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  Anxiety over electricity prices in Texas has never been higher. With some of the highest electric rates in the U.S. what is in store for 2007?


 

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Residential Electricity Consumer Watchlist



Don't Worry get informed for 2008

Manual on choosing a Texas electricity company
A Consumers Opinion

7:21 AM CST on Friday, January 17, 2008

January 2007, Texas Electric Companies in deregulated territories will be released from the last bit of government regulation. The Public Utility Commission of Texas will no longer have regulation powers over the large incumbent electric companies in your area. Just like buying a commodity in the open market for the best price, electric companies will be able to buy based on supply and demand factors and set the electric rate on their own commodity buying strategy. Some do better then others depending on how good they are at hedging the energy they buy. Hedging strategies is a closely guarded industry secret among the electric companies and it often changes during the year from provider to provider. The electric price is often much lower depending on the type of buying and hedging strategy used.

Why should Texas government regulation concern you? Here are some questions we have been asked.

If you have questions you'd like to see answered here, e-mail at contact@electricitybid.com

• What is bad for you about deregulation?
Why have your electric rates risen so high in Texas?
Is it smart for you to switch electric companies?
Is changing electric companies mandatory ?
Is the electricity infrastructure affected by a change in providers?
Is there a fee to change providers?
What if I am unhappy with the switch I made in electric companies?
What is most important in an electric company?
Rates are high right now! Should I lock-in at this time in the market?
I want to change electric companies. What do I do?
Is January 1st 2007 a deadline for me to make a final decision?
My electricity company is a city owned coop. Can I change providers?
Is there any chance I may have interruption in my service or loss of electricity due to a poorly run provider?
How do I insure the electric company doesn't trick me in the contract?
Is there any other way to save money on electricity?
How popular has deregulation been for Texas consumers?
Why are electricity prices affected so much by the natural gas prices?
Why is Texas changing their power grid?

What is bad for you about deregulation?

There is good and bad. It is good in that it allows monopolies like TXU to have to compete for your business. Even though the government of Texas made it regulated for a good reason we have a strong reliable infrastructure now and to not allow competition would be foolish. Texas is ranked as the number one competitive retail electric market in the United States and number 3 in the world. This means amazing opportunity in the form of dollar savings and options for the consumer. On the other hand If the state ever lost the power grid due to miss management we could be in serious trouble. This however would never happen. It makes sense to regulate but if you think about it it only makes sense to regulate the poles and wires. That's the infrastructure we can't do without. Deregulating the commodity buying, pricing structure only serves to produce a better electric rate for the Texas Company. The PUC still has a strong arm of control over the infrastructure.








Why have your electric rates risen so high in Texas ?

A few months ago the natural gas prices were at a 16 month low. During that time rates were climbing higher. Since 2/3rd's of the power plants in Texas are coal and natural gas why would rates go up? The reason has to do with the heat factor. The heat factor is the amount it costs to convert natural gas and coal into electricity. At times the heat factor can be so high that it offsets any natural gas and coal surpluses. In this way although supply is available in part (natural gas) it isn't available in whole (higher heat factor cost). Unfortunately deregulation cannot lower this economical issue. What deregulation will do is make sure your company has the option of choosing a very good bare bones electric rate if you shop around enough.

Starting January 2007 the last regulated part of the deregulation process in Texas will be gone. This is the “price to beat,” which is a tariff rate adjusted based largely on natural gas and the heat factor. The price to beat is a premium rate charged to any Texas company who never switched to a competing electric company when the state deregulated in 2002. The tariff price is set by the Public Utility Commission and the rate change is set by the former utility monopolies, and then approved by the PUC.

Pipeline breaks in Alaska, mid east unrest, hurricanes, terrorism, and anything that could indirectly or directly affect the natural gas plants can increase electricity rates. Imagine it being like the stock market and people buying and selling on speculation. The electric companies are no different. Although natural gas surpluses are at all time highs the incumbent providers like Reliant will not be requesting a rate decrease from the PUC until they see an incentive to do so. They have too many loyal customers to become competitive. In 2007 you may see some better competition among the former monopolies.

