Tiered Rate Plans: Texas Electricity Explained

A homeowner in Plano runs the air conditioner hard in June and uses 1,800 kWh. Her neighbor, same street, same house size, uses 900 kWh. They signed up for plans advertised at nearly identical headline rates, yet their per-kWh costs end up nowhere near each other. The reason is tiered, or block, pricing: a structure where the rate you pay shifts depending on how much electricity you consume in a billing cycle.

This is one of the most common sources of bill confusion in Texas, and it is entirely avoidable once you understand how the pricing works.

A block rate plan, sometimes called a graduated rate or tiered rate plan, divides your monthly consumption into segments and applies a different per-kWh price to each segment. In Texas, Retail Electric Providers (REPs) most commonly set those dividing lines at 500 kWh, 1,000 kWh, and 2,000 kWh. These are the same breakpoints used on every plan's Electricity Facts Label (EFL), the standardized disclosure document required by the Public Utility Commission of Texas (PUCT).

Here is a simplified example of how blocks stack. Imagine a plan structured like this: the first 500 kWh costs 9 cents each, kWh 501 through 1,000 cost 8 cents each, and anything above 1,000 kWh costs 11 cents each. A household that uses exactly 1,200 kWh in a month would pay at three different rates, not one. The blended average rate works out differently from any single tier. That blended figure is what the EFL reports at each usage level, which is why the three-column table on the EFL is so important to read carefully.

Texas has some of the most creative retail electricity pricing in the country, and one quirk stands out: some plans reward high usage with a bill credit that kicks in only when you cross a consumption threshold, often exactly 1,000 kWh. The credit is applied as a flat dollar amount, which lowers the effective per-kWh average at that usage level.

This design is legal and common, but it creates a counterintuitive outcome. A customer using 999 kWh misses the credit entirely. A customer using 1,001 kWh receives it. The EFL columns at 500 kWh, 1,000 kWh, and 2,000 kWh exist specifically to let shoppers see these cliffs. If you typically use around 900 kWh per month, a plan optimized for 1,000 kWh users may cost you more than its advertised rate suggests.

Conversely, some plans apply a higher rate above a threshold, penalizing heavy users. Summer households running multiple window units or an older central system can land in the expensive top tier without realizing it until the bill arrives.

Every REP selling plans in competitive Texas markets must provide an Electricity Facts Label before you enroll. The EFL is a standardized one-page document required by the PUCT. It contains three all-in average rates: one calculated at 500 kWh, one at 1,000 kWh, and one at 2,000 kWh per month.

Those all-in figures already include the TDU (Transmission and Distribution Utility) pass-through delivery charges from the wires company serving your area, whether that is Oncor in the Dallas-Fort Worth region, CenterPoint Energy in Houston, AEP Texas in West and South Texas, or TNMP in parts of the Panhandle and Gulf Coast. Because TDU fees differ by territory, the same REP plan will show different EFL rates in different service areas.

To use the EFL correctly, look at the column that matches your typical monthly usage. Ignore the headline rate in the marketing materials if it does not correspond to your consumption level. The PUCT maintains a library of EFLs through Power to Choose (powertochoose.org), the official state shopping portal, where you can filter plans and download EFLs before enrolling.

As of July 2026, shoppers in the Oncor service area around Dallas can find all-in advertised rates as low as roughly 7.2 cents per kWh at 1,000 kWh usage, across about 131 active plans. The median all-in rate sits near 16.5 cents per kWh at that same usage level. That spread is wide, and it illustrates exactly why shopping and reading the EFL at your actual usage tier matters so much.

Rates outside the Oncor territory, or at different consumption levels such as 500 kWh or 2,000 kWh, will differ. For current rates in your specific TDU area, check our Texas electricity rates page or visit ElectricRates.org for live comparisons updated daily.

Tiered pricing is not inherently good or bad. Its value depends entirely on where your usage lands relative to the plan's structure.

Low-usage households (apartments, one-person homes, mild climates) that consistently stay under 500 kWh per month should look hard at the 500 kWh EFL column. Some plans charge a high first-tier rate or include a base charge that makes them expensive for light users, even if the 1,000 kWh rate looks attractive.

Average households around 1,000 kWh per month are in the sweet spot that most plans optimize for, partly because that is the middle EFL column and the figure REPs often use in advertising. That makes comparison easier but also means you need to be sure you actually land near 1,000 kWh each month, not just in spring and fall.

High-usage households with electric water heaters, electric vehicles, or older central air systems can easily exceed 2,000 kWh in summer. Plans with a credit that activates at 1,000 kWh may still be competitive at that level, but the 2,000 kWh EFL column is the only honest guide. Some flat-rate plans, which charge one uniform rate regardless of usage, may be simpler and cheaper for consistent heavy users.

Pull your last 12 months of usage history from your TDU's online portal before you start comparing plans. Oncor, CenterPoint, AEP Texas, and TNMP all provide usage data online, often downloadable in spreadsheet form. Identify your highest month, your lowest month, and your typical month.

With those numbers in hand, go to Power to Choose and filter by plan type and contract length. Download the EFL for any plan you are seriously considering and read the three usage columns side by side. If a plan looks great at 1,000 kWh but your summer bills push you to 1,800 kWh, calculate what three or four months at the higher tier would do to your annual average.

Watch for recurring monthly charges listed on the EFL, such as base fees or minimum usage fees, because these are already baked into the all-in rates shown on the label but can distort comparisons if one plan has a high base charge and another has none.

For a side-by-side comparison with live rates in your TDU area, ElectricRates.org's Texas page lets you filter by usage level and plan structure.

First, comparing the advertised rate instead of the EFL rate at your usage level. Advertising a 6-cent rate is legal if that rate appears somewhere on the EFL, even if only at 2,000 kWh when most customers use far less.

Second, forgetting that TDU fees change the math by territory. A plan that is the cheapest option in Houston may be mediocre in the Dallas area because Oncor and CenterPoint have different delivery fee structures. Always compare plans within your own TDU territory.

Third, locking into a long-term contract based on current usage patterns without accounting for life changes. Adding an electric vehicle, a new baby, or a pool heater can shift your monthly kWh well past the tier that made your current plan a good deal.

Texas electricity shopping is genuinely competitive, which is a real advantage for consumers willing to spend twenty minutes reading an EFL carefully. The gap between the lowest available rate and the median rate, as seen in July 2026 data for the Oncor territory, is large enough that choosing the right tiered plan for your usage level can produce meaningful savings over a 12-month contract.

Start with your usage history, match it to the correct EFL column, and compare plans across multiple REPs on Power to Choose or at ElectricRates.org. If you have questions about plan types, contract lengths, or how to read a specific EFL, the PUCT's consumer protection resources and the Power to Choose FAQ are good starting points. The information is all there. The plans that save the most money tend to go to the households that actually look.