How Electricity Plan Pricing Works:
A Guide to Savings
Knowledge is power, but when it comes to shopping for electricity plans, knowledge is savings!
Shopping for a new electricity plan can be confusing, but it doesn’t have to be. Here, we’ll explain how electricity plan pricing works in simple and easy-to-understand terms. Knowing how electricity plan pricing works will give you an edge and newfound confidence when shopping for a new electricity plan.
What We'll Cover
Summary of What We'll Review
What Are You Paying for with the Electricity Plan Price?
The price for an electricity plan covers the cost of the electricity, as well as its delivery and maintenance. Two different companies perform these services, and both costs are included in a single electricity plan.
The Three Price Buckets of an Electricity Plan
Usage Charges – Charges based on the amount of electricity (kilowatt hours – kWh) you use.
Fixed Fees – Recurring monthly charges regardless of the amount of electricity you use.
Modifiers – These can change and fluctuate each month depending on various factors defined in the contract, potentially leading to inconsistent billing.
How Electricity Bills Are Calculated
Step One
Your electric bill is calculated as a simple, straightforward plan using the usage charges defined in your contract multiplied by how much electricity you use. That amount is then added to any fixed monthly charges.
Calculation: (Usage (kWh) * Usage Charges) + Fixed Fees = Monthly Bill
Usage Charges = Provider Energy Charge + TDU Usage Charge
Fixed Fees = Provider Base Charge + TDU Delivery Charge
Step Two
Your bill is adjusted with any applicable Plan Modifiers – Providers will first calculate your electric bill as mentioned in Step One and then apply any applicable modifiers.
Bill Credit Plan
Example: Receive a $125 Credit if you use 2000 kWh. If your usage is at least the bill credit trigger amount, the credit amount will be subtracted from your monthly bill.
Calculation: Monthly Bill (from Step One) – Bill Credit Amount = New Bill Amount
Time of Use Plans
Example: Free Electricity from 11 p.m. to 5 a.m. Usage during free time is multiplied by the usage charges and then subtracted from the Monthly Bill.
Calculation: Monthly Bill – (Usage from 11 p.m. to 5 a.m. * Usage Charges) = New Bill Amount
Monthly Minimums
For example, a Minimum Charge of $200. The Monthly Bill is calculated and compared to the minimum amount. The provider will use whichever is higher.
• If the Monthly Bill is more than the Minimum, then use the Monthly Bill
• If the Monthly Bill is less than the Minimum, then use the Minimum
What to Look for in an Electricity Plan to Understand its Pricing
Provider’s Energy Charge: The purchase price of electricity you agree to pay the provider per kWh of electricity you use.
Advertised Pricing Pattern: Check all three advertised prices at 500, 1000, and 2000 kWh.
Look Beyond the Cheapest Price: See a really low price? Like most everything else, if it seems too good to be true, it probably is.
Term: Be sure to know when the plan expires
The Electricity Facts Label (EFL) is Your Friend
Use the Electricity Facts Label (EFL). It’s your friend. We show you the key components of an electricity plan in our detailed plan cards, but we encourage our customers to review the EFL for the plan as it provides every detail.
Note: We use screenshots of our electricity plan cards to illustrate examples. The examples below are from the “Explore Plan Details” section of our plan cards. If you’re unfamiliar with our plan cards and want to learn more, you can do so here.
What Exactly Are You Paying For?
First, it’s important to know what you’re paying for when you sign up for an electricity plan in Texas. Did you know you’re paying two different companies when you pay your electric bill?
It’s a common misconception that the plan’s advertised price is just for the electricity, but that’s only half the equation. The price also includes having it delivered to your home. Buying electricity and having it delivered are two separate functions performed by two separate companies, both of which are covered in your electricity bill.
