Commercial electricity in Texas
Texas businesses have more control over their electricity than businesses in many other states. In most of the state's competitive market, businesses can choose their electricity provider and contract instead of buying directly from the local utility. Here's how the market works and what matters when choosing.
How the Texas electricity market works
Several companies can be involved in getting electricity to your business.
- Power generatorsGas, wind, solar, nuclear, coal
- ERCOT gridBalances supply and demand
- Your utility (TDU)Poles, wires and metersSet by location
- Your businessWhere the power is used
Power generators produce electricity from sources such as natural gas, wind, solar, nuclear, and coal.
Transmission and distribution utilities (TDUs) operate the poles, wires, meters, and other infrastructure that physically delivers electricity. Your location determines your utility, so this is not something you choose.
Retail electricity providers (REPs) purchase electricity and sell plans to businesses and homes. In deregulated areas, this is the company you can choose.
ERCOT manages the flow of electricity across most of the Texas grid and helps keep electricity supply and demand balanced. So while you can choose who you buy electricity from, the same local utility continues delivering it to your property.
How commercial electricity is priced
Commercial electricity pricing is different from residential pricing because every business uses power differently.
A typical day, by hour. A small office operating from 9 to 5 has a very different electricity profile from a restaurant, warehouse, manufacturing facility, or 24-hour business.
Several factors can affect the price a business receives:
Energy usage. How much electricity the business consumes, measured in kilowatt-hours (kWh).
Demand. The highest amount of power the business needs during a period of time. Businesses with large equipment, HVAC systems, refrigeration, or other heavy loads may have higher demand.
Usage pattern. When and how consistently the business consumes electricity can affect how suppliers price the account.
Market conditions. Wholesale electricity prices, natural gas prices, weather, electricity demand, and other market conditions can influence available rates.
Contract timing. When a business enters the market and how far ahead it purchases electricity can also affect its options.
This is why two businesses in the same city can receive different electricity pricing.
Commercial electricity contracts
Most Texas businesses in competitive areas purchase electricity through a contract with a retail electricity provider. Contracts can vary in both length and pricing structure.
Fixed-rate contracts. The electricity supply rate is generally established for the contract term.
This can make energy costs more predictable, although utility charges, taxes, and other costs may still change.
Variable or indexed contracts. Pricing can change based on the electricity market or an agreed-upon pricing formula.
These plans provide a different level of exposure to changes in market prices.
Contract length. Commercial agreements can range from shorter terms to multi-year contracts.
The right term depends on the business, current pricing, future plans, and how much price certainty the business wants.
Before signing, businesses should also review:
- Renewal terms
- Early termination provisions
- Usage requirements
- Other contract conditions
What businesses should pay attention to
The electricity rate is important, but it does not tell the entire story.
- Your electricity bill
Start here. It shows how much energy the business uses, the utility serving the property, and other information needed to understand the account.
- Your usage history
For larger commercial accounts, suppliers may use historical usage and demand data when preparing an offer.
- Your contract expiration date
Commercial electricity is usually something businesses can evaluate before the current agreement ends rather than waiting until the last minute.
- The full contract
Not only the quoted price. Contract length, pricing structure, utility charges, demand, fees, and renewal terms can all affect what the business ultimately pays.
Understanding these pieces makes it much easier to evaluate commercial electricity options in Texas.
What Texas businesses should know.
Straight answers to the questions we hear most from Texas business owners.
Where to go next. The buying process, your city, your utility area, or a benchmark to start from.
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