ERCOT and Texas electricity rates

Texas is an electrical island by design. ERCOT covers roughly ninety per cent of the state's load and is not synchronously connected to the rest of the country, which keeps it outside FERC's wholesale market jurisdiction.

It is also the only major American market with no capacity payment at all. Generators earn from energy and ancillary services alone, and scarcity pricing during tight conditions is the mechanism meant to signal new investment. The design puts more risk on generators and, as Winter Storm Uri demonstrated, more tail risk on anyone exposed to wholesale prices.

Generation is dominated by natural gas and wind, with solar and battery capacity growing faster than anywhere else in the country. West Texas wind and Permian-adjacent solar have added enormous zero-fuel-cost supply, which holds average prices down; gas sets the marginal price when they are not producing.

Texas rates rose moderately over the past year, less than the PJM states and less than New England, which is what a market with no capacity charge and a lot of new zero-fuel generation looks like.

The costs still being worked through are from February 2021. Wholesale prices hit the cap for days during Uri, several retailers failed, and the resulting costs are still being recovered through charges appearing on bills across the state.

Load growth is the medium-term question. Texas is adding data centres, electrified oilfield operations and manufacturing quickly, and an energy-only market resolves scarcity through price rather than through a planned reserve margin.

Texas is the one state where plan choice dominates everything else, because nearly the whole bill in the competitive area is supply.

Read the Electricity Facts Label before signing. The most common expensive mistake in Texas is a plan whose advertised rate applies only at exactly 1,000 kWh and is much worse either side of it; the label shows the rate at 500, 1,000 and 2,000. Avoid wholesale-indexed residential plans entirely. And put the contract expiry date in your calendar the day you sign, because holdover rates are usually far above market and the rollover is automatic.

Outside the competitive area, municipal utilities such as Austin Energy and CPS Energy and the co-operatives operate under the traditional model with no choice available.