Glossary

Texas commercial energy, demystified.

Plain-English definitions of every term, charge and acronym that shows up on a Texas business power bill or supply contract — from TDSP fees and 4CP to block & index. Curated by the UPG market desk in Lewisville.

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Market structure and regulators

ERCOT (Electric Reliability Council of Texas): The independent grid operator for about 90% of Texas electric load. ERCOT schedules generation, operates the wholesale day-ahead and real-time markets, and manages reliability for more than 26 million customers. Because the ERCOT grid sits almost entirely inside Texas, it is largely outside federal (FERC) jurisdiction — a key reason the Texas market works differently from the rest of the country.
PUCT (Public Utility Commission of Texas): The state regulator for the Texas electric market. The PUCT oversees ERCOT, certifies retail electric providers, sets the rules for transmission and distribution utilities and their delivery rates, and enforces customer protection rules. For a business buyer, PUCT decisions shape TDSP charges, market design after events like Winter Storm Uri, and the rules REPs must follow.
FERC (Federal Energy Regulatory Commission): The federal regulator for interstate electricity transmission and wholesale power markets, plus natural gas pipelines. Most of the ERCOT grid is exempt from FERC market jurisdiction because it does not cross state lines, but FERC still matters to Texas businesses through natural gas pipeline rates and policy that moves the gas prices Texas power prices track.
EIA (US Energy Information Administration): The independent statistics arm of the US Department of Energy. The EIA publishes the benchmark data energy buyers rely on: weekly natural gas storage, monthly electricity prices by state and sector, short-term outlooks and long-term projections. When a Texas energy report cites average commercial rates in cents/kWh, the underlying source is usually EIA data.
NERC (North American Electric Reliability Corporation): The nonprofit body that sets and enforces mandatory reliability standards for the North American bulk power system, including ERCOT. After Winter Storm Uri, NERC and FERC jointly drove new cold-weather preparedness standards for generators. NERC seasonal reliability assessments are an early signal of tight conditions that can move forward prices.
Deregulated market (retail choice): The Texas market structure created by Senate Bill 7 (1999), in force since 2002. Generation, wires, and retail supply are unbundled: regulated TDSPs own the wires, while competing retail electric providers sell the power. Businesses in deregulated areas choose their supplier and negotiate their rate — which is why procurement strategy, timing, and contract structure directly change what you pay.
REP (Retail Electric Provider): A PUCT-certified company that buys wholesale power and sells it to homes and businesses in deregulated Texas. The REP issues your bill, sets your contract terms, and manages supply risk. REPs range from household names to niche commercial specialists. Your REP is a counterparty, not an advisor — its pricing reflects its own risk book, which is why independent comparison matters.
TDSP (Transmission and Distribution Service Provider): The regulated utility that owns and operates the poles, wires, and meters in a Texas service area — Oncor, CenterPoint, AEP Texas, or TNMP. The TDSP delivers power regardless of which REP you choose and restores service after outages. Its delivery charges are set by PUCT tariff, appear on every bill, and typically make up 30-40% of a commercial electricity bill.
Energy broker: An intermediary who shops your load to REPs and earns a commission, usually embedded in the rate as a per-kWh adder. Texas brokers must register with the PUCT. A broker can widen your view of the market quickly, but the transaction is the product: most broker relationships end at signature. Ask how the broker is paid and what happens after the contract starts.
Energy consultant: An advisor engaged for strategy rather than a single transaction: procurement design (fixed vs block & index), market timing, bill auditing, demand management, and renewal planning across the life of the contract. United Power Group operates on this model from Lewisville, Texas. The distinction from a broker is continuing accountability — the consultant works the account between signatures, not just at them.
TEPA (The Energy Professionals Association): The US trade association for retail energy brokers, consultants, and aggregators. TEPA members commit to a code of conduct covering transparent compensation disclosure and ethical sales practices. In a market with low barriers to entry for brokers, TEPA membership is one of the few external signals that an energy advisor operates to a published professional standard.

