A Texas restaurant owner signs a commercial electricity contract after reviewing the EFL, which shows an average price of 8.5¢/kWh at 2,500 kWh of monthly usage. Two months later, the actual bill lands at an effective rate of 11.4¢/kWh. Nothing was wrong with the contract, nothing was misleading in a legal sense, and the REP calculated everything correctly. The problem was the EFL headline price and the actual bill are not the same thing, and no one explained the gap before signing.
This guide walks through exactly how to read an EFL for commercial electricity in Texas. It covers what the label discloses, what it deliberately excludes, why the headline "average price" almost never matches your all-in effective rate, and what a commercial buyer should look for beyond the EFL itself. It also covers where the EFL fits alongside the actual contract and the Terms of Service, and which of these three documents governs when they conflict.
What is an EFL?
The Electricity Facts Label, or EFL, is a standardized disclosure document that every Retail Electric Provider (REP) in the Texas competitive market must publish for each of its retail electricity products. It is required under Public Utility Commission of Texas Substantive Rule 16 TAC §25.475, and it exists so that customers can compare offers on standardized terms rather than trying to decode inconsistent marketing materials.
Every EFL includes a defined set of elements: pricing information at standardized usage tiers, a disclosure of the contract term and product type, information about fees and penalties, a summary of contract-length details, information about renewable energy content, and contact information for the REP. The format looks nearly identical from one provider to the next, which is intentional; the point is comparability.
The EFL is not the contract. It is a summary snapshot of the pricing and key terms for a specific product at a specific moment, intended for use during shopping. Once you sign a contract, the contract itself and the Terms of Service (TOS) that goes with it are the legally binding documents. The EFL is a marketing artifact required by the PUCT to prevent misleading advertising, not the agreement you signed.
Understanding this distinction matters for commercial buyers because the EFL's role and the contract's role are different, and confusing the two produces most of the "why is my bill different from what I was quoted?" complaints REPs receive.
The Four Sections of an EFL
Every Texas EFL contains four principal sections. Reading them in order tells you most of what you need to know about the product being offered.
Section 1: Electricity price
This is the top of the EFL and typically the section customers pay attention to. It shows the "average price per kilowatt-hour" at three standardized usage tiers. For residential products, the tiers are 500 kWh, 1,000 kWh, and 2,000 kWh per month. For small commercial products, the tiers are usually 1,500 kWh, 2,500 kWh, and 3,500 kWh per month.
The critical thing to understand about this section: the "average price" shown is a calculated figure that includes the energy charge, the base charge (if any), and the standard TDSP pass-through charges, divided by the assumed usage tier. It is not the per-kWh energy rate you contracted for, and it is not the all-in rate your bill will actually show.
The average price also intentionally excludes several real-world components: sales taxes, the PUC assessment, any non-recurring charges, some non-standard pass-throughs, and any usage credits that only apply at specific thresholds. In some cases, the average price also omits certain riders and adjustments that will absolutely appear on your bill.
Section 2: Disclosure chart
Below the price display, the EFL includes a disclosure section that specifies the underlying rates and fees making up the average price. Depending on the product structure, this may show the energy charge (¢/kWh), the base or customer charge ($/month), any monthly usage credits or thresholds, the TDSP monthly customer charge, and the TDSP per-kWh delivery rate at the assumed tier.
This section is more useful than the average price display, because it separates the components. A buyer can look at the underlying energy charge and mentally rebuild the calculation for their own actual usage instead of accepting the assumed-tier average.
Section 3: Other key terms and questions
This section covers the product type (fixed, variable, or indexed), the contract term length, the early termination fee (ETF) if any, whether the product includes a minimum usage fee, the renewable energy content percentage, and the process for pre-payment or deferred payment if offered.
For commercial buyers, this section deserves close attention. The early termination fee and the minimum usage fee are the two most commonly misunderstood terms in commercial electricity, and both live in this section.
