Commercial electricity in Texas is where providers make their real money—because most business owners don’t understand how they’re being billed.
Here’s what they don’t explain: That residential rate you see advertised? It doesn’t apply to your business. Commercial billing includes “demand charges” that can double your effective rate. Contract terms stretch to 5 years with early termination fees in the thousands. And salespeople work on commission, which means their incentive is to lock you into the most profitable contract for them, not the best deal for you.
Small business owners who don’t understand commercial electricity get exploited. Let’s make sure you’re not one of them.
Residential vs. Commercial: What’s Different
The electricity flowing through the wires is identical. But how you’re billed for it changes significantly when you cross from residential to commercial service.
Different Rate Structures
Residential rates are typically straightforward: a fixed rate per kilowatt-hour (kWh), maybe a base charge, and delivery fees. Use 1,000 kWh, pay 1,000 times your rate.
Commercial rates add complexity:
- Demand charges (more on these below)
- Time-of-use pricing that varies by hour
- Tiered consumption rates that change based on total usage
- Power factor adjustments for certain equipment
Different Contract Terms
Residential contracts usually run 6 to 36 months. Commercial contracts can extend to 5 years or longer. Longer terms often mean better rates, but they also lock you into a price while the market might drop.
Different Providers
Some REPs (Retail Electric Providers) focus exclusively on commercial accounts. Others that serve residential customers might have separate commercial divisions with different rates and service levels. The provider that’s cheapest for your home might not be cheapest for your office.
Different Shopping Process
Residential shopping is self-service—browse plans online, sign up in minutes. Commercial shopping often involves custom quotes, usage analysis, and negotiation. Your business is worth more to providers, so they’ll work harder to win (and keep) your account.
Demand Charges Explained
This is where most business owners get tripped up. Demand charges don’t exist in residential billing, so they come as a surprise.
What Demand Charges Are
Your electricity bill has two main components:
Energy charges: How much total electricity you used (measured in kWh). Think of this as total gallons of water through a pipe over a month.
Demand charges: Your peak electricity draw at any moment (measured in kW). Think of this as the widest the pipe needed to be to handle your highest flow.
If your business runs steady equipment all day, your demand charge might be low relative to your energy usage. But if you have equipment that creates brief spikes—commercial HVAC kicking on, restaurant equipment during dinner rush, manufacturing startups—your demand charge could be surprisingly high.
How Demand Is Measured
Your utility meter records your usage in 15-minute intervals (sometimes 30-minute). The single highest 15-minute average becomes your demand charge for the month.
Example: Your office typically draws 10 kW. But one afternoon, the AC compressors, copier, and breakroom appliances all kick on simultaneously, spiking you to 25 kW for 20 minutes.
That 25 kW spike becomes your demand charge for the entire month, even though you only hit it once.
Why Demand Charges Exist
The utility has to build infrastructure capable of handling peak demand, even if that peak only happens briefly. Demand charges help pay for that infrastructure capacity.
Reducing Demand Charges
Smart business owners manage their demand:
- Stagger equipment startups instead of turning everything on at once
- Shift high-draw activities to off-peak hours when possible
- Consider demand controllers that automatically manage loads
- Review your load profile to identify and eliminate unnecessary spikes
Some providers offer commercial plans with lower demand charges in exchange for higher energy rates. Depending on your usage pattern, this trade-off might make sense.
Contract Terms for Businesses
Commercial contracts deserve more scrutiny than residential ones because the stakes are higher and the terms more complex.
Contract Length
Short-term (12-24 months): More flexibility, but higher rates. Good if you’re uncertain about your business’s future or expect the market to drop.
Mid-term (24-36 months): Balance of rate savings and flexibility. Most common for small businesses.
Long-term (36-60 months): Best rates, but you’re locked in. Works well for stable businesses with predictable growth.
Watch out for: Automatic renewal clauses that extend your term at higher rates if you don’t actively cancel.
Early Termination Fees (ETFs)
Commercial ETFs can be substantial—often calculated as a flat fee per remaining month, or as a percentage of your estimated remaining contract value.
Before signing, calculate what you’d owe if you had to break the contract after 6 months, 12 months, etc. Some businesses have been shocked by five-figure termination fees.
Rate Structure Options
Fixed rate: Same price per kWh for the entire contract. Predictability wins, even if you miss out when market prices drop.
Variable rate: Fluctuates with the market. Can be cheaper overall, but creates budget uncertainty. Dangerous if you can’t absorb price spikes.
Indexed rate: Tied to a published index (often wholesale ERCOT prices) plus a fixed margin. More transparent than variable, but still exposes you to market swings.
Block and index: Part of your usage at a fixed rate, part at indexed rates. Balances stability and potential savings.
Usage Bands and Minimums
Many commercial contracts include minimum usage requirements. If your business uses less than projected, you might pay penalties or be forced onto a different rate tier.
