Houston electricity costs surge 40%, city officials warn

Houston is confronting a sharp rise in electricity costs that is reshaping the city’s budget outlook, per City Controller Chris Hollins.

During a March city council meeting, Hollins said electricity spending is projected to reach about $131 million in fiscal year 2026, an increase of more than 40% compared with previous years, which reflects structural changes in Texas’ electricity market following the 2021 Winter Storm Uri disaster.

“This isn’t a routine fluctuation,” Hollins said. “This is a material and a substantial shift in our cost structure that’s going to stick moving forward.”

Low-income and minority communities are most affected

For Black Houstonians living in neighborhoods such as Kashmere Gardens, Denver Harbor, Mayfair, Clinton Park and Pasadena, areas that often face higher energy burdens and aging infrastructure, the implications could extend beyond city finances.

Energy burdens are also the highest in southern and western counties, where summer bills can exceed 11% of household income, according to a study by the University of Houston and Texas Southern University. Costs may worsen, the report states, as CenterPoint Energy announced plans to continue grid upgrades through 2028.

Additionally, nearly 45% of households pay over $200 a month on average for summer electricity, and about one in three Texans spend 7% or more of their income on energy, surpassing the high energy burden threshold of 6%.

Low-income, minority and rural communities are most affected, largely due to older housing and limited financial flexibility, among other reasons. Urban households, on the other hand, benefit from more efficient housing and higher average incomes.

The rise of data centers would impact Texans, experts warn. 

“In an already-strained system, an increase in demand from these new users, particularly data centers, is going to have an impact on consumers,” added Gail Buttorff, associate director of the CPP and research associate professor at the Hobby School.

Electricity spending rising sharply

According to the city’s electricity market analysis presented to the Budget and Fiscal Affairs Committee, Houston’s annual electricity budget is about $140 million, with more than 60% of that spending coming from enterprise funds, and the rest from the general fund and other special funds.

Those costs have climbed quickly over the past several years, Hollins said.

The city currently operates under a five-year electricity supply agreement with Reliant Energy Solutions, valued at $640 million, which began in July 2020 and can extend through June 2027. He warned that rising energy costs are consuming that contract capacity faster than expected.

Hollins told the council that about 86% of the contract’s spending capacity has already been used, leaving roughly $110 million remaining to cover electricity costs through the end of fiscal year 2027.

At current spending levels, officials say the remaining funds may not be enough to cover the full duration of the contract.

“I want to be clear here, the bad guy here isn’t anyone at the city of Houston, and it’s not NRG or Reliant who provide us with electricity,” Hollins added. “The system that Governor [Greg] Abbott and the state legislature allowed to be in place that holds no one accountable and when disaster strikes, passes those risks and those failures and those costs down to customers, including our residents and including us here at the city of Houston, that is the problem.”

Market changes after Winter Storm Uri

Much of the increase is tied to reforms enacted after Winter Storm Uri in February 2021, when Texas’ power grid failed and more than 200 Texans died.

State lawmakers and regulators introduced several new reliability measures designed to stabilize the grid and prevent future outages. Those changes included new market mechanisms and financing programs to recover storm-related costs.

While those reforms were intended to improve grid reliability, Hollins noted the costs are passed directly through to customers, increasing electricity bills for the City and Houston residents.

“That tragedy [Winter Storm Uri] prompted some substantial changes to the state’s electricity market…,” Hollins said. “Today, those structural changes are showing up in our operating budget. It’s important to recognize that roughly half of the city’s electricity costs are entirely out of operational control.”

A presentation from Hollins’ office, presented to the council, shows that the city’s electricity costs are tied to factors such as energy charges, transmission and distribution, ERCOT, and taxes and assessments.

“Even with conservation efforts, significant portions of those costs remain fixed and will remain at those elevated levels,” Hollins said.

The structure of Texas’ electricity market also contributes to the mechanism.

Unlike many other states, Texas operates a competitive wholesale electricity market managed by the Electric Reliability Council of Texas (ERCOT), where prices fluctuate based on supply and demand rather than through traditional capacity payments.

Budget implications for city services

As electricity prices rise, Hollins urged the City Council to decide how to manage the growing expense before the current contract expires in 2027.

“Prices appear to remain elevated for years to come,” he said. “As we prepare for the next fiscal year and potentially a new supply contract beyond fiscal year 2027, we have to evaluate that risk, look towards long-term price stability, and prioritize overall value for Houston taxpayers.”

Council member Abbie Kamin highlighted the growing financial burden the City of Houston faces due to “previous generational failures of our grid” as the city considers approving a contract of over $500,000 for Packaged Ice for Houston Public Works, awarded to Reddy Ice. 

“There’s additional costs every which way,” said Kamin. “Whether it’s backup generators that cost hundreds of millions of dollars, not only for public safety facilities, but for community centers of last resort, whether it’s ice, or now electricity. Residents are continuing to have to foot the bill for an unreliable grid and an unsustainable situation. We literally are having items on the agenda that we are having to pay for to keep people alive and safe because the power is going to go out. And that’s a problem. But it’s also not solely the city of Houston to address that issue.”