Section 4: TDSP and contract information
The final portion identifies the applicable Transmission and Distribution Service Provider (Oncor, CenterPoint, AEP Texas, or TNMP) and provides REP contact information. Because TDSP delivery charges are regulated pass-throughs and depend on the utility serving the customer's address, the applicable TDSP determines a substantial portion of the total bill.
For a full breakdown of how each TDSP structures its commercial delivery charges, our overview of TDSP delivery charges across Oncor, CenterPoint, AEP Texas, and TNMP covers each utility's tariff.
The Average Price Problem: Why the EFL Headline is Not Your Effective Rate
This is the single most important thing to understand about EFLs, and it is where most commercial buyers get burned.
The average price on the EFL is calculated by dividing the total assumed monthly cost at a standardized usage tier by the kilowatt-hours in that tier. For a small commercial EFL showing "8.5¢/kWh at 2,500 kWh," the math is roughly: energy charge times 2,500 kWh, plus the monthly base charge, plus the TDSP delivery charges at 2,500 kWh, divided by 2,500 kWh, equals 8.5¢.
The math is internally correct. The problem is that your actual business rarely uses exactly 2,500 kWh per month, and even if the monthly average is close to that number, individual months vary. And the components that were included and excluded from the calculation don't scale linearly with usage.
Base charge dilution
Consider a product with an 8¢/kWh energy charge and a $9.95 monthly base charge. At 2,500 kWh per month, the base charge adds 0.4¢/kWh to the effective cost. At 800 kWh per month, that same $9.95 base charge adds 1.24¢/kWh, more than three times as much. The EFL's headline "average price at 2,500 kWh" tells you nothing about what your effective rate looks like at 800 kWh or 4,500 kWh.
For a business with variable usage across the year (a school with summer vacation, a restaurant with seasonal patterns, a warehouse with holiday cycles), the EFL's single-tier average can badly understate the effective cost in the low-usage months.
Usage credit thresholds
Some commercial products advertise usage credits that apply only above certain monthly thresholds. An EFL might show a $30 monthly credit that applies "for usage between 1,000 and 3,000 kWh." At exactly 2,500 kWh, that credit reduces the effective rate by 1.2¢/kWh. At 900 kWh, the credit doesn't apply at all, and the effective rate is dramatically higher than the EFL headline suggested.
Usage-credit products often appear cheaper than they are on the EFL, because the credit is included in the assumed-tier average price but doesn't apply at every usage level a business actually experiences.
Non-recurring charges
Some products carry setup fees, deposits, or one-time charges that don't appear in the recurring average price. A commercial account moving in may face a first-month bill that's substantially higher than the EFL's average price would suggest, before settling into ongoing pricing.
The all-in effective rate
The all-in effective rate on your actual bill is calculated as: total dollars billed for the period, divided by kilowatt-hours consumed. It includes every real charge: energy, base, all TDSP delivery components, all riders (TCRF, DCRF, EECRF, and others), the PUC assessment, and state and local sales taxes.
For a mid-sized commercial account, the all-in effective rate is commonly 30% to 60% higher than the EFL's headline average price. This is not a scam. It's the difference between a standardized comparison metric and a real bill. But if you signed the contract expecting the EFL number, the reconciliation is going to be unpleasant.
For a walkthrough of how the effective rate is calculated line by line, our commercial electricity bill audit guide for Texas businesses covers the full reconciliation process.
Commercial EFL vs. Residential EFL: What Changes at Scale
The EFL format is the same for residential and small commercial products, but the standardized usage tiers differ, and once account size grows beyond small commercial, the EFL becomes less useful as a comparison tool.
Residential EFLs use 500, 1,000, and 2,000 kWh tiers. This roughly captures a small apartment, a mid-sized home, and a large single-family home. For most Texas residential customers, one of the three tiers approximates actual usage well enough for the average price to be useful.
Small commercial EFLs use 1,500, 2,500, and 3,500 kWh tiers. This captures typical small offices, small retail stores, and light-usage commercial accounts. For businesses in this range, the tiers can be reasonably representative.