Provider
The company you purchase electricity from is the provider, more formally known as the Retail Electricity Provider (REP). They are responsible for buying electricity from the wholesale market and selling it directly to customers. Additionally, they manage the customer relationship, including account management, plan pricing, and billing. The provider is the one who sends you your electric bill each month and is commonly referred to as the electric company.
TDU
The utility supplier, or TDU (Transmission and Distribution Utility), delivers electricity to your home. They manage all the power lines and infrastructure needed to deliver and maintain the electricity. Their fees are included in your electricity bill and are passed through to the utility supplier by your provider.
Customer interactions with TDUs are typically limited to reporting outages. Don’t know the TDU that services your area? Click here to find yours.
You can think of the Provider as the business side of your electricity plan and the TDU as the construction side. You have a choice when it comes to which provider to use, but you don’t have a choice for TDUs. TDUs service specific areas of Texas, and yours is determined by where you set up electricity service.
It's All in the Details
At Texas Electricity Finder, we want customers to know precisely what they’re getting with their new electricity plan. That’s why we break down the charges so you can see where your money is going. Click “Explore Plan Details” on the plan card to find these details.
Learn more about how to read our plan cards and how they can help you navigate the Texas Electricity Market.
Electricity Plan Pricing Buckets
All cost-related items of an electricity plan can be broken down into three buckets.
Usage Charges
These charges are based on the amount of electricity you use, and are multiplied by your monthly kilowatt-hours (kWh). The more electricity you consume, the higher your usage charges will be.
There are two Usage Charges:
Provider’s Energy Charge
TDU Usage Charge
Fixed Fees
These are recurring monthly charges that you pay regardless of the amount of electricity you use.
There are two Fixed Fees:
Provider’s Base Charge
TDU Delivery Charge
Modifiers
These can change and fluctuate each month depending on various factors as defined in your contract. Modifiers can lead to inconsistent billing, so it’s important to understand how they work.
Examples:
Bill Credits
Minimums
Time of Use
Usage Charges
Every electricity plan includes usage charges, which represent the price you pay per kilowatt-hour (kWh) of electricity. For fixed-rate plans, this charge remains consistent throughout the contract, offering price stability. For variable-rate plans, however, it fluctuates each month based on changes in the wholesale electricity market.
The total price per kWh is a combination of two components: the Provider’s Energy Charge (the purchase price of electricity from the provider) and the TDU Usage Charge (the cost to deliver that electricity to your home). While we display these charges as a combined ‘Total Price per kWh’ for simplicity, you can view the individual breakdown in the plan details.
Provider vs. TDU Charges
The Provider’s Energy Charge is the purchase price of electricity, which varies depending on the plan and provider. In contrast, the TDU Usage Charge is the cost of delivering electricity to your home. This is the same for everyone in your area, regardless of the provider or the plan you choose.
Not to Be Confused with the Advertised Price
Usage Charges represent the price you pay per kWh before any discounts or credits are applied. The Advertised Price factors in credits, discounts, and other adjustments averaged across three specific kWh usage levels: 500, 1000, and 2000 kWh.
Fixed Fees
These are regular monthly charges that are billed regardless of the amount of electricity you use.
Fixed Fees are included in most plans, but not all. Similar to Usage Charges, Fixed Fees have two components: the Provider’s Base Charge and the TDU Delivery Fee.
Provider's Base Charge
Not all plans have a Provider’s Base Charge, but for those that do, the charge is generally between $5 and $10.
TDU Delivery Charge
As with Usage Charges, the TDU Delivery Charge is the same for everyone in your area and across providers. The only TDU that currently does not have a monthly delivery charge is Lubbock Power & Light. For the others, these fees typically range between $4 and $8.
Pro Tip
A $10 Provider’s Base Charge equals roughly 1¢ per kWh in the plan price. So, a 13¢ plan with a $10 provider base charge would essentially be the same as a 14¢ plan with a $0 base charge at 1000 kWh.