Review carefully: What happens if your business shrinks? What if you become more energy efficient? Make sure your contract doesn’t penalize you for using less.
When to Shop: Contract Timing Strategy
Timing matters in commercial electricity shopping. The market fluctuates, and when you lock in your rate can make a significant difference over a multi-year contract.
The 90-Day Window
Start shopping 60-90 days before your contract expires. This gives you time to:
- Get multiple quotes
- Negotiate terms
- Handle paperwork without rushing
- Avoid automatic renewal at unfavorable rates
Most providers will honor quotes for 30-60 days, so you don’t have to wait until the last minute.
Seasonal Pricing Patterns
Texas electricity prices tend to follow patterns:
Higher rates: Late spring through summer, when providers anticipate peak cooling demand.
Lower rates: Fall and winter, when demand is lower and providers compete harder for business.
Signing a contract in October or November often gets you better rates than signing in June.
But don’t oversimplify: Market conditions vary year to year. Natural gas prices, weather forecasts, and grid capacity all affect wholesale rates. A mild summer prediction might mean good rates in spring.
Market Conditions to Watch
Natural gas prices: Most Texas electricity comes from gas-fired plants. When gas prices rise, electricity rates follow.
Grid capacity: New power plants coming online can push rates down. Plant retirements can push them up.
Renewable growth: More wind and solar capacity has generally helped moderate prices, especially during peak sun and wind hours.
Regulatory changes: ERCOT rule changes, transmission upgrades, and reserve requirements all affect the market.
Multi-Year Considerations
If rates are historically low, locking in a longer term makes sense. If rates are elevated, a shorter contract lets you renegotiate when conditions improve.
No one can perfectly time the market. But being aware of these factors helps you make informed decisions rather than just accepting whatever quote arrives first.
Questions to Ask Providers
When you’re shopping for commercial electricity, don’t just compare headline rates. Ask these questions to understand what you’re actually signing up for.
About Pricing
- “Is this an all-in rate, or are there additional fees?”
- “What’s included in the energy charge? What’s billed separately?”
- “How are demand charges calculated, and what rate applies?”
- “Are there any minimum usage requirements or fees?”
- “What happens to my rate if I use significantly more or less than projected?”
About Contract Terms
- “What’s the early termination fee, and how is it calculated?”
- “Does this contract auto-renew? At what rate?”
- “When and how will I be notified before contract expiration?”
- “Can the rate change during the contract period for any reason?”
- “What happens if my business moves to a different location?”
About Service
- “Who do I contact for billing questions? Service issues?”
- “Do you have dedicated commercial account managers?”
- “How quickly do you respond to billing disputes?”
- “What online tools do you offer for monitoring usage and managing my account?”
About the Company
- “How long have you been serving commercial accounts in Texas?”
- “What percentage of your customers are commercial vs. residential?”
- “What’s your customer retention rate?”
- “Are there any pending regulatory issues or financial concerns I should know about?”
Red Flags to Watch For
Reluctance to provide written quotes: If they’ll only discuss rates verbally, walk away.
Pressure to sign immediately: Legitimate providers give you time to review.
Vague answers about fees: If they can’t clearly explain every charge, expect surprises.
Unusually low rates with no explanation: Either there are hidden fees, or the provider is financially unstable.
Getting Quotes and Comparing Offers
What You’ll Need
Providers will want:
- 12 months of usage history (get this from your current provider or TDU)
- Meter number and service address
- Business details (entity type, years in operation)
- Expected changes (expansion plans, efficiency projects, new equipment)
Comparing Apples to Apples
Create a spreadsheet with:
- Energy rate (per kWh)
- Demand rate (per kW)
- Monthly base charges
- Any other fees
- Contract length
- ETF calculation
- Renewal terms
Plug in your actual usage data to calculate total annual cost for each quote. The lowest rate per kWh doesn’t always mean the lowest total bill.
Negotiation Room
Unlike residential plans with fixed pricing, commercial quotes often have wiggle room. If you have multiple quotes, use the competition:
- “Provider B offered me X rate. Can you match it?”
- “I’ll sign a 36-month term if you can reduce the demand charge.”
- “What incentives do you offer for new commercial customers?”
Providers would rather discount than lose your business to a competitor.
The Bottom Line
Commercial electricity in Texas isn’t as simple as picking the lowest rate from an online comparison. Demand charges, contract terms, and timing all affect what you actually pay.
Take time to understand your usage patterns. Get multiple quotes. Read the contract before signing—especially the sections about termination and renewal.
The deregulated Texas market gives your business real choices. Make sure you’re making an informed one.
Need to compare specific providers? Check out our provider profiles to see how major commercial providers stack up, or visit our comparison pages for head-to-head analysis.