Electricity Prices in Texas
A Snapshot Report
Texans buying electricity from competitive providers historically have paid higher prices, on average, than Texans receiving power from providers exempt from competition.
But this new analysis from the Texas Coalition for Affordable Power reveals that the persistent price gap has dwindled to the narrowest point ever recorded – and that it has almost vanished altogether.
Average residential electricity prices in areas with competition also have decreased precipitously during a recent 10-year period, while they slightly increased in areas without competition.
Taken together, these developments suggest that the 17-year-old deregulated retail electric market in Texas is delivering the best results so far for the state’s residential consumers.
However, not all the pricing trends are positive for Texans living 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 prices in deregulation-exempt areas. This has been true for every year for which data exist to conduct this analysis.
Moreover, pricing surveys conducted by Texas regulators during early 2019 indicate that several deregulated-exempt municipal and vertically integrated utilities during the survey period delivered better electricity prices for residential consumers than competitive providers.
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 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.
Major findings include:
Exhibit 1: Residential Price Increases
For 15 Deregulated States, Including Deregulated Texas
Although residential electricity prices have increased in areas of the state with electric deregulation since 2002, that increase has not been as great as that registered in most other states with competitive retail markets. From 2002 through 2017, only deregulated Maine and New York have registered smaller rate increases.
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 Texas.1
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 rates. As this analysis shows, the results have been mixed.
How to Read This Report
This report includes five discrete analytical sections: a Benchmark Analysis of Long-Term Trends, a “Lost-Savings” Analysis, a Benchmark Analysis of 2017 Electric Prices, a review of Transmission and Distribution Charges, and a review of Recent Competitive Offers.
Both benchmarking analyses employ data obtained from the United States Energy Information Administration (US EIA). The long-term 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 2017. This analysis does not extend to 2018 and 2019 because the necessary US EIA data for those years are not yet available.
However, this report also includes a Recent Competitive Offers section that samples more up-to-date individual offers in deregulated areas around Houston and Dallas. Readers can find these pricing samples from 2019 rate surveys conducted by the Public Utility Commission (PUC).
The section entitled “Transmission and Distribution Charges” includes rate comparisons from two separate years (2003 and 2018) for the state’s two largest monopoly wires companies, Oncor Electric Delivery (Oncor) and CenterPoint Energy (CenterPoint). Readers can find the underlying data for this analysis on the PUC’s website.
For readability purposes, this report employs certain words and phrases 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.
Texans enjoyed residential electricity rates below the national average for many years prior to the adoption of the retail electric deregulation law in 1999.2
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 5].
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 deregulation.3
However, fluctuations in natural gas prices alone cannot explain the historic disparity between average electricity prices inside and outside deregulated areas of Texas. For every year for which data exist with which to conduct this analysis — that is, between 2002 and 2017 — average residential prices in deregulated areas of Texas have been higher than average prices in deregulation-exempt areas. [See Exhibit 2].
Moreover, average residential prices in Texas, statewide, remained below the national average for at least a decade prior to the implementation of retail electric deregulation in 2002. Shortly after the law took effect, in 2003, residential prices in deregulated areas rose above the national average, and they remained above national averages for most years afterwards. Electric prices in areas exempt from deregulation continued below the national average after 2002 and, with the exception of one year, have stayed below national averages for the entire history of deregulation in Texas.
This report quantifies the gap in deregulated prices and those charged in areas exempt from deregulation through “lost savings” analyses found in Exhibit 7 and Exhibit 8. These analyses calculate the imputed savings that would have accrued to Texans living in areas of Texas with deregulation had they instead paid the same average prices as Texans living in areas exempt from deregulation.
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 in deregulated areas. 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.
In addition, some research suggests that cross-subsidization between rate classes in non-competitive areas may have contributed to lower residential prices in non-competitive areas relative to prices charged in competitive areas.4
Price Gap Narrows
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 2017 than during any other year since 2002, the first year of the Texas deregulation law.
Less than two-tenths of a cent separated average residential prices in areas of Texas with deregulation and those without deregulation during 2017. It remains unclear whether that minuscule gap disappeared completely in 2018 and 2019 — or whether the trend of higher prices in deregulated areas has continued — given the unavailability of necessary data from those years for which to conduct the analysis.5
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 true in 2017, which was the last year for which data exist to conduct this analysis. It also has been true for every year in between.
