and get a free rate quote.