The Lone Star State is a symbol of American ideals like liberty, self-reliance and independence. Texas embodies these traits across industries, including energy, as residents have the power to choose their electricity provider.
However, electricity doesn't appear out of thin air. Texas electricity providers need to purchase their power from somewhere, and this is where the wholesale electricity market comes into play.
What Is Wholesale Electricity?
Wholesale electricity is the power that electricity providers purchase from energy generators to sell to customers. Because wholesale electricity is purchased in bulk and directly from the source, it's much cheaper than what the average Texas resident pays.
What Is The Price Of Wholesale Electricity In Texas?
Texas's wholesale electricity market is managed by the Electric Reliability Council of Texas (ERCOT), which oversees 90% of Texas's electricity transfers.
In 2020, wholesale electricity prices in ERCOT's jurisdiction averaged at $22 per megawatt-hour (MWh). In 2019, the average wholesale price was $38 per MWh. To put that in perspective, that's 2.2 per kilowatt-hour (kWh) and 3.8 per kWh respectively.
These prices sound very low, especially given the fact that the average residential electricity rate in Texas is 11.76 per kWh. However, this is the average price for an entire year. Wholesale electricity prices change throughout the day, and can even spike up to $9,000 per MWh ($9 per kWh) in extreme conditions, as it did in February 2021.
Wholesale Electricity Rates & Plans
Since Texans have the ability to choose their electricity provider and plan, some electric companies have offered wholesale plans tied to the price of wholesale electricity. With these plans, your electricity rate will fluctuate throughout the day with wholesale prices.
While these plans may seem like a great way to save, they are extremely risky and can end up costing you much more than you ever expected. This was never more clear than during the February 2021 winter storm that caused a massive electric grid failure in Texas.
With electricity generators forced offline because of the inclement weather, wholesale electricity prices skyrocketed and maxed out at $9,000 per MWh for days.
During this storm, Texans that were on wholesale electric plans and didn't lose power saw bills in the thousands. One man even ended up with an electric bill total of over $16,000.
A Quick Note About Variable-Rate Plans
With a variable-rate plan, your electricity rate for a billing period changes each month. While not the same as a wholesale electricity plan, variable-rate electricity plans are influenced by the wholesale electricity market.
Because of this, when wholesale prices are up, that cost will be transferred to those on variable-rate plans. However, a provider can set their variable rates at pretty much whatever price they want, so even when wholesale prices are down, these plans will generally cost you more than a fixed-rate plan.
Why You Should Choose A Fixed-Rate Plan Instead
With the wild fluctuations of wholesale electricity prices, a wholesale electricity plan is just too risky an option for any Texas resident. That's why ElectricityRates.com suggests Texans stick to a fixed-rate electricity plan.
With a fixed-rate plan, your electricity rate and other terms of your plan are locked in for the duration of your contract. It doesn't matter what the wholesale market price is, what the weather is going to be for the week, or what the provider feels like charging you for the month. With a fixed-rate plan, your electricity rate will stay the same.
If you want an electricity plan that will get you the predictability you need, enter your ZIP Code above. ElectricityRates.com's expertly curated marketplace lets you compare great fixed-rate plans from leading electricity providers in seconds!