When the price-to-beat has ended in the beginning of 2007, TXU, Reliant, WTU, Direct and others may lower the rate but not necessarily. The premium price they were regulated to charge to garner competition in the market place has not deterred many of their residential customers away.






Is it smart for you to switch electric companies?

Residential pricing is available for over 50 electric companies at the Texas government web site www.powertochoose.com. You will look to save anywhere from 10 - 20 % on your rate by calling the lowest priced provider on the site. Simply enter your zip code to get started.

Businesses look to save as much as 30 % over the price to beat. A little known secret, businesses that switch to a competitive rate can sometimes also get their house switched at the same time on what's called MCPE pricing. Your residence ends up paying a fluctuating market rate that historically over the last 2 years has averaged about 8 cents per KWh. In order to take advantage of this you would need to speak with a Texas aggregator to negotiate this type of agreement with a flexible electric company.






Is changing electric companies mandatory?

You can change if you want to but nobody is forcing you to. If you don't you will quickly see that it is the same as the telephone deregulation phenomenon. Everyone eventually switches for a lower price and you may be left paying a higher price out of unconcern or loyalty to brand.






Is the electricity infrastructure affected by a change in providers?

Your electric service comes to you on the same poles and wires and is serviced by the same company and people. The same company may have a slightly different name or something all together different since they were split from the Retail arm of the company. TXU, Centerpoint, AEP, Entergy, Sharyland, and TNMP are the names of the TDSP (Transmission Distribution Service Providers) that will continue to keep the lines working regardless of which electric company you pick of the 50 retail providers available to choose from.

The Retail Electricity Providers are like commodity market traders that buy the commodity, split it up, and resell it to thousands of customers. They also provide, customer service, billing, and the software infrastructure. The TDSP's are putting the poles and wires, transformers, etc. in the ground so you receive the electricity.




Is there a fee to change providers?

If negotiated successfully with some of the more competitive providers there is no fee. If they are charging a fee that is a good sign for you to look elsewhere. There is an industry wide standard of charging some type of early cancellation penalty. They usually will not charge you this penalty if it is within the last month of the contract end date. The fairest in the market is just a fair market value penalty. Enough for them to recoup the risk they took in buying and hedging that amount of energy for you.






What if I am unhappy with the switch I made in electric companies?

No problem. You have over 50 providers to choose from. This would be a good time to call around more and find a good price and investigate for any hidden fees and charges that may be in the contract.







What is most important in an electric company?

The most important thing is to verify what the exact charges are. Make sure there are no hidden charges. Some electric companies will hide additional charges in the TDSP portion of the contract. The TDSP portion is still regulated by the PUC and nothing additional should be added in that section other then pure TDSP regulated charges.*TDSP charges are also known as pass thru charges. What dishonest electric companies will do is strip out of the retail rate the government stipulated fees found in that rate and or fuel surcharges and put it in the TDSP section.

Since they should only be charging you for your KWh used and not the infrastructure this is a dishonest contract created to mislead. They are putting part of the retail rate in the TDSP charges which you can do nothing about anyway to make their rate look better. The TDSP charges are non-negotiable government regulated charges.

Choose among Fixed Price, Variable Rate, or MCPE pricing. Fixed remains the same regardless of market conditions. Variable changes based on market conditions. MCPE has a very low retail markup because you assume all hedging risk. The 2 year average has been around 8 cents per KWh which is great but at anytime it could spike up. Choose based on what fits your risk strategy.

Note: They pass thru from that retail provider bill and are paid directly to the TDSP in your area.








Rates are high right now! Should I lock-in at this time in the market?

Just like the commodities and stock market, in a large part it's a guessing game. How much money can you afford to lose. If you can afford to hold out for a better price, wait. If you can't afford to wait then lock-in at 6 months 1 or 2 years and try again then. A blend and extend contract is usually available so if prices drastically bottom you can average out the two prices and extend the contract 6 months. This is a win-win opportunity. You could also get into an MCPE contract and if MCPE no longer looked good you could have it renegotiated and converted into a fixed rate contract. I would recommend speaking to a Texas aggregator about this.





I want to change electric companies. What do I do ?

