Houston is a highly congested area and because of this there are line losses and other costs associated with piping generated power into the city. These additional charges are added on to your electric rate by the state regulatory agency ERCOT who manages the power grid and by the PUCT. Houston has higher electric rates then many other cities in Texas because of the congestion in this heavily populated area. There are still many competitive electric companies to choose in Houston but finding the right company can be hard if you don’t understand what the charges are made up of and why. Your TDSP charges on your bill are non-negotiable while the “energy only” charge is can actually be negotiated lower by going out to competitive Houston electric providers and requesting electric rates quotes.
When comparing Houston electric rates it is important to try and get as many fixed rate monthly term prices as you can. It is best to stay away from variable electric rate plans as many of these plans can be changed on whatever basis the electric company desires. For instance, if you were to lock in at Cirro Energy’s variable electric rate for 12 months you may think you have signed up on the lowest electric rate out there. If you pay closer attention to the contract you will notice that you are locking in for 12 months on a contract that can be changed for any reason. This electric rate product is not what you want to get into. The truth is that most variable electric rate plans have no term. It really makes no sense that an electric company would have you sign up on a changeable rate for a time period since it is not in your advantage. If you do sign into a variable electric rate product make sure there is no term contract and that you are allowed out of the contract with no penalty.
In comparison a fixed electric rate contract in Texas is usually bought as a natural gas commodity and then hedged. Most Houston electric companies will have a 3 month electric rate term, a 6 month, 12 month, and sometimes a 36 month and 48 month Texas energy contract. These contracts are a specified monthly term because the energy company has actually gone out to the commodities market and bought a futures contract for that time. They then hedge that investment to protect themselves against price fluctuations. Finally the Houston energy company will sell it to you as an electricity contract for one of these monthly terms. Because Texas relies on natural gas as their primary commodity when creating an electric rate product to sell the residential and commercial customers, there is actually a 90% correlation with natural gas prices and electric prices in Texas. You could actually follow what natural gas is doing to determine if the Texas electric market is up or down for the day, month, or year. This is a helpful way to see what electric rates have done once you have settled into a Texas energy contract.