Contracts and procurement

Fixed-rate contract: A supply contract where the energy rate in cents/kWh is locked for the full term — commonly 12 to 48 months in Texas. The REP hedges the load and charges a premium for carrying the risk. Fixed rates deliver budget certainty and protection from ERCOT price spikes, but concentrate timing risk on the single day you sign. Watch what is bundled: ancillaries and TDSP changes may still pass through.
Block & index contract: A hybrid structure where a business fixes blocks of power (set MW quantities, often shaped to business hours) at agreed prices, while the remainder settles at the real-time or day-ahead index. Blocks cover the predictable core of the load; the indexed residual captures market downside and carries market upside. Suits larger Texas loads with a defined risk policy and someone accountable for executing it.
Index contract: A supply contract priced at the wholesale market index — typically the ERCOT real-time or day-ahead settlement price for your load zone — plus the REP adder and pass-through costs. Index buyers ride the market: cheap in mild months, brutally expensive in a scarcity event. In ERCOT, an unhedged indexed load was the structure that bankrupted customers during Winter Storm Uri.
Matrix pricing: Standardized REP pricing for smaller commercial loads (typically under 1-2 GWh per year). The REP publishes a grid of rates by load profile, TDSP territory, start month, and term length. Matrix prices are quick to obtain but built on conservative assumptions, so mid-sized businesses often leave money on the table by accepting a matrix rate when their load would qualify for custom pricing.
Custom pricing: REP pricing built from your actual interval data rather than a standard matrix. The desk prices your real load shape, load factor, and 4CP behavior. For larger Texas accounts, custom pricing usually beats matrix pricing — a good load shape earns a discount the matrix can never see. It also makes quotes harder to compare, which is where independent analysis earns its keep.
Swing tolerance (bandwidth): The volume flexibility in a fixed-rate contract — how far actual usage may deviate from forecast (for example 100% swing, or a ±10% band) before penalty pricing applies. Outside the band, excess use is billed at market rates and shortfalls may be trued up the same way. Businesses planning expansions, closures, or onsite solar should negotiate swing terms before signing, not after.
Early termination fee: The charge for ending a Texas supply contract before its end date. Commercial contracts usually define it as liquidated damages: the difference between your contract rate and the current market value of the remaining term, plus costs. On a multi-year deal signed before a market fall, this can run six figures. Always obtain the calculation method in writing before signing.
EFL (Electricity Facts Label): The PUCT-mandated disclosure that standardizes how Texas electricity offers are presented: average price at set usage levels, renewable content, and contract terms. EFLs are required for residential and small commercial products; larger commercial deals are negotiated contracts without one. Reading an EFL closely — especially the pricing tiers — is the fastest way to spot a teaser rate.
Letter of Authority (LOA): A document a business signs authorizing a consultant or broker to act on its behalf with REPs and TDSPs — pulling usage history and interval data, requesting quotes, and managing switches. An LOA is not a supply contract and does not change your rate by itself. Most Texas procurement work, including an Energy Health Check, starts with one because it unlocks your actual data.
Renewal window: The period before contract expiration when renewal should be priced and decided. In ERCOT, well-run commercial renewals start 6-18 months out: forward prices can be locked far ahead, and shoulder-season dips (spring and fall) often price better than a summer panic. Businesses that wait until the final 30 days choose from whatever the market offers that week — usually the worst outcome.
Holdover rate (month-to-month): The default rate a REP charges after a contract expires with no renewal in place. Texas holdover rates are typically indexed or set at a steep premium — often 30-100% above competitive fixed rates — and can change monthly. Letting a site roll onto holdover is the most common avoidable cost in multi-site portfolios with scattered contract end dates.
Energy Health Check: A free diagnostic review offered by United Power Group: one recent energy bill is enough to check supply rate competitiveness against the current market, verify TDSP delivery charges, flag demand-profile problems such as a stale ratchet or poor load factor, confirm sales tax exemption status, and map contract end-date risk. The output is a findings summary, not an obligation to switch.

