How Are Energy Rates Set in Texas?

Learn about the factors impacting your electricity rate.

Written by Dominique Sabins

Edited by Jamie Cesanek

Last updated February 5, 2025

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• Retail electric providers (REP) set the cost of electricity for plans in their service area.
• Multiple factors influence the cost of electricity, including weather, utility fees, power grid infrastructure, and more.
• Your electricity rate includes the cost of electricity as well as transmission charges.

Who sets energy rates in Texas?

In Texas’ deregulated energy market, retail electric providers set electricity rates and sell power plans to consumers. Since multiple providers operate in a given service area, they may adjust prices to compete for your business. While providers can set and adjust prices, the Public Utility Commission of Texas (PUCT) regulates energy companies to ensure reliable service and fair rates.

Why are Texas energy rates so high?

According to the latest data update from the Energy Information Administration (EIA), Texas’ residential electricity rates are up about 5.5% compared to last year. The main reasons energy costs have increased yearly are population growth, extreme weather, and aging infrastructure. Keep reading to learn more about the factors impacting Texas electric rates.

Factors impacting your electricity bill

Multiple factors influence the final amount on consumers’ monthly bills in Texas. To help explain these components, our team spoke with Ed Hirs, an energy economist and professor at the University of Houston. With over 20 years of experience working in the energy industry, Hirs has a deep understanding of how Texas’ energy market impacts consumers.

Texas weather

Weather is a major factor impacting the cost of energy. Texans are familiar with long, hot summers that require significant air conditioning to stay cool. Since Texans use AC for over half of the year, average annual energy bills tend to be higher than in most states. To meet this demand, utility companies must transport more electricity across the power grid, which can result in price spikes.

Winter can also usher in higher prices due to extreme temperatures and inclement weather. Hurricanes and winter storms may strain the power grid as utility companies try to supply enough electricity across Texas. Similar to summer conditions, extreme winter weather increases electricity demand, which can drive up costs.

Seasonal demand

Since weather plays a significant role in Texas’ energy market, it’s important to search for a new energy plan during low demand. Electricity rates tend to be cheaper during late fall and early spring because the weather is calmer than in other seasons. SaveOnEnergy can help you browse plans and find a lower rate for your home’s power. Begin your search by entering your ZIP code or calling our team for assistance.

Texas power plants

The condition of Texas’ power plants is another factor driving up the cost of energy bills. Many of the state’s coal and natural gas power plants are reaching the end of their operational lives. Since these facilities are aging, the cost to repair them is high. In response to these expensive repairs, some power plant owners have chosen to shut down their operations over the past few decades.

“What we saw over time was a lack of capital incentive for power plant owners, so many retired and closed their plants.” -Ed Hirs

However, while Texas’ power plants decreased, the Lone Star State’s population boomed. This resulted in higher costs during extreme weather events when the need for more electricity skyrockets. Ed Hirs points to the dwindling number of power plants and aging infrastructure as two of the main reasons behind the price spikes during peak demand.

Fees from your utility company

Texas energy bills include a fee from your utility company for transporting and delivering electricity. This is often listed as a Transmission and Distribution Utility (TDU) charge. TDU delivery fees vary across the state depending on your utility company and the distance between the power plant and your home. While two households could have the same energy plan from the same provider, the TDU charge may differ if they live in different ZIP codes.

In Texas, utility charges may increase due to damaged infrastructure that needs replacing. Hirs elaborates that with old infrastructure, “poles and wires are more susceptible to damage and must be fixed by the utility company, who then passes this cost through to the consumer.” This challenge is present across much of Texas, especially during storms that damage power lines.

The shift towards renewable energy

Texas is a nationwide leader in renewable energy due to abundant sunshine and significant wind power. Solar energy and wind farms continue to grow across Texas, replacing aging coal and natural gas power plants. While the move towards renewable electricity generation is great for decreasing the reliance on fossil fuels, it has a few drawbacks. Hirs explains that the transition to renewables is currently driving up the cost of energy for consumers due to the need for new infrastructure.

“We need to add transmission lines to bring the electricity from renewable power plants into cities for consumers. The cost of transmission lines is impacting the end cost for consumers.” -Ed Hirs

Renewable power plants are widely dispersed across the state and require connections to the existing power grid and transmission lines to transport electricity. The hope is that this cost will be temporary as Texas constructs and modernizes its electricity facilities.

How to control your bill

While many factors regarding Texas electricity rates are out of your control, you can choose your energy contract and rate type. These factors influence your energy costs, and the right choice could lower your monthly bill.

Energy suppliers offer multiple types of light plans to meet customers’ needs. Energy contracts typically range between one and three years, with some providers offering month-to-month options. Depending on the length of the contract, energy providers may vary electricity rates. You can compare contract lengths and prices on our marketplace to see which option is best for your household.

There are two main rate types in Texas: fixed and variable. A fixed rate means your Texas electricity rate remains consistent with what is listed on your contract for the duration of your plan. A variable rate is tied to the market cost of electricity and can fluctuate each month with macro changes. Energy experts generally recommend a fixed-rate plan for energy savings because it protects consumers from price spikes during high energy demand in the summer and winter months.

What does this mean for Texans?

While Texans may not be able to control some of the factors driving up the cost of energy, they can control which plans and providers they choose. Approximately 85% of Texas has deregulated energy, meaning consumers can compare their options and select the cheapest plan. SaveOnEnergy can help simplify this process with our free marketplace and energy experts ready to help.