Well, you aren’t crazy. The price of electricity has gone up(1). And it’s not really a surprise considering everything going on in the world right now. We’re up against steadily climbing oil and gas prices, extreme weather conditions, and an increased demand for power.
Texas is one of the biggest states in the U.S. That means it has some big shoes to fill when it comes to providing energy for its residents. As scorching hot temperatures in the Lone Star State begin to drop, homeowners might still feel the tingle in their pockets from burning money on their electricity bills.
We’re talking about the cost of power in Texas in this blog and answering some of the questions you might have about your electric bill.
Did the price of electricity go up in Texas?
The buzz surrounding rising energy prices is nothing new. Over the last year, electricity prices have skyrocketed by 15.8% across the U.S.(10)
There are a few things at play here. For starters, 60% of our electricity(2) is generated from the use of fossil fuels, and most of that is natural gas. Next is the war in Ukraine which has significantly driven up the cost of gas. The bottom line: everything is getting more expensive. Let’s dig into this further.
Factors involved increasing electricity rates in Texas
Although the U.S. imports most of its oil from Canada(3) and only about 8% from Russia, we’re still feeling the effects of the war overseas. Oil and gas prices are set in the international market.(4)
Russia ranks as the third largest oil and natural gas supplier (5) in the world. The country supplies about 40%(6) of the European Union’s natural gas imports, and even more to individual European countries.(7)
However, the war has made oil harder to retrieve(8) and therefore more expensive for consumers. That brings us back to how we generate electricity with natural gas. Such a major global event was always bound to hit American pocketbooks.
As of September 2022, the average residential electricity rate in the U.S. is 15.42 cents per kilowatt-hour (kWh). Electricity rates are rising all over the country.
The price of electricity has been steadily going up in Texas.(11) This year, many residents saw a whopping 19.9 cents per kWh(9) on their August 2022 electric bills. That’s a huge difference from February, where we saw averages of 12.8 cents per kWh. Let’s take a look into a few factors that might be the cause.
There’s a downside to deregulation
Deregulation means that the government doesn’t set a standard for the cost of any given entity. This allows electric companies to compete for customers. It also ensures that supply and demand to drive cost without setting a ceiling or floor for rates.
So, did the price of electricity go up in Texas? We might’ve found one of the culprits. Here’s a rundown of some Texas history you might not have learned:(12)
- In 2002, Texas electricity was deregulated through Senate Bill 7.
- Consumers now have the freedom to choose a utility company through an open market.
- Electricity providers could range from 12 to 15 or more options in a single area, each with different rates and varying associated fees.
- Using tools like the one offered by PowerWizard, residents can shop various plans in their area. Results can sometimes feature more than 200 plans.
- Nearly 85% of Texas residents live in an area with deregulated electricity and pay significantly higher rates than those in a regulated area.(13)
Needless to say, competition is stiff for electric companies in Texas. But variety doesn’t mean affordable. It doesn’t point to quality either. Early last year, the Texas power grid left thousands in the dark during the catastrophe we’ve come to know as “The Big Freeze.”
You’re paying for price adders, too
A price adder is an additional fee that’s (in this case) added to the wholesale price of electricity.(14) Typically, price adders are used for scarcity pricing (when supply is limited) or when there’s peak usage, like during a very hot Texan summer.(15)
An important fact to understand: retail electric companies don’t generate electricity; they buy it.(16)
When demand is higher, electricity rates are higher. Your electric company has to purchase power at a higher wholesale rate and more than likely, they’re charging you more to recoup their cost through price adders.
It sure is getting hot in here
It’s no secret that temperatures are rising as well. Dry spells and droughts are nothing new to Texans, and this summer was notably one of the hottest of all time.(17) More than half of the energy consumption in the average American household goes straight to heating and cooling. (18)
Extreme temperatures do a number on the power grid and these conditions are becoming more common as climate change transforms the world around us. According to Gallup, 1 in 3 Americans have been affected by extreme weather.(19,20) When faced with extreme conditions, consumers tend to use their power more to either heat or cool down their homes for longer periods of time. As mentioned above, a rise in demand comes with a rise in cost.
When supply is low and demand is increasingly high, it is reasonable to expect costs to begin rising.
The power grid is old and faulty
We’ve definitely said this before, but the power grid might be on its last leg. Don’t believe us? Ask Popular Science, who reported that the U.S. has “more power outages than any other developed country.”(21)
But we’re not talking about blackouts this time. For more information on how extreme temperatures and an ill-equipped power grid are causing more blackouts, check out this blog.
It comes down to just plain old infrastructure. About 70% of the transmission and distribution lines (about 600,000 miles) are well past their prime. Couple that with demand, and it’s amazing our power grid is still standing. The electrical grids have been pushed to the brink, constantly balancing the supply and demand for energy.
In 2020, American electrical consumption reached about 3.8 trillion kilowatt hours (kWh). That’s 13 times greater than it was in 1950! Our demand for power has surely increased, so the ways we generate should evolve as well.
Moreover, the cost of transmission and distribution in Texas remains regulated by the government, and that’s increasing too. Your electric provider is also paying to use the distribution infrastructure (the power lines, etc.) and guess who’s also having to foot the bill for that? Make sure you’re looking at the fine print when selecting an electricity plan. It could make a difference in how much you’re paying every month.
So, did the price of electricity go up in Texas?
Electricity rates are affected by our ability to obtain the resources needed to generate power.(22)
America’s dependence on non-renewable resources, like coal, oil and natural gas, means fluctuations in the supply that drives costs up. So, yes, electricity prices are rising.
However, there is proof that the use of renewable energy to generate electricity could be a cost effective alternative.(23) Contact one of our Solar Energy Specialists today to discover the ways solar panels could help you have more predictable monthly costs and combat rising rates.