The best energy plan for your home

Last Updated: March 18, 2025

How Texas Energy Rates Are Set

In Texas’s competitive ERCOT market, your electricity price is a stack of building blocks: wholesale energy, delivery (TDU) charges, policy fees and taxes, and the retail plan you choose. Below we unpack each block with public sources from EIA, the Texas PUC, ERCOT, and DOE FEMP.

Rate building blocks: wholesale, delivery, policy, retail plan

1) The building blocks of a Texas rate

  • Wholesale energy (ERCOT): Prices are formed in the day‑ahead and real‑time markets. Scarcity adders based on the Operating Reserve Demand Curve (ORDC) raise prices when reserves get tight. See ERCOT’s ORDC methodology and the biennial ORDC report.
  • Delivery (TDU) charges: Oncor, CenterPoint, AEP Texas, TNMP, and LP&L maintain the poles, wires and meters. These delivery charges are regulated and flow through to you regardless of which REP you pick. Learn more on the PUC’s bill explainer and Chapter 25 Substantive Rules (full PDF here).
  • Policy fees & riders: Non‑bypassable charges authorized by the PUC (e.g., advanced metering, energy efficiency) appear on bills. See the Utili‑Facts on Charges on Your Electric Bill.
  • Your retail plan & risk: REPs convert those costs into fixed, indexed, time‑of‑use, or prepaid plans. Price reflects fuel risk, hedging cost, credit risk, and customer service.

2) Inside ERCOT pricing

ERCOT runs a day‑ahead market and a real‑time market. When operating reserves tighten, ORDC scarcity adders lift prices to reward flexibility and maintain reliability. This makes extreme heat/cold days pivotal for annual costs.

ERCOT market timeline: day-ahead vs real-time with ORDC scarcity adders

Sources: ERCOT ORDC; ERCOT ORDC Biennial Report.

3) Why fuel, weather, and wires matter

  • Fuel & generation mix: Texas prices track fuel costs and available generation. See EIA’s explanation of price drivers and the Electricity portal.
  • Transmission & distribution: Grid build‑out and storm repairs feed into TDU tariffs. See PUC rates & tariffs.
  • Weather: Peak days drive annual costs through higher market prices and demand charges (for businesses).

4) Plan types and how they price risk

Fixed vs Indexed vs Time-of-Use plan comparison
  • Fixed‑rate: One price per kWh for the term. You pay a premium for the REP to hedge wholesale and weather risk.
  • Indexed/variable: Tied to a published index (e.g., market or fuel). Expect month‑to‑month swings with wholesale conditions.
  • Time‑of‑use: Cheaper off‑peak, higher on‑peak. Shifting usage can materially lower your bill.
  • Business tariffs: Demand and power factor charges matter. Use FEMP’s checklist to evaluate utility rate options.

5) What your Electricity Facts Label (EFL) tells you

Before you enroll, review the EFL for average price at 500/1,000/2,000 kWh, base charges, bill credits, renewable content, and early termination fees. See PUCT rules in Chapter 25 (EFL requirements).

6) Who delivers your power?

Delivery (pole & wire) companies— Oncor, CenterPoint, AEP Texas, TNMP, and LP&L— are assigned by location and the charges are the same no matter which retail provider you choose.

7) Smart ways to lower your rate exposure

  • Match plan type to your usage shape (night‑owl households often benefit from TOU).
  • Right‑size term length to your risk tolerance and market conditions.
  • For businesses, manage demand peaks and consider curtailable load or automation.
  • Audit your bill charges using the PUC’s guide to understand your bill.
Checklist for evaluating rate options