Every provider has a web site with a contact page. Go to their web site and call their number. A sales representative will be happy to give you their prices. Texas has a web site with all the providers along with daily residential rates at www.powertochoose.com. Residential rates are much higher then commercial and manufacturing rates. For larger companies, consultants, power brokers, aggregators, and even your own employed electricity manager is recommended.






Is January 1st 2007 a deadline for me to make a final decision?

No, it's more a deadline for the incumbent providers. They will no longer be regulated to only charge the price to beat rate. Residential rates should come down dramatically among these incumbents. Business rates will continue to see relatively the same competitive pricing although the incumbent providers will now be able to match these prices or go even lower.






My electricity company is a city owned coop. Can I change providers?

Unfortunately you have no options although your coop may be competitive already. If it is not you are left with no options but to contact your city representatives.







Is there any chance I may have interruption in my service or loss of electricity due to a poorly run provider?

Every company must go through a basic certification process by the Public Utility Commission to make sure it has financial resources to operate. Several companies have gone bankrupt since competition started. Customers still got their power, but they were transferred to a different company that charged a different rate. Normally the only way your service could go interupted is if you don't pay your bill.

There are some safeguards in place. If your company faces financial problems or suddenly leaves the market, you could be transferred to a default provider that's required to supply power under those circumstances. The rates would be higher, but only until you choose a new company. The chances of losing your power are extremely slim – but you could always be that unlucky person affected by a glitch somewhere. And, theoretically, it could happen right now even if you do nothing.






How do I insure the electric company doesn't trick me in the contract?

As with any new product or service the contract may look unfamiliar to you and you may not know where or what to look for. When talking to the sales rep on the phone, record your phone conversation. If you sign a contract but they have told you lies to get you to sign it you will have some legal recourse. It may sound like a lot of trouble but everyone should do their part to keep the retail providers in check. For a business an energy consultant is best as they have had their own lawyers as well as several previous client lawyers scan through the contracts for hidden legal jargon and have modified it where need be.






Is there any other way to save money on electricity?

Special meters, solar panels for residences, peak demand gauges, efficient light bulbs and ballasts are among the more popular ways to save. The government subsidizes energystar rated energy efficiency experts to come in and do a energy leak test on a premises. If air is getting through too many cracks in the building then that would be wasted electricity. They plug these leaks and the government pays for most of the bill. Here is their site to learn more about it: http://energystar.gov/index.cfm?c=spp_res.pt_spps







How popular has deregulation been for Texas consumers?

A very large portion of the Texas population has already switched to a competitive Texas electric company. It will only be a short matter of time until the electric industry has the same switching track record as the telecommunications industry.








Why are electricity prices affected so much by the natural gas prices?

Texas receives 2/3rd's of the state's electricity from natural gas and coal power plants. These plants are very cheap to build compared to many of the alternatives. They are also easy and cheap materials to explore mine and gather. Because these resources will continue to be available for many decades there has not been a big incentive to build alternative power plants. The consensus is that natural gas and coal power plants will be around in Texas for many many years. Although natural gas is a fuel that costs more then nuclear it is easy to manage and we have the infrastructure in place already. This is the attitude among generation companies and the government and in comparison to other states Texas has a very good electricity infrastructure.








Why is Texas changing their power grid?

Texas historically has relied on its own power grid for some time now without the need to receive electricity off of the grid systems of the surrounding states. The truth is Texas has quite a few natural gas wells that provide the state with the needed generation fuel to generate the electricity we need. Of course, natural gas is not the only fuel source in Texas to provide to us the electricity that powers our homes and businesses. As an alternative energy example, we have one of the largest wind generating farms in the nation.

Texas has been unlike most of the other states by relying on their own grid and have done fairly well in avoiding brown outs in comparison to some of the other populated states and cities. The grid system however is due for an overhaul. The federal government has already begun investing millions in upgrading the grid infrastructure throughout the nation and Texas will likley implement a nodal system in about 2 years. Instead of Texas being broken up into 5 different regions they will be broken up into over 200 different smaller nodal areas. This will allow the congestion issues that Houston and Dallas face to not affect the smaller surrounding cities with a higher then normal electric rate.






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