Many have asked if Texas provides a good variable market rate for commercial businesses. There are some definite savings available with a market rate. The savings come in greater if you know when it’s good to go after a heat rate product and when a rate based on indices would be better.
The way you determine this is by looking at the historical natural gas and heat rate and seeing if the current heat rate is in a good range to lock in at. If the heat rate is at a historically high level it would be good to look at other products. A lot of this timing is energy trader know-how and only about 5 % of us really have the ability to trade commodities in a way that gives us a competitive advantage. Electric companies hire people to trade commodities to put together products they then sell to us. In many cases just choosing a fixed rate product will give a business the best advantage. How many of us want to endure price fluctuations throughout the year?
Currently the historical data on indices pricing is very good but there are the occasional blips in the market that make it not worth it for the average business owner. Electricity rates closely follow natural gas so this correlation is not too odd to consider. Energy indices that your variable electric rate is based off of does not have the hedging that gives you the assurance you get with a fixed rate. For now it looks like indices pricing offers some advantages over fixed rates if you know when to time the market. Keep in mind timing the market is not for most of us nor should it be.
@electricrates Variable rate plans have no monthly contract or cancellation fee, but the rate you pay per kilowatt-hour (kWh) can vary from month to month. Your rate can go up or down based on the market and the discretion of your electric company. Variable plans allow customers to benefit from falling market prices, but they also have an increased risk for higher rates if electricity prices spike due to natural disasters, cold winters, or adverse market conditions. #variableprice #electricity #electricrates ♬ original sound – electricrates.com Donny E.
Keep in mind that the legal definition of a variable price according to the PUCT can be changed simply based on the discretion of the electric provider. If you are a commercial business you can choose an index price which is “variable” but can’t be changed based on the discretion of the provider like a residential variable rate product can. Index pricing follows publicly available indices and information that is disclosed to the customer before they sign a contract.
@electricrates An indexed or market rate plan is similar to a variable plan in that the price per kWh can go up or fown each month. The difference is that the rates for these plans are directly tied to a pricing formula connected to a publicly available index. If the index rises, yoyr monthly rate will too, but if the index falls, yoyr rates will be lower. Customers considering these plans should ask the electric company for specifics about the pricing formula as well as how and when they will receive notifications of changes to the index. #indexprice #variableprice #electricrates #electricity #energy ♬ original sound – electricrates.com Donny E.
Energy indices used to price Texas variable electricity is managed by the Electric Reliability Council of Texas. ERCOT is a non profit organization that manages the Texas electric grid. ERCOT has had its corruption issues in the past but at this time everything seems to be on the up and up. The PUCT which stands for the Public Utility Commission of Texas looks for discrepancies in the indices price and if they notice something it can be challenged. Some wholesale energy companies that buy and sell on the indices market have been fined for what the PUCT considered price manipulation. Just last year one of the big brand energy companies were fined the highest fine the PUCT has every issued at 15 million dollars. The original fine was many times more than this but the PUCT usually will lower the fine amount if the company will cooperate in the investigation and participate in explaining their actions.
Energy indices is susceptible to electricity price manipulation sometimes with that manipulation occurring on its own simply because of the regulations involved in bidding for electricity. The wholesalers who buy and sell on this market are disproportionate in size. Because of the monopoly size of some of the power generation companies price manipulation can be easily blamed on some of these larger electricity companies. The PUCT rules and regulations may soon change to alleviate the pressure on these wholesale energy companies so that they can bid without the scare that the PUCT may fine them for an unintentional act.
Choosing an index price product can be a good decision but you need to know what the high end of your exposure will be if rates spike. Your price could go up and stay up high enough to drastically increase the cost of energy for your company for several months and this may not be something easy for some companies to handle. Hoping it comes back down in price is why their are fixed electric rates where the price is fixed because of a commodity hedge. It all comes down to how much risk your willing to handle on your end.