ELECTRICITY PRICES IN TEXAS

A Snapshot Report

2017 Edition

Executive Summary

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Average residential electricity prices in areas of Texas with retail electric competition have declined during a recent 10-year period, while average prices have increased during that same period in areas exempt from electric competition.

Moreover, the average price of electricity for residential customers in areas with retail electric competition dipped below the national average in 2015. This marked the third such occasion in four years that average residential electricity prices in those areas fell below the national average.

But the news is not all good for Texans living in areas with retail electric competition, also known as retail electric deregulation. For instance, average residential electricity prices have remained consistently higher in those areas, as compared to deregulation-exempt areas. This has been true for every year for which data exist to conduct this analysis.

Texans in deregulated areas could have saved thousands of dollars individually — and billions of dollars in the aggregate — had they paid the same average prices as those observed in areas exempt from the deregulated system.

Texas implemented its retail electric deregulation law in 2002. Under it, Texans in areas such as Houston and Dallas can choose among different electric providers. In other areas that remain exempt from the deregulation law residents receive service from a single provider.

This Snapshot Report on Electricity Prices, an update of similar analyses released by the Texas Coalition for Affordable Power, compares residential electricity prices in both deregulated areas of Texas and those in areas exempt from deregulation. It includes long-term pricing information, information about non-by-passable charges assessed by Texas wires utilities and a review of pricing trends nationwide.

Average Residential Electricity Prices

Exhibit 1: Inside and Outside Deregulated Areas of Texas

Chart: Exhibit 1

Average residential electric prices in deregulated areas of Texas consistently exceed average prices in deregulation-exempt areas. This was true in 2002 — the very first year of the deregulated retail electric market — and also was true in 2015, which was the last year for which data exist to conduct this analysis. The price gap also has grown during this 2002-2015 time period. But a different story emerges if one removes the first years of deregulation from the analysis, and instead examines only 2006 through 2015. During those 10 years average residential electric prices in deregulated Texas decreased by 17.4 percent, while they increased in deregulation-exempt areas by 5.5 percent. One should note, however, that the average price of residential electricity in deregulated Texas was at a historic high in 2006, exceeding the average deregulation-exempt price by 46.5 percent. In 2002, the average deregulated price was 9.2 percent higher than the average deregulation-exempt price. In 2015, the average deregulated price was 14.7 percent higher.

Major findings include:

  • Texans historically have paid higher residential electric prices in areas with deregulation, as compared to prices in areas exempt from deregulation. This trend has been observed from the beginning of the retail electric deregulation law in Texas through 2015, the last year for which data are available to conduct this analysis.
  • From the first year of the law through 2015 the average price of electricity for residential customers increased more in deregulated areas of Texas than areas of the state exempt from deregulation.
  • All told, Texans living in deregulated areas would have saved more than $26 billion had they paid the same average residential electricity prices through 2015 as Texans living outside deregulation. These imputed higher costs amount to more than $5,300 for a typical household.
  • The price gap between residential electricity prices inside and outside areas of Texas with deregulation has narrowed since 2009. Although average residential electricity prices remained higher in deregulated areas than in deregulation-exempt areas in 2015, the gap that year was the smallest since the beginning of deregulation.
  • Average residential electric prices in deregulated areas have declined since 2006. By contrast, average residential prices in areas exempt from deregulation during the same period have increased.
  • Texans now can find many low-priced individual deals inside deregulated areas that beat prices commonly paid in deregulation-exempt areas. These comparatively low-cost competitive deals are more numerous than in previous years.
  • Texas has fared comparatively well in relation to other states with deregulated retail electric systems. Average residential prices in deregulated Texas increased at the fourth lowest rate among 15 such states from 2002 through 2015.

Residential Price Increases

Exhibit 2: For 15 Deregulated States, Including Texas 2002-2015

Chart: Exhibit 13

  • Charges assessed by the major regulated transmission and distribution service providers have increased since 2003 — and at a pace greater than inflation. Although transmission and distribution rates are regulated, these increases nonetheless contribute to higher prices in deregulated areas of the state.