Larger commercial accounts (typically above 50 kW peak demand or above roughly 15,000 kWh monthly) usually receive custom pricing rather than a standard shelf product with a published EFL. In this case, the REP prepares a contract-specific EFL that discloses the pricing components at the customer's actual expected usage, not at standardized tiers. The commercial account holder should insist on this being prepared for their specific usage profile before signing.
Very large commercial and industrial accounts may not receive an EFL in the traditional format at all. Instead, they receive a detailed contract with an appendix showing the pricing methodology. For these accounts, the equivalent of "reading the EFL" is reviewing the pricing appendix and running the pricing math against 12 months of the account's actual interval data.
EFL vs. Contract vs. Terms of Service: Which Document Governs?
Three different documents come with every Texas retail electricity offer, and they serve different purposes.
The EFL
A standardized disclosure snapshot. It's a marketing document required by regulation to prevent misleading advertising. The EFL is not legally binding as a contract; if the EFL and the actual contract conflict, the contract terms typically govern (subject to consumer protection rules that require the REP to accurately disclose material terms).
The contract
The actual agreement you sign, which specifies the term, pricing methodology, pass-through provisions, termination rights, and any custom terms specific to your account. The contract is the legally binding document. For a commercial account, the contract may be a one-page confirmation referencing the REP's standard terms, or it may be a multi-page customized document with negotiated redlines. Either way, the contract is what governs your relationship with the REP.
The Terms of Service (TOS)
A separate document that covers the operational and legal terms surrounding the contract: billing timing, dispute resolution processes, payment terms, late fee policies, service disconnection procedures, and the like. The TOS applies to every customer of that REP under standard products. Commercial customers sometimes negotiate custom terms that override specific TOS provisions.
Which governs when they conflict?
The general rule: the contract terms govern over the EFL, and the TOS governs where the contract is silent. But this doesn't mean the EFL is unimportant. If the EFL made a specific representation that induced you to sign (say, "no early termination fee") and the contract terms turn out to include one, you may have grounds for a complaint with the PUCT Customer Protection Division, even if the contract technically contains different language.
The right practice: read all three documents before signing. Do not rely on the EFL as your contract. Do not sign a contract without also receiving and reviewing the applicable TOS. If any of the three appear to conflict, get the discrepancy resolved in writing before signing.
How to Reverse-Engineer your Effective Price from an EFL
If you want to estimate what your business will actually pay under a specific product, the EFL gives you the raw ingredients. The math takes a few minutes with a spreadsheet.
Step 1: Pull your expected monthly usage. Use 12 months of billing history if available. For a new location, use a reasonable estimate based on square footage, equipment inventory, and operating hours.
Step 2: Get the underlying rates from the EFL. Ignore the average price display and instead look at the disclosure section that shows the energy charge, base charge, and TDSP components separately.
Step 3: Calculate the REP-side monthly cost. For each expected usage month: (energy charge per kWh times expected kWh) plus the monthly base charge, minus any usage credits that will actually apply at your usage level.
Step 4: Add TDSP delivery charges. For small commercial accounts, this is the fixed monthly TDSP charge plus (TDSP per-kWh rate times expected kWh). For demand-metered commercial accounts, this also includes the demand charge (billing kW times per-kW rate), which is not typically shown on an EFL for a demand-metered contract. Verify the applicable TDSP tariff at puct.texas.gov or on the utility's website.
Step 5: Add taxes and the PUC assessment. State sales tax at 6.25% plus local sales tax (typically 1% to 2%) applies to the taxable portion of the bill. The PUC assessment is approximately 0.1667% of retail electric charges.
Step 6: Divide by expected kWh. The result is your projected all-in effective rate. Compare this to the EFL's headline average price.
For a small commercial account, expect the all-in effective rate to be 30% to 60% higher than the EFL's headline. For demand-metered accounts, the gap can be larger because demand charges are not reflected in the EFL average at all.
Red Flags on a Commercial EFL
Not every EFL is equally clean. Some products are designed to look attractive at the standardized comparison tier but carry structural surprises at real business usage. Watch for the following.
