Electricity Prices Headed in the Right Direction

October 8, 2007

Dallas Morning News

Elizabeth Souder

North Texans will pay more for natural gas heat this winter than last, thanks to higher fuel prices.

But people who heat their homes with electricity will get a break this year, as some retail electricity companies have dropped their rates to compete for customers. Plus, the mild summer helped to rein in demand for electricity in Texas, keeping wholesale power prices in check.

“If we’d had a really hot summer or hurricanes, pricing might have been different,” said Catherine Carlton, a spokeswoman for First Choice Power.

The opposite trends reflect two industries that rely on the same fuel – natural gas – but set their prices much differently.

Natural gas utility Atmos Energy must charge customers the wholesale price for natural gas, approved by state regulators. The regulated monopoly may charge a profit – also approved by the Texas Railroad Commission – for delivering the fuel to customers.

In October, Atmos will charge customers $9.50 per million cubic feet of gas, reflecting the wholesale cost of the fuel, at $7.47, and pipeline costs.

Look closely at an Atmos bill, and find the line called “Rider GCR,” which stands for gas cost recovery. Rider GCR includes gas cost, pipeline costs and the cost of gas that’s lost or unaccounted for in the system. This line shows how much Atmos charges each month for those costs, multiplied by the amount of natural gas the customer uses.

Last October, the gas cost recovery charge was $8.38, including $5.98 for wholesale natural gas.

Even though natural gas prices are higher this year than last, retail electricity prices dropped. That’s noteworthy because Texas relies heavily on natural gas to generate electricity, and power prices tend to follow natural gas markets.

Unlike Atmos, retail electricity providers don’t answer to regulators on pricing.

TXU Energy, which has the largest share of customers in North Texas, trimmed some of its prices this year. The company had been losing customers and wanted public support for a plan to sell parent TXU Corp. to private investors.

The former monopoly had announced higher prices two years ago, after hurricanes caused natural gas prices to hit all-time highs. Natural gas prices soon dropped, but retail electricity providers didn’t immediately cut their rates.

Now almost every retail electricity provider in North Texas (there are nearly a dozen) has lowered prices.

In the summer of 2006, the lowest offer for North Texas was around 13.5 cents per kilowatt-hour, according to the Public Utility Commission. Now some companies are offering juice for less than 11 cents.

That’s not to say electricity is cheap in Texas. Most retail customers here still pay more than the national average residential power rate of around 10.4 cents per kilowatt-hour, according to the federal Energy Information Administration.

Electricity retailers’ willingness to charge less has much to do with wholesale power costs.

Most electricity retailers buy power with long-term contracts. As retailers signed cheaper contracts during the past year, they could cut prices.

Wholesale power prices are sensitive to supply and demand. During a hot summer, when demand for power rises, generators must fire up older, more expensive natural gas plants to meet demand, boosting market prices.

“Average prices this year have been fairly close to last year,” said Dan Jones, the independent market monitor for the Electric Reliability Council of Texas, which operates the state’s power grid. “It’s been a relatively mild year.”

Meanwhile, some environmental groups urged Texans to slow down the pricing roller coaster by simply using less energy.

The American Council for an Energy-Efficient Economy published a report last month that calculates that Texans would have to build fewer new power plants in the next 15 years if folks would become stingier with electricity.

The group suggested state-sponsored energy-efficiency programs, such as more stringent building codes and appliance standards, and incentives for people to use less power during peak times.

Cutting demand at the peak time, in the afternoon, is key because generation companies build new plants based on the level of peak demand.

Bill Bojorquez, vice president for system planning for ERCOT, doubts efficiency will do it, as the population and economy continue to grow. And just because someone gets a new efficient appliance, like a refrigerator, it doesn’t mean he gets rid of the old one.

“Because people can afford their electricity bill, demand reductions alone are probably not going to create the reductions that some people propose,” he said.