Bills, charges and metering

ESID (Electric Service Identifier): The unique 17-22 digit number identifying each electric service delivery point in Texas — one per meter location, beginning with a TDSP prefix such as 10443720 for Oncor. The ESID, not the meter number or account number, is what REPs and TDSPs use to switch, price, and bill a site. Multi-site businesses need a clean ESID inventory before any portfolio procurement.
Demand charge: A charge based on your highest rate of consumption (kW) rather than total energy used (kWh), usually measured over 15-minute intervals each month. In Texas it appears mainly inside TDSP delivery charges. A single 15-minute spike — every machine starting at once after an outage — can set the demand charge for the month, and under a ratchet clause, for months afterward.
TDSP delivery charges: The regulated portion of a Texas electricity bill paid to the wires utility (Oncor, CenterPoint, AEP Texas, or TNMP) for transmission and distribution. Components include per-kWh delivery, per-kW demand, metering, and riders for transmission cost recovery. Set by PUCT tariff and identical regardless of REP — but worth auditing, because misapplied tariff classes and stale ratchets are common and refundable.
4CP (Four Coincident Peak): The ERCOT method for allocating transmission costs to large customers. Your average demand during the four highest 15-minute ERCOT system peaks — one each in June, July, August, and September — sets your transmission charges for the following year. Facilities that can predict and curtail through those intervals cut next year's costs materially; prediction services exist precisely because the peaks are only known after the fact.
kW vs kWh: Kilowatts (kW) measure instantaneous demand — how hard you are pulling on the grid right now. Kilowatt-hours (kWh) measure energy consumed over time. A 100 kW load running ten hours uses 1,000 kWh. Texas bills charge for both: energy charges on kWh, demand-related TDSP charges on peak kW. Two sites with identical kWh can pay very different totals if one is peakier.
Load factor: Average demand divided by peak demand over a period, expressed as a percentage. A 24/7 plant might run at 80%+; a single-shift facility with sharp morning startups might sit below 40%. High load factor means cheaper power: the load is easier to hedge and the demand-related charges spread over more kWh. Improving load factor is one of the few levers that cuts both supply and delivery costs.
Peak demand: The highest demand (kW) a site registers in a billing period, normally the top 15-minute interval. Peak demand drives TDSP demand charges and, through coincidence with system peaks, 4CP transmission allocations. Managing it is operational: staggering equipment starts, sequencing HVAC, and shifting discretionary load away from late summer afternoons when ERCOT peaks.
Demand ratchet: A TDSP tariff rule that bills demand at the highest of the current month's reading or a percentage (often 80%) of the highest peak in the previous 11 months. One anomalous spike — a commissioning test, a fault, a heat-wave afternoon — can inflate delivery charges for a year. Ratchet reviews are a standard finding in Texas bill audits and a frequent source of refunds.
AMS meter (smart meter): The advanced metering system meters deployed by Texas TDSPs that record consumption in 15-minute intervals. AMS interval data is what makes custom pricing, load factor analysis, 4CP management, and accurate bill audits possible. Businesses (or their authorized consultants) can access their own interval data through the TDSP or Smart Meter Texas at no charge.
Load profile: The shape of a site's consumption across hours, days, and seasons, built from interval data. REPs price against the profile: flat, predictable load earns better rates than spiky, weather-driven load. Understanding your profile — and reshaping it where operations allow — is foundational to procurement, which is why serious quotes start with 12 months of interval data rather than an annual kWh total.
Securitization charge (Winter Storm Uri): A line item on Texas electricity bills repaying bonds issued after Winter Storm Uri (February 2021) to cover defaulted balances and extraordinary gas and ancillary costs. The Texas Legislature authorized roughly $7 billion of securitization, recovered from consumers over decades. It is a fixed legacy of the storm — unavoidable, but worth recognizing so it is not mistaken for a negotiable supply cost.