A large usage credit at a specific threshold
A product showing a $50 monthly credit that only applies "for usage between 2,000 and 3,000 kWh" is engineered to look cheap at exactly 2,500 kWh on the EFL. At 1,500 kWh or 3,500 kWh, the credit doesn't apply and the effective rate is much higher. If your business usage isn't consistently in the credit window, the product will cost more than the EFL suggests.
A very low energy charge paired with high base charge
An 8.99¢/kWh energy charge paired with a $25 monthly base charge produces a very different bill than a 9.99¢/kWh charge paired with a $0 base charge, even though the second option has a "higher rate." Low-usage months penalize the high-base-charge product; high-usage months favor it. Match the product structure to your actual usage profile.
Minimum usage fees
Some commercial products carry a penalty (typically $9.95 to $50 per month) for accounts that fall below a specified minimum monthly usage. Schools that close for summer, restaurants that scale down during slow seasons, or manufacturing plants that idle for maintenance can trigger these penalties repeatedly.
Vague pass-through language
An EFL that references "applicable pass-through charges" or "regulatory riders as billed by the TDSP" without specifying the current amounts is disclosing less than it should. Insist on seeing the current effective rates for every pass-through and rider before signing.
Non-standard fee structures
Some products carry non-recurring fees (setup, installation, or "network access" charges) that don't appear in the recurring EFL pricing. Read the "other key terms" section carefully and ask about any charge that wasn't clearly quoted.
Bundled or obscured demand charges
For demand-metered commercial accounts, the EFL may or may not include the demand charge in the disclosed pricing. If the EFL shows only per-kWh rates without any mention of the demand component, and your account is demand-metered, the pricing has been simplified in a way that leaves out a substantial line item. For a full walkthrough of how demand charges work, see our guide to demand charges and peak kW billing for Texas businesses.
Automatic renewal or "evergreen" terms
Some EFLs disclose that the contract will automatically renew at the end of its term at then-current market rates, or that it will transition to a variable "holdover" rate if the customer doesn't act. Both of these can produce sudden and substantial rate increases if the customer isn't watching. Contract expiration handling is one of the most important terms to understand up front.
What a Commercial Buyer should Ask for Beyond the EFL
For any commercial account above small-commercial scale, the standardized EFL is not enough information to make a good decision. The additional items to request from the REP:
A custom pricing quote based on your actual usage profile. Provide 12 months of billing history, including monthly kWh and peak kW. Ask the REP to price the specific product against your specific load shape.
A written disclosure of all applicable pass-through mechanisms. Include the current effective amounts and the methodology for future changes.
The demand charge structure, if your account is demand-metered. Include how the REP calculates billing kW (NCP, ratchet, or 4CP), how the TDSP delivery demand charge will be presented, and whether the REP charges any additional demand component.
Contract term specifics and expiration handling. Include exact start and end dates, the notice period required for non-renewal, the process for renewal, and the specific rate that will apply if the contract enters a holdover or auto-renewal state. For a full walkthrough of what happens at expiration, see our overview of holdover rates on Texas commercial electricity contracts.
The early termination fee (ETF), if any, and whether it's a flat amount, a formula based on remaining term, or a market-based liquidated damages calculation.
The minimum usage fee (if any), including the applicable threshold and the amount.
The specific EFL for the product being offered, in writing, with the effective date. Retain this document.
The Terms of Service that will apply, in writing.
If a REP is unwilling to provide any of the above, that's a signal to shop elsewhere. Reputable commercial suppliers routinely provide all of this without pushback.
Where the EFL Fits in a Supplier-Neutral Procurement
For businesses running a structured procurement RFP, the EFL is one of several documents to collect from each bidder. It's useful for standardized comparison of the headline price and product terms, but it's not sufficient by itself.
The workflow that produces defensible commercial procurement decisions:
- Prepare a clean data package including 12 months of interval data, monthly kWh, and peak kW.
- Distribute identical specifications to every REP being asked to quote, including desired term, product type, and start date.
- Collect from each bidder the EFL, custom pricing quote, contract, and Terms of Service.
