Texans weary from huge summer electric bills may have noticed the recent decline in natural gas prices and wondered when — or if — their electric rates will fall too.
After all, if higher natural gas prices were a primary rationale for the near-doubling of electric rates since early 2002, then shouldn’t electric rates drop when the price of natural gas falls?
The short answer: Not yet.
Electric rates by competitive providers have been falling for the last two weeks, but not at the same pace as natural gas. Peak prices for gas have fallen from about $15 per thousand cubic feet nearly a year ago, after Hurricanes Katrina and Rita, to a two-year low of $4.94 in trading Monday on the New York Mercantile Exchange.
Electricity providers, who must pay their own costs for electricity in the wholesale markets, say they need the current low prices of natural gas to hold for several more weeks before they can feel comfortable offering even lower retail rates.
Alex Rodriguez, president of Stream Energy, one of the new competitive retail electricity providers in North Texas, says his company has dropped its price in the past two weeks to 13.9 cents per kilowatt hour.
“We’d love to lower rates more,” he said. “But we have to be sure that the current prices for natural gas will hold. We’ll watch the market for several weeks and see.”
Jeff Weiser, co-president of First Choice Power of Fort Worth, says the more relevant natural gas price isn’t the one-time high or low but the average over several months. The average over the last year is in the $6-$9 range.
Weiser also notes that the so-called forward futures prices — for delivery of gas during the next winter — have brought as much as $10 per thousand cubic feet, suggesting that natural gas prices will rise in coming months.
Consumers do have some money-saving options. You can switch service or providers and get savings of 10 percent or more from the TXU Energy basic price of 15 cents per kilowatt hour, a price set by the state as part of its transition to full deregulation, which starts Jan. 1. But generally you must agree to give up your right to switch electric providers for at least one year.
In Dallas-Fort Worth, several providers are offering to beat TXU’s price by 11 percent, but most of them require customers to agree to 12 months’ service. That gap between TXU and its competitors has widened only slightly since the Texas retail market was opened in January 2002.The current discounted prices of about 13 cents per kilowatt hour are well above the 8.24 cents per kilowatt hour charged by TXU early in 2002, when the market was opened for competition. When then-Gov. George W. Bush signed the electricity-deregulation bill in 1999, he said deregulation “will bring lower electric rates.”
Critics of deregulation have been in full throat about rising electric prices. The industry defends itself by saying that the price of natural gas, which fires about 75 percent of electricity generators during peak usage periods, has tripled on average since the late 1990s. That has meant that electric providers and customers are essentially betting on the future price of natural gas.
Electric providers in TXU’s deregulated retail market say electricity is increasingly being sold much like mortgages, insurance or airfares. Consumers must shop around and be ready to commit to a provider for at least a year.
“It’s not quite like cellphone service, where people can change service from one day to the next, but there is an education process involved,” said Rodriguez of Stream Energy.
Stream offers options that generally lower the rate to 13.9 cents per kilowatt hour but require the consumer to lock in service from one to three years.
Other providers are doing likewise. Even TXU, which has its price set as the market target for competitors, is willing to drop the price by almost 1 cent per kilowatt hour for an “energy market” product based on the floating price of natural gas. But the customer must agree to a 24-month term.
“What we’re doing, and all the others are doing as well, is trying to predict our loads as accurately as possible, and the service terms are a good way to do that,” TXU spokesman Chris Schein said.
Texas is nearing the end of a four-year transition into full deregulation. Since January 2002, the market has been deregulated, but the Public Utility Commission of Texas has set the “price to beat” for incumbent utilities such as TXU. Competitive providers, free to undercut the TXU rate, have drawn away about one quarter of the 2.6 million customers TXU held at the beginning of deregulation.
But the price to beat, the last modicum of retail price regulation, will go away by law Jan. 1. TXU will then be free to set its rates without government control.
“We have already put out several new products, and we will be introducing other new products as time goes along,” Schein said.
Of the current price to beat, Schein says only that “we’re monitoring it every day,” but he offered no commitment that the utility would lower it.
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