About the Texas Coalition for Affordable Power

Unlike the sponsors of some other reports about the state’s deregulated power market, TCAP derives no profit from selling electricity. Instead, the more than 150 political subdivisions that comprise TCAP purchase electricity for their own governmental needs. TCAP understands how high-cost power can cause businesses to relocate out of state, and can place heavy burdens on home consumers. TCAP wants what all Texans want: an affordable and reliable supply of power and a vibrant economy.

The Analyses

Under the Texas electric deregulation law, consumers in Houston, Dallas, Fort Worth, Corpus Christi and surrounding areas can choose among different retail electric providers. These providers compete for customers by offering different terms of service and prices. Many other parts of the state remain exempt from this competitive system. Exempt areas include those served by municipally-owned utilities (such as in San Antonio and Austin) and those served by electric cooperatives. Also exempt from retail electric deregulation are investor-owned utilities operating outside the area covered by the state’s primary power grid, known as the Electric Reliability Council of Texas1.

The existence of this bifurcated electricity system — one in which some Texans receive service from competitive electric retailers and others do not — provides a unique opportunity to compare pricing outcomes. The Texas electric deregulation law was adopted in 1999 with the promise that it would lower rates2. But as this analysis shows, the results have been mixed.

This report includes a benchmarking analysis that employs data obtained from the United States Energy Information Administration. This benchmarking analysis compares pricing outcomes inside and outside deregulated areas of Texas and begins with 2002 — the first year of retail electric deregulation in Texas — and continues through 2015. The benchmarking analysis does not extend to 2016 and 2017 because the necessary US EIA data for those years are not yet available.

However, this Snapshot report also includes an analysis of more recent statewide and nationwide pricing trends — but of a more generalized nature. This separate analysis employs pricing data through 2017 gathered both from the US EIA and the Texas Public Utility Commission.

This report also includes a non-comprehensive sample of individual offers in 2017 from deregulated areas around Houston and Dallas. The pricing samples were retrieved from rate surveys conducted by the PUC.

Finally, this report compares rates charged during two separate years, 2003 and 2017, by the state’s two largest monopoly transmission and distribution providers. The underlying data for this analysis were retrieved from the PUC website.

For readability purposes, certain words and phrases will be used interchangeably to refer to areas served by competitive retail electric providers. These words and phrases include “areas with retail electric competition,” “areas with retail electric deregulation,” “competitive areas” and “deregulated areas.”  Unless otherwise noted, references to electricity prices are for residential customers.

1 See The Story of ERCOT, Februrary 2011

2Deregulated Electricity in Texas,” Texas Coalition for Affordable Power, December 2012

Background History

Texans enjoyed residential electricity rates below the national average for many years prior to the adoption of the retail electric deregulation law in 19993. That trend flipped shortly after the law took effect, with average residential prices statewide rising above the national average in 2003 and remaining above the national average until 2011. [See Exhibit 8]

Average Electricity Prices 2016

Exhibit 3: Texas and Adjoining States

Chart: Exhibit 4

Some observers have said that the increase in statewide electricity prices after the deregulation law took effect is not related to the law, per se, but rather to an increase in natural gas prices. This is because natural gas prices are closely linked to wholesale electricity prices, and natural gas prices hit historically high levels after deregulation4.

However, fluctuations in natural gas prices alone cannot explain the historic disparity between average electricity prices inside and outside deregulated areas of Texas, particularly during the early years of the law. For every year for which data exist with which to conduct this analysis — that is, between 2002 and 2015 — average residential prices in deregulated areas of Texas have been higher than average prices in deregulation-exempt areas. [See Exhibit 1].

Moreover, average residential prices from 2002 through 2015 have increased more, in percentage terms, in deregulated Texas as compared to areas of the state exempt from deregulation. [See Exhibit 9].

Customer confusion about retail electric shopping, the details of rate offers and other aspects of the deregulated market may have contributed to historically higher prices there. Other contributing factors may include the cost of multi-million dollar marketing campaigns by some retail electric companies and increasing rates charged by monopoly transmission and distribution utilities. These “wires” rates comprise a growing portion of home electric bills in competitive areas.

