May 7, 2021

Average Texas electricity prices were higher in February 2021 due to a severe winter storm

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In February 2021, extreme winter weather affected energy supply and demand in Texas, resulting in higher electricity prices for some customers. According to preliminary data from EIA’s most recent Electric Power Monthly, the average February electricity price was higher for all customer sectors in Texas compared with the same time last year.

Industrial and commercial customers had the most significant average price increases. Prices in both sectors more than doubled compared with the previous February; industrial prices rose from 5.40 cents per kilowatthour (kWh) in February 2020 to 12.15 cents/kWh in February 2021, and commercial prices rose from 7.89 cents/kWh to 16.29 cents/kWh. Although the residential price in February 2021 was only 7% higher than it was in February 2020, it was the highest residential price since July 2008.

Changes in wholesale electricity prices can affect the prices retail electricity customers pay. Wholesale electricity prices in the Electric Reliability Council of Texas (ERCOT), Texas’s primary grid operator, averaged $22 per megawatthour (MWh) in 2020. However, during periods of strong power demand or when generating resources become unavailable, wholesale electricity prices in ERCOT increase, sometimes substantially. In February 2021, wholesale prices held at or near the $9,000/MWh ERCOT price cap for approximately 77 hours, from midnight on February 15 to the morning of February 19.

The extent to which February’s high wholesale power prices affected the amount paid by retail electricity customers depended on the rate plans in place. Most residential customers in Texas are on fixed-rate plans where they pay a set price for electricity through their electricity providers, shielding them from wholesale price increases. As a result, the average residential electricity price was only 7% higher than last February.

In contrast, average prices in the commercial and industrial sectors more than doubled because a larger share of consumers in those sectors are enrolled in dynamic pricing plans. Under the various types of dynamic pricing plans, a customer’s electricity price fluctuates, depending on factors such as power demand (higher prices during periods of high demand) and the wholesale price of electricity.

We calculate average electricity bills by dividing utility revenues by the number of customer accounts. These customer accounts vary in size. Commercial customer accounts can range from small neighborhood stores to large hotels; industrial customer accounts include both small establishments and major manufacturing facilities. Electricity bills are based on electricity prices and how much electricity customers use, collectively measured as retail sales.

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The commercial and industrial sectors in Texas saw the largest percentage increase in average electricity bills. The average commercial bill was almost twice as much in February 2021 ($1,050) as it was in February 2020 ($541).The average industrial bill rose from $1,976 in 2020 to $3,385 in 2021, a 71% increase. Residential bills increased by a relatively moderate 17% and averaged $134 in February 2021 compared with $115 in February 2020.

Average electricity sales to industrial customers were down 24% in February 2021 compared with the same time last year; commercial sales were 6% lower. Residential sales were up 9%. Although both industrial prices and commercial prices increased significantly, the percentage increase in the average industrial bill was less than in the commercial sector because of the sharper decrease in average industrial customer sales.

Principal contributors: Anodyne Lindstrom, Alex Gorski