The gap in residential electricity prices in deregulated and non-deregulated areas of Texas widened precipitously during the early years of the new market, but then narrowed by a similarly dramatic fashion in recent years.
During the first six years of deregulation in Texas — from 2002 through 2007 — prices in areas that remained deregulation-exempt increased by 29.1 percent. However, prices increased at more than twice that rate in deregulated areas, by 69.7 percent.
During the subsequent 10-year period, from 2008 through 2017, average residential prices slightly increased in deregulation-exempt areas (.4 percent), and decreased by 23.7 percent in deregulated areas.
In 2017, the last year for which data exist to conduct these benchmark analyses, the difference in deregulated and non-deregulated residential prices has narrowed to its smallest point on record: 1.1 percent.
Section 1: Long-Term Trends Benchmark Analysis
- 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 2017 — that is, for every year for which US EIA data exists to conduct this analysis. [See Exhibit 2]. Over those years, average residential prices in deregulated areas have been between 1.1 percent (2017) and 46.5 percent (2006) higher than average prices in deregulation-exempt areas.
- From 2008 through 2017, average residential electricity prices at the national level increased by 52.7 percent, which was a greater rate than price increases in both deregulated and deregulation‑exempt areas of Texas. During that period, the percentage increase in average residential prices in deregulation-exempt areas of Texas was 43.88 percent, which was greater than the 33.21 percent increase in deregulated areas of Texas. [See Exhibit 6].
- A shorter view — that is, confining the analysis to the 10 years from 2007 through 2017 — reveals that average residential prices have dropped in deregulated areas by 23.74 percent, while they increased in areas exempt from deregulation by 0.42 percent. [See Exhibit 2].
- When it comes to residential pricing trends, deregulated Texas compares relatively well against other deregulated states. The 2002-2017 price increase observed in deregulated Texas stands as the third lowest increase among 15 deregulated states during that period. [See Exhibit 1].
- Annual average residential electricity prices in deregulated areas of Texas have been higher than the nationwide average during 10 of the 16 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 years (2005). [See Exhibit 2].
- It remains unclear whether the historic disparity between average electric prices in deregulated and non-deregulated areas continues after 2017 because the necessary data to conduct those analyses are not available. However, March 2019 rate surveys conducted by the PUC show some deregulation-exempt municipal and investor-owned utilities were then delivering better residential prices than competitors in Dallas and Houston. [See Exhibit 11 and 12].
Section 2: 2017 Electric Prices Benchmark Analysis
- In 2017, Texans in deregulated areas paid, on average, 11.10 cents per kilowatt hour for residential electricity, while the average price of electricity in areas of Texas exempt from deregulation was 10.98 cents per kilowatt hour. The corresponding nationwide average was 12.89 cents. [See Exhibit 2].
- In 2017, the average statewide price of electricity (both inside and outside areas of Texas with deregulation) for all customer classes (residential, commercial and industrial) was 8.4 cents. This beats the 10.5-cent nationwide average price. [See Exhibit 3].
- In 2017, 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) was 11.10 percent. That was higher than the 10.77 average kWh price charged to residential customers by deregulation-exempt providers within that region, but lower than the 11.18 cents charged by non-dregulated providers in those areas of Texas outside of ERCOT. [See Exhibit 4].
Exhibit 3: 2017 Prices All Customer Classes
Residential, Commercial & Industrial (COMBINED)
This exhibit examines electricity prices among all customer classes (residential, commercial and industrial) during 2017. The average statewide price in Texas for all such customers — that is, prices inside and outside areas overseen by ERCOT, and prices among both deregulated providers and providers exempt from deregulation — was 8.38 cents per kWh. More granularly, the average Texas electricity price for all customer classes combined in areas exempt from deregulation was 8.81 cents per kWh. That was higher than the 8.113-cent per kWh average price paid by all customer classes combined in areas of Texas subject to deregulation. Measured by any of these benchmarks — inside deregulation, outside deregulation, or statewide — average electric prices for all customer classes combined in Texas beat the 10.48-cent per kWh average price nationwide.