It remains unclear whether the trend of higher average prices in deregulated areas of Texas has continued in 20165 and 2017 given the unavailability of necessary data from those years for which to conduct this analysis. However, the price gap between areas of Texas with electric deregulation and deregulation-exempt areas continues to narrow. In percentage terms, this differential was smaller during 2015 than during any other year since 2002, the first year of the Texas deregulation law.

Possible explanations for this disparity include continued customer confusion about rates and service and relatively high prices charged by the state’s legacy electric providers. These legacy providers — that is, companies associated with the former monopoly providers prior to deregulation — serve millions of Texans under deregulation. Their rates are often higher than some of the smaller, low-cost competitors. Multi-million dollar marketing campaigns by retail electric companies also may add to residential electricity costs in deregulated areas. Also, the cost of service of monopoly transmission and distribution utilities operating in deregulated areas may contribute to relatively high electric prices observed in those areas.

In fact, from 2006 through 2015 average residential electricity prices in areas of Texas with electric competition declined by 17.4 percent. During that same 10-year period, average prices in areas exempt from deregulation increased by 5.5 percent.  [See Exhibit 1].

A survey of recent competitive pricing offers indicates that many such offers in Houston (the state’s largest city operating under the retail electric deregulation) beat the price of electricity in San Antonio (the largest city in Texas exempt from deregulation).  [See Exhibit 12]. The number of such offers that meet or beat prices in deregulation-exempt areas appears to be on the rise.

A survey of competitive electricity prices around the Dallas-Fort Worth area reveals many deals there that meet or beat prices in areas of Texas exempt from deregulation. [See Exhibit 13].

3 “Deregulated Electricity in Texas,” Texas Coalition for Affordable Power, December 2012

4 Public Utility Commission Docket 40000, Item No.447, page 1, Memorandum to Commissioner Kenneth W. Anderson, Jr. from Chairman Donna Nelson.

5 Rice University researchers, in a corrected May 2017 report, concluded that the average price paid for electricity by residential consumers in competitive areas during 2016 was “roughly equal, in the aggregate” to the average price paid by Texans in non-competitive areas. These findings appear to have been extrapolated from PUC data.

About US EIA Data and PUC Data

This analysis employs data collected by the United States Energy Information Agency, which is the statistical and analytical arm of the U.S. Department of Energy. U.S. EIA data is known to be impartial, and is widely cited by economists, scholars, industry experts, the news media and governmental agencies — including the Public Utility Commission of Texas. 

The consistent manner in which the agency calculates electricity prices across all 50 states allows analysts to make apples-to-apples market comparisons. How does the U.S. EIA calculate prices? First, it gathers both revenue and sales data from electricity providers in a given region. It then derives a kilowatt hour or megawatt hour price by dividing revenues in that region by the amount of energy sold there.

TCAP has employed granular U.S. EIA data to calculate average electricity prices inside and outside deregulated areas of Texas, inside and outside areas served by the state’s principal power grid (the Electric Reliability Council of Texas) and for the state’s residential, commercial and industrial customers.

Employing U.S. EIA data in this fashion allows for calculations of average prices of consumed electricity, as opposed to average prices of individual offers made by electric companies. This distinction is important. The problem with averaging offers by electric companies — but without an understanding of how many customers take each offer — is that such an analysis can lead to conclusions that bear little resemblance to actual market outcomes. For instance, while it may be true that many low-cost offers are available in a given area, it may also be true that most Texans living in those areas do not or cannot avail themselves of those low-cost offers because of restrictions in their existing electricity contracts, or for a number of other reasons.

However, an examination of individual offers is nonetheless useful to gain a sense of commonly available electricity prices in deregulated areas, including prices found in fixed-rate and variable-rate deals. This report examines such individual pricing offers, as included in rate surveys conducted by the Texas Public Utility Commission. 

This report also examines charges by the state’s two largest transmission and distribution providers, as posted on the PUC website. Transmission and distribution charges by “wires” utilities are non-bypassable, meaning that these charges are imbedded in electricity prices paid by all consumers in the utility’s service territory, regardless of the retail electric provider that the consumer selects for service.