Market mechanics

LMP (Locational Marginal Price): The wholesale price of electricity at a specific point on the ERCOT grid at a specific time, reflecting the cost of serving the next MW there — generation cost plus congestion and losses. ERCOT settles thousands of nodes every five minutes in real time. For buyers, LMPs explain why the same megawatt-hour costs different amounts in Houston, Dallas, and West Texas at the same moment.
Congestion: Price separation that occurs when transmission lines cannot carry all the cheap power the market wants to move — classically from West Texas wind and solar toward Dallas-Fort Worth and Houston load. Congestion raises LMPs on the constrained side and lowers them behind the constraint. It is a structural feature of ERCOT and a core driver of basis risk in supply contracts.
Basis risk: The risk that the price where you hedged differs from the price where you consume. A Texas business hedged at the ERCOT North hub but consuming in the Houston load zone keeps the spread between the two — which widens with congestion. Contracts handle basis differently: some REPs fix it into the rate, others pass it through. Knowing which you signed matters in volatile summers.
Heat rate: The efficiency ratio linking power prices to natural gas prices — how many MMBtu of gas it takes to make one MWh. Market heat rate (power price divided by gas price) is the standard way ERCOT forwards are quoted and compared. Because gas-fired generation usually sets the marginal price in Texas, a buyer watching Henry Hub gas and the market heat rate understands most of what moves their quote.
ORDC (Operating Reserve Demand Curve): The ERCOT pricing mechanism that adds a scarcity adder to wholesale prices as operating reserves shrink — the tighter the grid, the steeper the adder, up to the system-wide cap. The ORDC is why ERCOT prices can leap from $30/MWh to thousands within an hour on a hot afternoon. It rewards flexible loads that can back off and punishes unhedged exposure during scarcity.
Day-ahead market: The voluntary ERCOT market that clears hourly prices for the next day, letting participants lock tomorrow's power today. Day-ahead prices reflect forecast weather, expected outages, and risk appetite, and generally run less volatile than real time. Many block & index structures settle their indexed remainder against day-ahead prices for exactly that reason.
Real-time market: The ERCOT spot market that settles every five minutes based on actual grid conditions. Real-time prices carry the full force of the ORDC scarcity adder: they average modestly most of the year, then spike violently in heat waves and winter events. Loads consuming on unhedged real-time exposure are taking the most volatile price in North American power.
Forward curve: The strip of prices at which future ERCOT power delivery trades today, quoted monthly by hub. The curve carries a structural summer premium, tracks natural gas forwards, and reprices daily. Buyers use it to time renewals: a contract signed in a soft shoulder season locks the curve as it stands, which is why renewal timing, not prediction, is the practical edge.
Scarcity pricing: The ERCOT design philosophy that lets prices rise very high when reserves run short — currently capped at $5,000/MWh, down from the $9,000/MWh cap in force during Winter Storm Uri — instead of paying generators a separate capacity payment. ERCOT is an energy-only market: scarcity hours are when generators earn their keep, and when unhedged consumers get hurt.
Settlement point: The grid location where a megawatt-hour is priced and settled in ERCOT: a resource node, a trading hub (such as North, Houston, West, South), or a load zone. Retail contracts for Texas businesses settle against load zone prices; wholesale hedges trade at hubs. The gap between your hub hedge and your load zone settlement is where basis risk lives.
Resource adequacy: Whether the grid has enough generation to meet peak demand with a margin for outages and weather. In ERCOT this is a live debate: demand from data centers, AI, and electrification is growing toward roughly 145 GW by 2031 against a peak near 85 GW today, while dispatchable retirements continue. Resource adequacy expectations are priced into the forward curve buyers lock.
Operating reserves: The spare generation capacity ERCOT holds ready to cover sudden plant trips, forecast misses, and renewable swings. Reserve levels drive the ORDC scarcity adder, and ERCOT issues conservation appeals when they run thin. Watching projected reserve margins for the coming summer is one of the simplest leading indicators of where Texas power prices are headed.

Demand management

Demand response: Programs that pay businesses to reduce consumption when the grid is stressed. In ERCOT the routes include Emergency Response Service (ERS), load resources bidding into ancillary markets, and aggregator programs — alongside voluntary curtailment to dodge 4CP peaks. For flexible Texas loads, demand response converts operational slack into revenue and lower transmission charges.
Load shifting: Moving flexible consumption from expensive hours to cheap ones — running batch processes, refrigeration pre-cooling, water pumping, or EV charging overnight instead of late summer afternoons. In ERCOT, where afternoon scarcity sets both wholesale prices and 4CP allocations, disciplined load shifting lowers supply cost, demand charges, and next year's transmission bill at once.
Peak shaving: Reducing a site's maximum demand (kW) rather than total consumption — by staggering equipment starts, sequencing HVAC, adding controls, or briefly running onsite generation or batteries through the peak. Because TDSP demand charges and ratchets key off the single highest 15-minute interval, shaving a short peak often saves more than cutting hours of ordinary usage.
Monitoring and targeting (M&T): The discipline of tracking interval-level energy data against expected consumption, investigating variances, and holding sites to targets. M&T finds the silent costs: equipment left running on weekends, drifting setpoints, failing compressors, meters billing the wrong multiplier. It is the management system that makes one-off savings stick across a multi-site Texas portfolio.
Curtailment: Deliberately reducing load for a defined window — usually the late-afternoon intervals when ERCOT system peaks are forecast. Facilities curtail to avoid setting a 4CP allocation, to honor demand response commitments, or to sidestep scarcity prices on indexed supply. The economics are site-specific: an hour of reduced production must cost less than the charges it avoids.
Load-shape analysis: The study of interval data to understand when and how a site uses power: base load, shift patterns, weather sensitivity, startup spikes, and seasonal swings. Load-shape analysis is the starting point for custom pricing, block sizing in a block & index contract, load factor improvement, and long-term planning over 24-48 month horizons. Without it, procurement is guesswork with a signature.

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