- Reconcile each bidder's quote against a common all-in effective rate calculation using your actual expected usage.
- Compare bidders on total delivered cost, not headline EFL average price.
- Review contract terms side by side, particularly pass-through provisions, termination fees, minimum usage terms, and holdover mechanics.
- Redline the winning contract before signing.
This is the process Electric Decisions runs for Texas commercial buyers. The 5-step energy procurement process for Texas commercial buyers documents each stage from intake through execution, and the commercial electricity comparison for Texas businesses benchmarks quotes against the live ERCOT forward curve.
Frequently Asked Questions
What is an EFL?
An EFL (Electricity Facts Label) is a standardized disclosure document that every Retail Electric Provider in Texas must publish for each retail electricity product. It shows the average price per kilowatt-hour at standardized usage tiers, discloses the underlying rates and fees, and specifies contract terms. The EFL exists so customers can compare offers on standardized terms and is required by PUCT Substantive Rule 16 TAC §25.475.
Is the EFL the same as my contract?
No. The EFL is a summary disclosure document required for shopping and comparison. The contract you sign is the legally binding agreement between you and the REP, and the Terms of Service (TOS) covers the operational and legal framework. If the EFL and the contract conflict, the contract terms generally govern. Read all three before signing.
Why is my electricity bill higher than the EFL price?
The EFL's headline "average price" is calculated at standardized usage tiers and excludes several real-world components: sales taxes, the PUC assessment, some non-recurring charges, and demand charges for demand-metered accounts. Additionally, the average is calculated at a specific assumed usage level; your actual usage in any given month may be much higher or lower, changing the effective rate. For most commercial accounts, the all-in bill is 30% to 60% higher than the EFL's headline average.
What does the EFL show?
An EFL discloses: the average price per kilowatt-hour at standardized usage tiers (1,500, 2,500, and 3,500 kWh for small commercial products), the underlying energy charge and base charge, TDSP delivery charges at the assumed tier, contract term length, early termination fee (if any), minimum usage fee (if any), renewable energy content percentage, and REP contact information. It does not include state and local sales taxes or the PUC assessment in most cases.
Do commercial customers get the same EFL as residential customers?
The format is the same, but the assumed usage tiers differ. Residential EFLs use 500, 1,000, and 2,000 kWh tiers. Small commercial EFLs use 1,500, 2,500, and 3,500 kWh tiers. Larger commercial accounts typically receive custom pricing with an EFL prepared for their specific usage profile rather than a shelf product with a standard EFL.
Where do I find my EFL?
The EFL for your current product should be provided to you at the time of contract signing. It's also typically available on the REP's website in the product details page. If you can't find yours, contact your REP's commercial customer service and request a copy. You're entitled to the EFL for the product you're on.
What is a base charge on an EFL?
A base charge (sometimes called a monthly service charge or customer charge) is a fixed monthly fee charged by the REP regardless of your usage. On a per-kWh basis, the base charge adds more to your effective rate at low usage than at high usage. A $9.95 base charge adds 0.4¢/kWh at 2,500 kWh but 1.24¢/kWh at 800 kWh.
What are usage credits on an EFL?
Usage credits are dollar-amount reductions that apply only when your monthly usage falls within a specified range. A $30 monthly credit "for usage between 1,000 and 3,000 kWh" reduces your bill only when usage falls in that window. Products with usage credits look cheaper on the EFL (because the credit is included in the assumed-tier average price) but may not deliver the same effective rate at usage levels outside the credit window.
Can the EFL price change during my contract?
For fixed-price contracts, the energy charge stays fixed for the contract term. However, TDSP delivery rates (which are pass-throughs from the regulated utility) can change during your contract, typically on March 1 and September 1 of each year, and these changes will flow through to your bill without changing your contract. Some contracts also allow specific pass-throughs (ancillary services, ERCOT charges) that can move during the term.
What is a bandwidth clause?