THE FINDINGS

Benchmark Analysis: Long-term Trends

  • Texans living in deregulated areas of the state have paid higher average rates for residential electricity than Texans living in areas exempt from deregulation. This is true for 2002 through 2015 — that is, for every year for which U.S. EIA data exists to conduct this analysis. [See Exhibit 1]. Over those years, average residential prices in deregulated areas have been between 9.2 percent (2002) and 46.5 percent (2006) higher than average prices in deregulation-exempt areas.
  • All told, Texans living in deregulated areas would have saved more than $26 billion in lower residential electricity bills from 2002 through 2015 had they paid the same average prices as Texas living outside deregulation. This imputed higher costs amount to more than $5,300 for a typical household. [See Exhibit 4 and Exhibit 5].
  • From 2002 through 2015 average residential electricity prices increased more at the national level than prices increased in both deregulated and deregulation-exempt areas of Texas. During that period, the increase in average residential prices in deregulated Texas was greater than the increase in areas of Texas exempt from deregulation. [See Exhibit 9]
  • A shorter view — that is, confining the analysis to the 10 years from 2006 through 2015 — reveals that average residential prices have dropped in deregulated areas by 17.4 percent, while they have increased in areas exempt from deregulation by  5.5 percent. [See Exhibit 1].

  • Texas has fared comparatively well in relation to other states with deregulated retail electricity. The average price increase for residential power in deregulated Texas from 2002 through 2015 was the fourth lowest among 15 such states during that period. [See Exhibit 2].

  • Annual average residential electricity prices in deregulated areas of Texas have been higher than the nationwide average during 10 of the 14 years included in the benchmark analysis (2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011 and 2014). Annual average residential electricity prices in areas of Texas exempt from deregulation have been higher than the nationwide average once during those 14 years (2005). [See Exhibit 8].

  • It remains unclear whether the historic disparity between average electric prices in deregulated and non-deregulated areas continues after 2015 because the necessary data to conduct that analysis has not yet been released. However, rate surveys of more recent competitive offers show an increasing number meeting or beating prices in deregulation-exempt areas. [See Exhibit 12 and Exhibit 13].

The Impact of Higher Residential Rates Under Deregulation: 2002-2015

The Aggregate Impact: Imputed Higher Costs Exceed $26 Billion In the Aggregate.

Exhibit 4: Average electric prices in Texas charged by deregulated providers have been consistently higher than average prices charged by providers exempt from deregulation. The exhibit at right depicts the potential impact of these higher prices. The green bars illustrate the higher costs imputed to Texans in deregulated areas, in the aggregate, when their average rates are compared to averages outside deregulation. These imputed higher costs range from about $500 million per year to more than $3.5 billion. Note, however, that the differential has declined precipitously since the 2006-2010 time period. The aggregate total from 2002 through 2015 exceeds $26 billion in higher costs.

Chart: Exhibit 2
Chart: Exhibit 3

The Individual Impact: Imputed Higher Costs Exceeds $5,300 on Per-Customer Basis.

Exhibit 5: This exhibit depict added costs not in the aggregate, but rather for a hypothetical individual ratepayer. The yellow bars illustrate the higher costs imputed to such a hypothetical Texan who pays average deregulated electricity prices, as compared to average prices for a Texan outside deregulation. Considered in this per-customer fashion, the imputed extra costs range from about a $110 per year to $732 per year. For purposes of comparison, this exhibit assumes per-customer monthly electricity usage of 1,300 kWh. The 2002-2015 total exceeds $5,300 on a per-customer basis.

Benchmark Analysis: 2015 Electric Prices

  • In 2015 Texans in deregulated areas paid, on average, 12.22 cents per kilowatt hour for residential electricity, while the average price of electricity in areas of Texas exempt from deregulation was 10.65 cents per kilowatt hour. The corresponding nationwide average was 12.55 cents.  [See Exhibit 1].

  • Had Texans under deregulation paid the same average residential prices for electricity as Texans in areas exempt from deregulation, Texans under deregulation would have saved $1.3 billion in 2015. [See Exhibit 4].

