The Price of Power: What Drives Energy Costs?
Energy costs make up 55% to 60% of your electric bill, so it’s important that CoServ makes smart, strategic decisions when buying electricity to keep prices as low as possible.
Where Your Energy Comes From: Buying Electricity for Members
Wholesale electricity is measured and sold in 15-minute increments for every hour of the day. CoServ’s electricity comes from a full mix of generation sources within the Electric Reliability Council of Texas (ERCOT), including natural gas, coal, nuclear, wind, and solar. The price of power reflects what it costs to produce and deliver at the time of purchase. For example, electricity at 5 p.m. in the summer costs more than the same electricity at noon on a mild day in the spring, because more expensive generating plants must operate in the summer to meet higher demand.
It’s up to CoServ’s Energy Resources Team to buy for each 15-minute increment of the day at the lowest cost possible. They start every morning looking at the weather and CoServ’s electricity load forecast for that day and through the coming weeks.
CoServ buys blocks of power, sometimes months or years in advance, to lock in prices and save the co-op money. Each block represents a commitment to buy a specified amount of power to cover a period of time at a set price. Each day, the Energy Resources Team uses advanced forecasting software to predict the actual demand versus what has been purchased. If forecasted demand is higher than planned, they buy in the day-ahead or real-time market. Likewise, if we have excess electricity, they sell the blocks in the same markets. Ultimately, CoServ's goal is to buy as close to our actual usage as possible.
CoServ also uses call options as insurance when prices are volatile. Call options lock in a certain price and, if prices reach that threshold, we purchase the energy provided by the call option at that price.
What Drives Energy Prices: Demand, Weather, and the Market
Like all commodities, supply and demand are the primary drivers of electricity prices. As demand increases, wholesale prices tend to rise as well.
The primary driver of that is weather – will it be hot, cold, or mild? The price of natural gas is also a factor. We can’t control the weather and natural gas prices are vulnerable to not only weather but geopolitical events, as we’ve seen this year.
That’s why it’s so important that we get the forecast modeling right, so we lock in prices by purchasing the right amount of power to meet demand.
How Does This Translate To My Bill?
The energy charge, as published in CoServ’s tariff, is made up of several costs, such as transmission and substation, and while most remain fairly stable, the purchase power, which covers energy costs, can fluctuate significantly each month. That means CoServ needs a way to account for this.
That’s where the Power Cost Recovery Factor (PCRF) comes in.
The PCRF is a line item on your bill that is adjusted each month and can be positive or negative. It factors in all the costs that are associated with delivering reliable and safe electric service, like transmission, substation, and purchase power, as mentioned previously. The PCRF protects Members by ensuring that, over time, we collect the true cost of power, and Members’ electricity bills are levelized and predictable, avoiding large fluctuations.
The proof is in the pudding, as CoServ’s cost per kilowatt-hour remained consistent throughout 2025, and that has continued into 2026.
The PCRF has been negative for 23 straight months, meaning it has reduced the overall per-kilowatt-hour charge Members pay. Regardless of whether the PCRF is positive or negative, CoServ’s goal is to provide exceptional service to Members at an affordable cost – not to make a profit.
(See the May issue of Texas Co-op Power magazine for a comparison of our cost per kWh versus the for-profit retail energy providers in the deregulated electricity market.)
Bottom Line
Though there are factors we can’t control, we strive to make smart energy purchases, protecting Members from extreme price swings.