A bandwidth clause allows the REP to reprice or add surcharges if your actual usage falls outside a specified percentage range of your original forecasted usage (typically plus or minus 10% to 20%). Commercial contracts often include bandwidth clauses to protect the REP against underestimating a customer's load. If your usage grows or shrinks significantly during the contract term, you may face bandwidth adjustments. Review this clause carefully before signing.
What is a minimum usage fee?
A minimum usage fee (sometimes called a minimum monthly charge) is a penalty applied when your monthly usage falls below a specified threshold. If the EFL shows a "$9.95 minimum usage fee" that applies below 1,000 kWh, any month where your usage is below that threshold triggers the fee. This is most costly for seasonal businesses (schools during summer break, event venues in off-seasons).
What is an early termination fee?
An early termination fee (ETF) is the amount you owe if you cancel your contract before its scheduled end date. For commercial contracts, ETFs can be a flat amount, a per-month multiplier of remaining term, or a market-based liquidated damages calculation. Commercial ETFs on longer-term contracts can run into thousands of dollars. For more on this, our guide to Texas early termination fees on electricity contracts covers the details.
What is a Terms of Service?
The Terms of Service (TOS) is a separate document accompanying every REP contract that covers operational and legal terms: billing timing, dispute resolution, payment terms, late fees, service disconnection procedures, and general policies that apply to all customers of that REP. The TOS should be read alongside the EFL and the contract.
What TDSP delivery charges are included in the EFL average price?
The EFL average price typically includes the standard TDSP customer charge, metering charge, and per-kWh delivery charge at the assumed usage tier. For demand-metered commercial accounts, the EFL may or may not include the demand charge; verify with your REP how the EFL was constructed for your specific product. Regardless, TDSP rider adjustments (TCRF, DCRF, and others) that occur during your contract term will affect your bill without changing your contract.
Is the EFL average price the same as the contract price?
No, and this is one of the most misunderstood points about Texas electricity. The EFL average price is a standardized calculation at an assumed usage tier that includes several components (energy, base, and standard TDSP delivery) divided by the assumed kWh. Your contract price is the underlying energy charge (¢/kWh) specified in the contract itself. Your all-in bill will include everything the EFL average includes, plus taxes, plus PUC assessment, plus rider adjustments, plus any pass-throughs, plus demand charges if applicable.
How do I compare EFLs across multiple REPs?
For small commercial products at standardized tiers, comparing EFL headline averages is a reasonable first-pass filter. For any commercial account with meaningful usage variability or demand charges, EFLs alone are not sufficient. Compare on total all-in effective rate calculated against your actual expected usage. The commercial electricity comparison for Texas businesses automates this reconciliation and benchmarks each bidder against the live ERCOT forward curve.
Where to go from Here
If you're evaluating a Texas commercial electricity contract:
- Get the current EFL, contract, and Terms of Service in writing. All three should be provided before you sign. Retain copies of everything.
- Calculate the all-in effective rate for your specific expected usage profile, not just the EFL's headline average. Use the reverse-engineering process in this guide, or use our bill analyzer for Texas commercial electricity to automate the calculation.
- Read the "other key terms" section carefully. Pay particular attention to the early termination fee, minimum usage fee, contract expiration handling, and any bandwidth or reconciliation clauses.
- Compare offers on total delivered cost, not on EFL headline price. Different products with different structures can produce very different bills at the same headline rate.
- Redline before signing. Commercial contract terms are more negotiable than most buyers assume, particularly around pass-through provisions, termination fees, and holdover mechanics.
Electric Decisions works exclusively with Texas commercial buyers on supplier-neutral procurement, EFL reconciliation, and contract redlining. We do not sell electricity. Every quote we source discloses the underlying pricing components fully, is reconciled against your actual usage profile, and is compared against the live ERCOT forward curve on identical specifications. Our documented 5-step energy procurement process for Texas commercial buyers covers each stage from intake through execution.
For related reading, the residential version of this topic (which uses different usage tiers but a similar disclosure framework) is covered in our overview of how to read an Electricity Facts Label. For a walkthrough of the actual bill line items that follow from your contract, see our commercial electricity bill audit guide for Texas businesses.