Last Updated on October 18, 2024 by Mary Pressler
Need Electricity for Your Small Business? We’ve Got You Covered.
Electric choice is available in Texas for both residential consumers and businesses, but there are important differences between their power bills. If you’re looking for a residential electricity plan, you can simply choose among the many options available online. On the other hand, if you need a small business electricity in Texas, there are two possible scenarios:
- Companies with a consumption of up to $2,500 and less than five power meters are classified as small and medium businesses. Like homeowners, they can choose an electricity plan online.
- Companies with a consumption of over $2,500 or 5+ power meters can request custom electricity quotes by using this form.
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Average Small Business Electricity Prices in Texas
On average, small business electricity prices in Texas are lower than the residential ones. According to the latest electricity rate data from the Energy Information Administration, the US had the following average residential, industrial, and commercial electricity rates in each sector as of September 2023:
- Residential = 16.29 cents/kWh
- Commercial = 13.25 cents/kWh
- Industrial = 8.53 cents/kWh
In the case of Texas, the US EIA reported the following average kWh rates:
- Residential = 14.58 cents/kWh, 10.5% below US average
- Commercial = 9.42 cents/kWh, 28.9% below US average
- Industrial = 8.00 cents/kWh, 6.2% below US average
As you can see, Texas electricity rates are below the US average. Electricity rates increased sharply in 2022 when high inflation was affecting most sectors of the economy. However, kWh prices have remained more stable in 2023: The average electricity rate has been around 14 cents/kWh in Texas and 16 cents/kWh nationwide.
Choosing Small Business Electricity Rates in Texas
When you compare electricity plans online, there is a very important difference between residential and commercial plans. Residential plans will show the total kWh electricity rate you pay, which includes:
- The energy charge, paid to the retail electric provider (REP)
- The delivery charge, paid to the transmission and distribution utility (TDU)
TDU charges for commercial users are more complex, and the electricity plans available online only show the energy charge. This means the electricity plan only reflects the amount paid to the REP, but the actual power bill is higher when you add TDU charges. Unlike residential customers, who are subject to the same TDU delivery charges in a given service territory, businesses may be subject to different charges depending on their designation.
Small business owners should consider a few things before selecting an electricity plan. The plan with the lowest kWh price is not necessarily the best option, and the terms and conditions should be carefully reviewed before signing up. Business energy plans don’t have an Electricity Facts Label (EFL) like residential plans, which means you need to be extra careful when comparing them.
Texas business electric rates change throughout the year, and the highest prices are typically charged during summer. However, businesses have the option of renewing their electricity plan up to six months before the expiration date, and you can take advantage of this to secure a lower energy rate.
How TDU Charges Work in Small Business Electricity Plans
Commercial TDU charges in the ERCOT region are determined by your rate category, which is assigned based on your energy consumption profile and type of power meter:
- Secondary Service Less than 10 kW
- Secondary Service Greater than 10 kW
- Primary Service
- Lighting Service
Unlike residential TDU charges, which are generally smaller than energy charges, commercial TDU charges can represent more than 50% of a company’s power bill. Small businesses normally fall into one of the first two categories, which are subject to the following charges:
Secondary Service Less than 10 kW (TNMP – Less than 5 kW)
Secondary Service Less than 10 kW (TNMP – Less than 5 kW)
| TDU | Fixed Monthly Charge | Delivery Charge
(Per kWh) |
Demand Charge
(Per Peak kW) |
| Oncor | $6.87 | 3.7984 ¢ / kWh | None |
| AEP Texas Central | $5.79 | 5.8216 ¢ / kWh | None |
| AEP Texas North | $5.79 | 4.7230 ¢ / kWh | None |
| CenterPoint Energy | $4.58 | 3.4950 ¢ / kWh | None |
| Texas-New Mexico Power | $8.36 | 5.7216 ¢ / kWh | None |
Secondary Service Greater than 10 kW (TNMP – Greater than 5 kW)
| TDU | Fixed Monthly Charge | Delivery Charge
(Per kWh) |
Demand Charge
(Per Peak kW) |
| Oncor | $32.43 | 0.0642 ¢ / kWh | $10.332973 / kW |
| AEP Texas Central | $14.69 | 0.0958 ¢ / kWh | $11.532479 / kW |
| AEP Texas North | $14.69 | 0.0958 ¢ / kWh | $10.45824 / kW |
| CenterPoint Energy | $10.41 | 0.2915 ¢ / kWh | $9.40501 / kW |
| Texas-New Mexico Power | $24.56 | 0.1216 ¢ / kWh | $12.030553 / kW |
As you can see in the tables above, businesses with a peak demand of over 10 kW (5 kW in the case of TNMP) pay much lower delivery charges per kWh. However, the fixed monthly charges become much higher, and demand charges are added to the bill.
TDU charges are normally updated twice per year in March and September, with approval from the Public Utility Commission of Texas (PUCT). This applies to both residential and business electricity rates. Note that TDU charges are updated for all electricity consumers, even if you have a fixed-rate electricity plan.
What Are Demand Charges in Texas Small Business Electricity Plans?
One of the most important differences between residential and commercial electricity plans is the presence of demand charges. Residential consumers are only billed for the total amount of energy used, but many businesses are also billed for the demand caused by the grid.
Here is a simplified example that explains the concept:
- Assume two companies both use 100,000 kWh per month.
- However, one company reaches power consumption peaks of 500 kW, while the other company only reaches 250 kW.
- Both companies use the same amount of electricity, but the first company places twice as much demand on the grid.
For this reason, the company with a 500 kW consumption peak can expect higher demand charges.
In Texas, demand charges for businesses are calculated each year based on the concept of Four Coincident Peaks (4CP). ERCOT identifies the four hours when the grid experiences the highest demand during each of the four summer months: June, July, August, and September. The demand charges paid by your company will be determined by your measured demand during those four hourly intervals of high consumption (4CP).
Nobody knows when the Four Coincident Peaks will happen each summer, but ERCOT publishes alerts when a potential 4CP event is detected. If your company can reduce its kilowatt demand during these critical hours, you may achieve a drastic reduction of demand charges for an entire year (until next summer when ERCOT measures a new set of 4CP hours).
Demand Charges in Business Power Bills: A Quick Example
The TDU tariff category can have a major impact on business power bills. Here is a simplified example that demonstrates how this works:
- Assume two small businesses are consuming 3,500 kWh per month with an energy charge of 9 cents/kWh, in the Oncor service territory.
- However, Company #1 has a peak demand of 8 kW while Company #2 reaches 16 kW.
In this case, both companies get the same energy charge of $315 ($0.09 x 3,500 kWh), but their TDU charges are very different.
Company #1 has a peak demand of 8 kW, which means there is a fixed fee of $6.87 and a variable fee of 3.7984 cents/kWh. The total TDU charge is $139.81, and the total amount billed after adding the energy charge is $454.81.
Company #2 has a peak demand of 16 kW, which means there is a fixed fee of $32.43 and two variable fees: 0.0642 cents/kWh and $10.332973/kW. The total TDU charge is $200.00, and the total amount billed is $515.00.
Note how the power bill increases by over $60 due to TDU charges for Company #2, even when both have the same consumption and energy price. Residential consumers only need to watch their kWh usage, but peak demand is also important for businesses.
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