Plan without a Provider’s Base Charge
Plan with a Provider’s Base Charge
Modifiers
Modifiers are where things can get interesting and could cost you more than you expect. Providers create plans and use creative ways to attract customers.
Modifiers can change the billed amount calculated from your Usage Charge. As stated earlier, the Usage Charges do not change for the plan, but that doesn’t mean providers can’t modify the bill amount after it’s been calculated.
Below are a few of the more common modifiers.
Bill Credits
Bill credits are the most common modifiers because they can drastically lower an advertised price, making the plan more attractive to customers.
To take advantage of these credits, it’s essential to know your electricity usage. You need to use at least the amount of kilowatt-hours (kWh) that triggers the credit, and ideally, stay within 500 kWh of the trigger amount. If your usage falls below the trigger or exceeds it by more than 500 kWh, you could end up overpaying for electricity.
Time of Use (TOU)
Time of Use (TOU) plans are where the Usage Charges vary depending on the time of day. The per-kWh energy charge changes, offering different rates during different time periods.
Knowing your usage is key! Providers assume a percentage of your usage will fall under the discounted timeframe. To realize the savings, your actual usage during the discounted timeframe must align with the provider’s estimated usage. More often than not, they do not line up. Providers typically assume more than what the customer actually uses during the discounted time.
Popular TOU plans include Free Nights and Weekends and EV (Electric Vehicle) Plans.
Minimums
A minimum charge is the least amount you will be billed for electricity service in a billing cycle, regardless of how much electricity you use. Even if you use very little or no electricity, you will still owe the minimum amount
Plans with minimums generally have a lower per-kWh charge, which can be advantageous during months when your electricity usage is higher.
Plan with a Bill Credit
Details of the Bill Credit are in the Plan’s description
Time of Use plan. Details are in the description
How Electricity Bills Are Calculated
Understanding how providers calculate your monthly electric bill allows you to look beyond the Advertised Prices and see how an electricity plan will apply to your specific situation.
In this section, we’ll highlight the two steps providers use to calculate your monthly electric bill, giving you a clearer understanding of how electricity plan pricing works.
With this knowledge, you’ll become a savvy shopper and avoid the hidden and unexpected costs that can come with some electricity plans.
The Two Steps of Calculating Your Electric Bill
Electricity bills are calculated in two steps:
1. Providers calculate the cost associated with the Purchase and Delivery of Electricity.
2. Once they determine the initial cost, they then apply any applicable modifiers
The first step applies to all electricity plans, while the second only applies to more complex plans with modifiers. Even though step two only applies to more complex plans, it’s important to note that the modifiers (e.g., discounts and credits) are only applied to your monthly bill if you meet the requirements for those discounts and credits.
Why This is Important
The key is to understand what you’re paying before any modifiers. That way, if you don’t meet the requirement for the discount or credit, which a lot of people don’t, you’ll know what to expect to pay. This is why most people are surprised when their first electric bill is higher than expected. They assumed they would receive the advertised price, not realizing they wouldn’t meet the requirements for that price.
Simple, straightforward plans are transparent—what you see is what you get, and the advertised prices are what you’ll pay. However, with more complex plans that include modifiers, your actual cost for electricity can be much higher, and you’ll only achieve the advertised price if you meet certain criteria. It’s crucial to understand your usage and other factors to ensure you qualify for the advertised rate; otherwise, you could end up overpaying for electricity.
For more information, read about How Electricity Bills Are Calculated.
What to Look for in an Electricity Plan
As you navigate the Texas electricity market, here are a few things to look for in an electricity plan to understand its pricing. These insights will help you quickly identify simple plans and help you avoid overpaying and surprise electric bills.
Providers Energy Charge
The primary difference between electricity plans lies in the charges set by providers. As mentioned earlier, TDU charges remain the same for everyone in your area, regardless of the provider. What makes each plan unique are the charges determined by the provider.
Providers use various strategies to create plans with attractive pricing. However, many of these plans are designed to benefit only a small group of customers who meet specific criteria, leaving most customers paying more than they expected.