  • A typical customer living in a deregulated area of Texas (defined as a customer paying average deregulated prices and consuming 1,300 kilowatt hours of electricity every month) could have saved approximately $244 in 2015 if he or she instead had paid average prices charged to Texans outside deregulation. [See Exhibit 5].

2013-2015: Inside and Outside ERCOT

Exhibit 7: Residential Electric Prices

Chart: Exhibit 5

This exhibit depicts three years of average residential prices for areas inside and outside the area of the state’s primary power grid. This grid, administered by the Electric Reliability Council of Texas, covers most of the state and includes both deregulated and non-deregulated areas. As shown here, average residential prices in deregulated Texas were higher than average prices in areas of Texas without deregulation — whether those non-deregulated areas were inside or outside ERCOT.

Source: United States Energy Information Administration

2013-2015: All Customer Classes

Exhibit 6: Combined Residential, Commercial and Industrial Prices

Chart: Exhibit 6

This exhibit depicts electricity prices among all customer classes (residential, commercial and industrial) during three years: 2013, 2014 and 2015. Average prices for these customer classes combined were lower in Texas during these years than they were nationwide. This exhibit also shows average prices inside and outside areas of Texas with deregulation.

Source: United States Energy Information Administration

  • In 2015, the average statewide price of electricity (both inside and outside areas of Texas with deregulation) for all customer classes (residential, commercial and industrial) was 8.7 cents. This beats the 10.41-cent nationwide average price. [See Exhibit 6].

  • In 2015, average residential electricity prices charged by deregulated providers within the region served by the Electric Reliability Council of Texas (the state’s primary power grid operator) were higher than prices charged by deregulated exempt providers within that region.  [See Exhibit 7].

Average Residential Electricity Prices

Exhibit 8: Texas and United States — 1990-2017*

Chart: Exhibit 7

The statewide average price for residential electricity remained below the national average for many years prior to the implementation of the Texas deregulation law. But after Texas deregulated its retail electric market, the statewide average price for residential electricity surpassed the national average. It also remained significantly above that mark for many years. Note, however, that average residential prices in deregulation-exempt areas of Texas remained consistently below the national average after implementation of the deregulation law. By contrast, average prices in deregulated areas remained consistently above the national average (also see Exhibit 1). This dynamic suggests that high residential electricity prices in deregulated Texas contributed to the comparatively high statewide average price after 2002.

Also note that this exhibit shows average statewide residential prices in Texas spiking above the national average in 2001. Although that spike occurred before the deregulation of the state’s retail electricity market, it nonetheless was a function of deregulation. This is because the Texas Public Utility Commission allowed utilities in 2001 to collect excess earnings and high fuel surcharges as a down payment on anticipated collections from the restructuring law.  Average statewide residential prices in Texas dropped after the deregulated market opened in 2002 because the fuel surcharges expired and because the deregulation law mandated a 6 percent cut in base rates.  Average statewide residential prices then remained above the national average through 2010.

This exhibit does not distinguish between prices in areas of the state that are currently deregulated and non-deregulated prior to 2002. This is because the federal data to conduct that granular analysis are not readily available. The same is true for the years 2016 and 2017.

SourceUnited States Energy Information Administration & Electricity Data Browser

*2017 data through March 2017

Chart: Exhibit 8

Residential Electricity Prices

Exhibit 9: Percentage Increases 2002-2015

Residential electricity prices increased in deregulated areas of Texas from 2002 through 2015 by 46.57 percent, which is less than the 49.88 percent increase registered nationwide. However, electricity prices in areas of the state exempt from deregulation increased by less than 40 percent during that period.

SourceUnited States Energy Information Administration & Electricity Data Browser

Transmission and Distribution Charges

Although monopoly transmission and distribution utilities operate under regulation, their rates impact electricity prices charged by competitive retail electric providers. This is because transmission and distribution utility rates are non-by-passable, which means they are included in a uniform fashion in the rates charged by all retail electric providers that operate in each utility’s service territory.

