Texas electricity prices up more than 20 percent in 6 weeks

By JIM FUQUAY Star-Telegram Staff Writer Tue, Mar. 18, 2008

Think you can get away from high energy prices by keeping the car in the garage and staying home? Not a chance.

Electricity prices have jumped more than 20 percent in the past six weeks, pushed along by rising natural gas prices, analysts say. In Texas' deregulated electricity market, the price of electricity is driven by the cost of producing power by burning natural gas, so the two tend to move in lockstep.

"Both natural gas and electricity prices are up 21 percent since Feb. 1," said Jerry Dyess of ChooseEnergy.com, a Web-based electricity shopping site. "[Last] week, every provider raised their prices," Dyess said of the 15 retail electric providers, or REPs, that contract with his site.

Still a range of prices

Dyess said the average price paid by a North Texas residential customer using his site was about 13 cents per kilowatt-hour. That includes all plans, including those using renewable energy sources.

At PowerToChoose.com -- the Texas Public Utility Commission's comparison shopping site, which includes all REPs -- rates ranged from 9.3 cents per kwh for a variable-rate, month-to-month plan with power from conventional sources to 15.7 cents for a 12-month plan from 100 percent renewable sources.

Although the variable-rate plans are lower, they are also more subject to fluctuations in market prices.

"If you have a variable-rate plan, then keep an eye on what's happening with your rate," advised Carol Biedrzycki, executive director of the Texas Ratepayers Organization to Save Energy. "The retailer doesn't have any obligation to notify the customer of any changes in rates. It's just on the next bill," she said.

Locking in long term

Electricity providers said the volatility in prices seems to be pushing consumers to sign longer-term contracts, usually of at least 12 months.

"We have seen a significant uptick in consumers picking fixed prices, and we expect that to accelerate," said Jeff Weiser, president of First Choice Power, an REP that recently moved its offices from Fort Worth to Irving. Although First Choice and others offer plans that fix rates for 24 months or more, most customers are going with a 12-month contract, Weiser said.

Cirro Energy had a similar story.

"We're seeing increased demand for our one-year offering," Cirro spokeswoman Cindi Wakefield said. "It has been increasingly steadily the last two months," she said, but the same is not true for 24-month contracts.

Start of a new cycle

Electricity rates had fallen for much of 2007 along with natural gas prices, which bottomed out late in the year. Since then, however, natural gas has been on a tear, following crude oil's charge to historic highs.

On Friday, natural gas futures on the New York Mercantile Exchange for delivery in one year settled at $10.01 per 1,000 cubic feet, down 81 cents from Friday but up 99 cents from the start of the year.

Doing the math

Norm Berthuson, vice president of supply management at Cirro, said the price of natural gas and the wholesale price of a kilowatt of electricity can be roughly calculated by dividing the natural gas price by 100. Natural gas plants are rated by their ability to turn heat into electricity, or heat rate. A typical heat rate is 10, meaning the plant must burn 10,000 cubic feet of natural gas to make one megawatt-hour.

At $10 per 1,000 cubic feet, that's $100 to make a megawatt. That comes to 10 cents per kilowatt, before the cost of distributing the power, which in North Texas adds about 2.5 cents per kilowatt.

As sobering as that is, Berthuson said, it could be worse. Natural gas has about one-sixth the heating power, or British thermal units, of crude oil, but doesn't trade anywhere near one-sixth of crude oil's price.

If it did, he said, "with crude oil close to $100 a barrel, natural gas would be $16 or $17."

Where will they go?

So, as high as electricity prices are, are they going even higher? Nobody knows.

"A number of consultants are advising their customers to make a decision and lock in" at today's rates, said Deryl Brown, who heads Hudson Energy Texas, an REP based in Irving. "But others are advising to wait, because they're convinced it's going to come back down."

While electricity rates spiked higher than they are today in the wake of Hurricanes Katrina and Rita in 2005, "This is as high a pre-summer rate as I've seen," Dyess said. "In summer, prices tend to go up with demand. If we're starting with this high level, we'll see higher rates for sure."

Unless natural gas prices collapse.

Abnormal times

"We cannot figure out why these natural gas and crude oil prices are going through the roof," Dyess said, echoing the opinion of most energy industry observers. The fundamentals of supply and demand don't support the high prices levels, he said, but crude oil has become a hedge against inflation and the falling value of the U.S. dollar, complicating the outlook.

JIM FUQUAY, 817-390-7552
jfuquay@star-telegram.com