Deregulation in Dallas Texas News
The desire to find a better electricity rate in Dallas Texas is heating up as electric rates rise higher as summer approaches. We have seen electric rates rise from the mid 8 cents\kwh range to as high as 10.3 cents for a commercial business rate. Rates have been making something volatile swings and consumers want to know why. A company in Dallas Texas called us to ask why rates have risen so high. They just came off their electric contract with Accent Energy and were interested in shopping around and seeing if they could get a better energy rate somewhere else.
The commercial business we spoke to had an energy rate they contracted 3 years ago. They had a rate that was 7.8 cents\kwh. The commercial business could not understand why rates were almost 2 cents\kwh higher then when they negotiated rates nearly 3 years ago. We had to explain that electric rates are very volatile. Energy companies rely on the futures market to buy and sell their energy as well as hedge it in order to protect their energy investment. They then split this wholesale block up and resale it. The demand for this cheap fuel (natural gas) which has a very volatile history means a commercial business in Texas is left in the dark as to what natural gas rates may do from one year to the next.
Since the electricity market has a 90% correlation with natural gas prices you will see the electricity rates rise with the NYMEX natural gas price. Natural gas remains a very volatile future due to the challenge in transporting it and holding enough in reserve in storage for the constant energy spikes during seasonal weather. When it's hot more electricity is demanded and it takes these natural gas plants to produce enough electricity to fulfill the need. When people have their A/C on full blast along with their refrigerators and business machines and appliances it directly affects this energy relationship between natural gas and electricity.
In order for a company to cheat the system it is possible to work out a blended product that uses a combination of a market spot price along with a fixed price. The market clearing price works a little differently then a straight natural gas or electricity price. There is a supply and demand factor that occurs. This price known as MCPE every 15 minutes as companies and Retail and wholesale electric providers buy and sell excess energy they need or don't need back into the ERCOT managed grid. This MCPE price has historically averaged far below the average contracted fixed price rates available over the last 2 1/2 years.
For a commercial company to take advantage of this they would want to limit full exposure to this variable MCPE rate and instead blend it with a fixed electricity price. A typical blend is 50/50. By averaging the two you could be looking at potentially paying 8 cents/kwh instead of 9 cents\kwh a month. The MCPE rate does not correlate the same with natural gas as the hedged electricity rates quoted by electric companies. The rate looks all together different and can save you several thousand dollars, especially during a bad market.
On a side note, their is a product known as heat rate which is the cost of converting natural gas to electricity. By locking in this cost while it is low you can potentially maintain a low electric rate when working with natural gas futures. This is a more advanced energy management strategy and is used more by industrial and manufacturing facilities. The heat rate for May 2007 is at historically high levels for Texas and would not be a good option for any business at this time.
An MCPE/fixed rate blend continues to offer the best alternative to beat the market. To learn more about MCPE I would suggest looking at "Historical Balancing Energy" at Texas's ERCOT site. The Electric Reliability Council of Texas controls the operation of the electric grid and manages the deregulated market for 75 percent of Texas. They have historical data available to browse through on where the MCPE rates have been over the last 2 1/2 years.