Rate increases since 2003 by the Oncor utility (operating in the Dallas-Fort Worth area) and the CenterPoint Electric utility (operating around Houston) have outpaced inflation. Transmission and distribution charges paid by Oncor and CenterPoint customers also comprise an increasing share of monthly electric bills.

Non-Bypassable Charges: CenterPoint

Exhibit 10: (September 2003 – March 2017)

Chart: Exhibit 9

Transmission and distribution charges
(in dollars, on 1,000kWh monthly bill)

Transmission and distribution utilities operate as regulated monopolies, even in areas of Texas with deregulation. The rates assessed by these utilities continue going up, sometimes at a rate well beyond that of inflation. For instance, rates charged by CenterPoint Electric in the Houston area have increased 67.2 percent since 2003. In 2003, CenterPoint charges comprised 20.2 percent to 29.2 percent of a typical 1,000 kWh electric bill. In 2017, CenterPoint charges comprised 29 percent to 50.1 percent of a typical bill. All electric customers in deregulated areas around Houston must pay CenterPoint’s rates, regardless of the retail electric provider the customer chooses for service.

Source: Archived TDU Rate Summaries, PUC

Non-Bypassable Charges: Oncor

Exhibit 11: (September 2003 – March 2017)

Chart: Exhibit 10

Transmission and distribution charges
(in dollars, on 1,000kWh monthly bill)

Rates charged by Oncor utility in the Dallas-Fort Worth area increased by nearly 66 percent since 2003. That rate outpaces the rate of inflation. In 2003, Oncor charges comprised 20.1 percent to 27.4 percent of a typical 1,000 kWh electric bill. In 2017, the charges comprised 29 percent to 51.4 percent of a typical bill. All customers in deregulated areas of the Dallas-Fort Worth region must pay Oncor’s rates, regardless of the retail electric provider the customers choose for service.

Source: Archived TDU Rate Summaries, PUC

Recent Competitive Offers

An April 2017 survey of electricity deals in Houston reveals 18 competitive offers with prices lower than the electricity price paid in San Antonio. Houston is the largest city in Texas with deregulation. San Antonio is the largest city exempt from deregulation. This finding is in contrast to previous years, in which Public Utility Commission surveys revealed far fewer deals in Houston with lower prices than in deregulation-exempt San Antonio. [See Exhibit 12].

An April 2017 survey of electricity deals in the Dallas-Fort Worth area reveals 23 competitive offers with prices lower than the electricity price paid in San Antonio. [See Exhibit 13].

Electricity Prices (Houston-Area)

Exhibit 12: Competitive Houston-Area Offers vs. Residential Prices in Deregulation-Exempt Area
(According to PUC Price Surveys, as of March 2017)

Chart: Exhibit 11

Average electricity prices paid by Texans living in areas outside deregulation have been consistently lower than average prices paid in deregulated areas. But that doesn’t mean that Texans can’t find plenty of good deals in deregulated areas. This exhibit shows many individual retail offers in the Houston area (as listed in a PUC rate survey for April 2017) that are lower than the residential price of electricity in San Antonio. Houston is the largest city in Texas with deregulation. San Antonio is the largest city exempt from deregulation. This finding is in contrast to the early years of the Texas deregulation law, in which PUC surveys revealed  far fewer deals in Houston that were lower than the San Antonio regulated rate. This exhibit also lists electricity prices in other areas of Texas exempt from deregulation. All data has been retrieved from PUC rate surveys.

Electricity Prices (DFW-Area)

Exhibit 13: Competitive DFW-Area Offers vs. Residential Prices in Deregulation-Exempt Area
(According to PUC Price Surveys, as of March 2017)

Chart: Exhibit 11

This exhibit shows individual retail electric offers in the Dallas-Fort Worth area, as listed in a PUC rate survey for April 2017. Those offers are shown in green. Exhibit 13 also shows electricity prices in many deregulation-exempt areas of Texas. These are marked in blue. The price of electricity in San Antonio, which is the largest city in Texas exempt from deregulation, is shown in yellow.

About the Author

R.A. "Jake" Dyer

R.A. "Jake" Dyer

Is a policy analyst for TCAP, a coalition of cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.

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