Exhibit 4: 2013-2017: Inside & Outside ERCOT
Residential Electric Prices
The state’s primary grid operator, ERCOT, oversees the transmission system in about 85 percent of the state. Deregulated service providers and those exempt from deregulation both operate within this service territory. In areas of the state outside of ERCOT, all service providers are exempt from deregulation. As this series of exhibits illustrates, average deregulated prices in Texas were higher in 2013, 2014, 2015, 2016 and 2017 than those average prices charged by ERCOT providers exempt from deregulation.
Exhibit 5: Average Residential Electricity Prices
Texas & United States
The statewide average price for residential electricity remained below the national average for many years prior to the implementation of the Texas deregulation law. After Texas deregulated its retail electric market, the overall statewide average price for residential electricity surpassed the national average and 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 for many years (also see Exhibit 2). This dynamic suggests that high residential electricity prices in deregulated Texas contributed to the comparatively high statewide average price after 2002.
This first of the two charts above 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 likely 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 six percent cut in base rates. Average statewide residential prices then remained above the national average through 2010. [For more about this, see TCAP’s separate report on the History of Texas Electric Deregulation.]
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 2018 and 2019.
Exhibit 6: Residential Electricity Price Increases
50 States, District of Columbia, Texas Inside & Outside Deregulation
Percentage Increases — 2002-2017
Residential electricity prices increased in deregulated areas of Texas from 2002 through 2017 by 33.2 percent, which is less than the 52.73 percent increase registered nationwide and also less than the 43.88 percent increase registered in areas of the state exempt from deregulation.
Source: United States EIA-861 Files
Section 3: Lost-Savings Analysis
“Lost savings,” as defined in this report, is the imputed savings that would have accrued to Texans living in areas of Texas with deregulation had they paid the same average prices as Texans living in areas exempt from deregulation. The report examines lost savings both market‑wide and on an individual level — and for each year for which data is available to conduct the analyses.
- All told, Texans living in deregulated areas would have saved more than $27 billion through lower residential electricity bills from 2002 through 2017 had they paid the same average prices as Texas living outside deregulation. For 2017 alone, that lost savings amounts to about $101.7 million. [See Exhibit 7].
- On an individual basis, a typical residential customer under deregulation (defined as a customer paying average deregulated prices and consuming 1,300 kilowatt hours of electricity every month) would have saved more than $5,500 from 2002 through 2017 had he or she paid the same average prices as those charged outside deregulation. This imputed “lost savings” amounts to about $18.88 for a typical household in 2017 alone. [See Exhibit 8].
Exhibit 7: $27 Billion in Lost Savings
The Price of Higher Residential Rates Under Deregulation
Average electric prices in Texas charged by deregulated providers have been consistently higher than average prices charged by providers exempt from deregulation. The exhibit above measures the potential impact of these higher prices. The colored bars illustrate the aggeregate savings that would have accrued to Texans in deregulated areas had they instead paid the lower average rates charged in areas outside deregulation. The lost savings ranges from about 101 million per year in 2017 to more than $3.5 billion in 2006. The good news for Texans living in deregulated areas is that the disparity is trending downward. Providers exempt from deregulation include investor-owned utilities within Texas but outside the ERCOT region, municipally-owned utilities and electric cooperatives.
*This exhibit analyzes the most recent relevant pricing data from the U.S. Energy Information Administration, as of the time of publication. Only residential prices rates are examined.
Exhibit 8: $5,500 in Imputed Lost Savings*
This exhibit compares electricity costs for a typical customer paying average rates charged by deregulated retail electric providers in Texas to costs for a customer with the same usage but paying average rates charged by Texas providers exempt from deregulation. Considered in this per-customer fashion, the imputed “lost savings” ranges from about $732 per year per customer in 2006 to $18.88 per year in 2017 – the smallest amount on record by far. For purposes of comparison, this exhibit assumes monthly electricity usage of 1,300 kWh.
Section 4: Transmission & 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. [See Exhibits 9 and 10].
