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How are Electricity Rates in Texas Determined?

Electricity Bills Change from Month to Month, State to State. What Factors Influence the Fluctuating Costs of Electricity Rates?

Like death and taxes, electric bills represent an unavoidable part of life for most Americans. Calculated simply, customers pay for the wattage used multiplied by the kWh cost. In the United States, one kWh costs on average $0.13. But, the electricity rates vary dramatically by state. The average consumer in Louisiana pays $0.09 per kWh, while the average Hawaiian customer doles out nearly $0.30 per kWh. In Texas, folks pay $0.12 on average. But even within the state of Texas, electricity rates can very wildly.  For example, in the Dallas/ Fort Worth area, Gexa Energy offers a plan for 5.6¢ per kWh.  In Houston the best rate available is 6.8¢ per kWh.

So, what gives? Who calculates the electricity rate? And what causes the price for power to change? In part, state regulations can dictate additional fees. But several variables have a role in determining the inevitable cost on the consumer.

Fuel

Electricity can be generated using different forms of energy, including fossil fuels such as gas and coal, or renewable fuels such as wind or solar power. All of these sources may contribute electricity to the overall regional grid — yet each corresponds to a different cost. One source reported renewable power at $0.04 to $0.06 per kWh and fossil fuels between $0.05 and $0.17 per kWh. But these costs change each year due to more efficient technologies.

Facilities

Beyond the fuel source itself, one must consider the cost of operating and maintaining the facilities to store fuel and generate power. These factors include construction costs, employee salaries, and safety mechanisms. These prices can range dramatically depending on the energy source. Wind turbines need specialty maintenance and continued care. Nuclear facilities undergo frequent inspections and part replacement and must ensure the safe shipping and storing of waste.

Distribution

After generating power, it must be distributed throughout the consumer network. Beyond the general construction of power lines and maintenance of this transmission system, companies must consider security and safety. Certain fuels must be transported throughout the country as well, including train networks for coal and pipelines for natural gas.

Regional Weather

Weather symbolizes one of the most influential factors in determining electricity cost. Extreme cold or heat leads to subsequent heating or air conditioning demands — the number one culprit in electricity consumption. Increased demand leads to higher utility rates. Conversely, weather events such as frequent high winds can make wind turbines more effective and lower electric costs. Regions with more extreme weather events might lose power more frequently and require additional investment for damages.

So, after adding the regulatory fees, the facility construction, the cost of fuel and its transport, consumer demand, and the price for repairs to the system, one can tally the bottom line on that electric bill.

Competition

Competition is another important factor in the pricing of electricity.  Electric companies in Texas and other deregulated markets must compete with each other to offer the cheapest electricity rates in order to win customers.  The puts the responsibility on consumers to keep their bills lower by shopping for electricity and comparing rates to find the best deal for your situation.  Vaultelectricity.com was created in the early days of deregulated electricity in Texas to put all the best options in one place to make comparing and selecting an electricity plan easier.

 

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