One constant to focus on across all plans is the Provider’s Energy Charge. This represents the actual cost of electricity you’re purchasing. While modifiers and discounts can lower your final bill, the energy charge is the actual purchase price of electricity, which is essential to know if you don’t meet the discount criteria. Identifying a plan with a low ‘Provider’s Energy Charge’ is a great starting point for finding a plan that works well for most customers.
Advertised Pricing Patterns
Check the three advertised prices for 500, 1000, and 2000 kWh. The advertised prices for a simple plan without modifiers will decrease slightly as the usage goes from 500 to 2000.
In these two sample plans, you can see how one plan has consistent pricing, gradually decreasing from 500 to 2000 kWh, whereas the other plan fluctuates in price due to the bill credit.
Both are good plans. You just need to find the right one for you.
Look Beyond the Cheapest Price
Like most things in life, if it seems too good to be true, it probably is. If you see a plan for 11¢ per kWh and all the others are around 14¢, there’s probably a reason for that. Don’t fall victim to the low-price game. It’s a tough game to win.
The key here is to be a savvy shopper. Use the insights we covered and look for the modifiers to ensure the plan is right for you.
Term
A lot of people skip over the term. Don’t do it; it could cost you! It’s important to know when a plan expires. Plans that require you to renew during peak months may have lower short-term prices. Short-term plans are notorious for really low rates if they expire in June or July.
Pay attention to long-term plans as well. Don’t lock in a rate for 36 months just because you want to avoid having to shop for electricity for three years. Getting out of that long-term plan can be costly if rates drop before the plan expires. You’ll either lose out on the savings of the lower electricity prices, or you could be subject to hefty early termination fees.
Texans can save up to
$500 per year
by switching to a new electricity plan
explore affordable plans in your area
The Electricity Facts Label (EFL) is Your Friend
When it comes to understanding how electricity plan pricing for a specific plan, there’s no better resource than the Electricity Facts Label. We strongly recommend reviewing the Electricity Facts Label (EFL); it’s your best ally! While our detailed plan cards highlight key details of each plan, the EFL provides every detail about the plan.
The EFL is an essential tool for consumers in Texas. It’s designed to deliver clear and transparent details about an electricity plan, helping you make informed decisions. In a deregulated market where Retail Electric Providers (REPs) offer plans with varying rates, fees, and terms, the EFL ensures a standardized format for comparing plans side by side, giving you the confidence to choose the plan that works best for you.
Components
There are five components or sections to every EFL:
1. Header: This shows the provider, the plan name, the TDU for the plan, and the date the EFL was created or last updated.
2. Electricity Pricing: Includes all pricing details about the plan. Pay close attention to the Description/Special Conditions section for key information.
3. Other Key Terms and Questions: Covers special terms and questions about the plan.
4. Disclosure Chart: Provides additional details about the plan, such as type of plan (fixed or variable rate), term, early termination fees, etc…
5. Provider Info: Contact and other information about the provider offering the plan
Learn more about Electricity Facts Labels here.
In Closing
There are plenty of options when it comes to electricity plans in Texas. Some are simple and straightforward, while others are complicated and confusing. Being a savvy shopper is the key to avoiding overpaying and getting into a plan that’s not right for you.
We hope this guide is helpful in your search for a new electricity plan. At Texas Electricity Finder, we provide all the tools you need to find the perfect plan with the perfect provider.
Start your savvy shopping today! Enter your zip code and find your new perfect electricity plan.
Want to know more ways to Save? Check out our Tips and Ticks to be a Smart Electricity Shopper!
We gathered some of our most insightful tips to help you become a savvy shopper and avoid the pitfalls of choosing a costly plan when shopping for electricity in Texas.
Visit our Knowledge Center for more ways to become a smart electricity shopper.
If you found this helpful and think others could also benefit from reading it, share it!