Exhibit 9: Non-Bypassable Charges: CenterPoint
(September 2003 – March 2019)
Rates charged by CenterPoint Electric in the Houston area have increased by more than 72 percent since 2003. In 2003, CenterPoint charges comprised 20.2 percent to 29.2 percent of a typical 1,000 kWh electric bill. In March 2019, CenterPoint charges comprised approximately 29.7 percent to 38.7 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.
Exhibit 10: Non-Bypassable Charges: Oncor
(September 2003 – March 2019)
Rates charged by Oncor in the Dallas-Fort Worth area increased by nearly 50 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 March 2019, the charges comprised 26.1 percent to 34.2 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.
Section 5: Recent Prices
- Among adjoining states, residential prices in adjoining Oklahoma, Louisiana and Arkansas were lower during 2018 than in Texas. Residential electric prices in 2018 were higher in adjoining New Mexico and nationwide. [See Exhibit 13].
- Adjoining Arkansas, Louisiana and Oklahoma also enjoyed lower average industrial electric rates in 2018, while adjoining New Mexico had higher industrial rates. Average industrial prices were also higher nationwide than in Texas. [See Exhibit 13].
- Among all classes of customers (Residential, Commercial and Industrial combined), lower average rates were found in adjoining Arkansas, Louisiana and Oklahoma during 2018, and higher in adjoining New Mexico and nationwide [See Exhibit 13].
- Public Utility Commission surveys of electricity deals in March 2019 reveal that several non-deregulated vertically-integrated and municipally-owned utilities in some parts of the state were then selling electricity at better prices than all surveyed competitive providers around Houston and Dallas. [See Exhibits 11 and 12].
Exhibit 11: Electricity Prices (Houston Area)
Competitive Houston-area Offers versus Residential Prices in Deregulation-Exempt Areas
According to PUC price surveys, March 2019
This exhibit shows a number of individual retail offers in the Houston area, as listed in a PUC rate survey for March 2019. This exhibit also lists electricity prices in other areas of Texas exempt from deregulation. San Antonio is the largest city exempt from deregulation. All data has been retrieved from PUC rate surveys.
Exhibit 12: Electricity Prices (Dallas Area)
Competitive Dallas-area Offers versus Residential Prices in Deregulation-Exempt Areas
According to PUC price surveys, March 2019
This exhibit shows a number of individual retail offers in the Dallas area, as listed in a PUC rate survey for March 2019. This exhibit also lists electricity prices in other areas of Texas exempt from deregulation. San Antonio is the largest city exempt from deregulation. All data has been retrieved from PUC rate surveys.
Exhibit 13: Average Electricity Prices 2018
Texas and Adjoining States
This exhibit shows that in 2018, overall electric prices for all customer classes in Texas combined (residential, commercial and industrial) were higher than they were for all customer classes in all adjoining states, except New Mexico. Texas residential and industrial electricity customers also paid more during 2018 than did customers in adjoining states, except New Mexico. Texas commercial electricity customers paid more than did commercial customers in adjoining Arkansas and Oklahoma.
About US EIA Data & PUC Data
This analysis employs data collected by the United States Energy Information Agency (US EIA), which is the statistical and analytical arm of the U.S. Department of Energy. US EIA data is known to be impartial, and is widely cited by economists, scholars, industry experts, the news media and governmental agencies — including the PUC.
The consistent manner in which the agency conducts its calculations across all 50 states allows analysts to make apples-to-apples market comparisons. How does the US 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 US 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 (ERCOT), and for the state’s residential, commercial and industrial customers.
Employing US 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 PUC.
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‑by‑passable, 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.
About the Texas Coalition for Affordable Power
Unlike the sponsors of 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.
2 “Deregulated Electricity in Texas,” Texas Coalition for Affordable Power, December 2012.
3 Public Utility Commission of Texas Docket No. 40000, Memorandum to Commissioner Kenneth W. Anderson, Jr. from Chairman Donna Nelson at 1 (Aug. 9, 2013).
4 “Electricity Reform and Retail Pricing in Texas,” Peter R. Hartley, Kenneth B. Medlock III, Olivera Jankovska,” Journal of Energy Economics, Jan. 5, 2019.
5 In contrast to findings in this report, 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 website data, while TCAP’s findings are extrapolated from US EIA data. See more about the use of US EIA and PUC Data.