NATURAL GAS PRICES FORECAST TO DECLINE

Article by Asjylyn Loder published at Bloomberg.com/news Dec 28, 2010 1:57 PM CT - titled "Hedge Funds Bet Natural Gas Will Decline in Warm New Year: Energy Markets", has made this forecast and provides supporting data.  This is good to know information.  Read more here. 

POWER TO CHOOSE IS BEST TOOL

Power to Choose (PTC) is the official Electric Choice Website of the Public Utility Commission of Texas (PUCT).  In our judgment, it is the best tool available online to learn about electric competition in Texas and to shop for retail electricity providers (REPs).  Beware of other biased websites that may simply act as referral agents and  portals for selected REPs while earning commissions.

The current version of the PTC site is vastly improved and more user friendly. ‘Apples to Apples’ price comparisons of the multiple rate plan products and terms offered by the various REPs are afforded and guaranteed providing complete analysis is made of details contained in EFLs (Facts Labels).

Sorting of the offers is no longer presented in random order. They are now sorted in ascending order with lowest cost plan listed first. In addition, everyone is urged to utilize the filter capabilities provided in the Search Criteria panel on the left of the webpage to facilitate their study.

The offer information shown is provided by the REPs in real time. Each has direct electronic access to the database for making immediate changes at will as dictated by market fluctuations and their marketing strategies.  The offers are subject to change at any time.

While the PUC does not warranty that the information is a complete list of all offers in the marketplace, REPs are required to honor prices listed as a condition of posting their offers on this site.  Also understand, not all licensed REPS advertise on PTC.

CHANGE IS GOOD….

Here, change is intended to mean switching to one of the new non-affiliated retail providers that has entered the state’s deregulated electricity market place to compete with the legacy providers, i.e., TXU and Reliant.

The pace of switching throughout the state has fallen off for the past two years according to the latest report of the PUCT. This is not good. The general population has become too complacent and would be better served if they were not satisfied with status quo with regard to their electricity accounts. This is wrong when the majority need to cut household costs and save in the current economic climate.

The continued erosion of market share and the number of residential customers held by the old monopolistic incumbent providers will pressure them to lower rates even more causing the market overall to improve. Lower prices, improved rate plan products, terms of service, and customer service will benefit all residential customers.

Switching is safe, almost effortless and seamless. Reliability of service is unaffected. Rules established by the PUC during 2010 provide new protections for the consumers. This is good. Homeowners are urged to become better informed on all matters dealing with “Right of Choice”.

NATURAL GAS CONNECTION IS INDEED IMPORTANT

We have highlighted earlier that the cost of natural gas on the open market influences the price of electricity in the states where that fuel is largely used to generate the power.  That is certainly true here in Texas.  It behooves us all to be aware of current and future prices of natural gas when deciding to switch electricity retail providers and for what term of contract to lock into.  Informed decisions are usually better.

Following is extract of Market Summary published in the Houston Chronicle Friday, December 24, 2010:

Energy Price, Natural Gas-Henry Hub,  U.S. Dollars per MMBtu
     Last Price-4.08
     Pvs Day-3.99

Constant Maturity Index (Composite percentage change of all futures traded, providing an insight into what direction prices are heading)
     Per Cent Change-Day  -0.7
     Per Cent Change-Month   -4.3
     Per Cent Change-Year To Date   -36.7

Commodity Price Outlook (The median price of analysts surveyed by Bloomberg)
     2011 Forecast   5.00
     2012 Forecast   5.41
     2013 Forecast   5.75

REALITY CHECK - - ELECTRICITY PRICES ARE STILL TOO DAMN HIGH

Another trusted partner has come forward at our request to refute the very recent industry claim that Texas has the most successful electricity retail market of all North America.  Refer back to our earlier posting dated 7 December, 2010.

Recharge Texas is a statewide, non-profit, non-partisan consumer advocacy initiative dedicated to reducing the cost of electric power for cities.  It is sponsored by the Cities Aggregation Power Project (CAPP), a statewide non-profit corporation that pools public sector purchasing power to negotiate lower and more stable prices for its more than 100 Texas city and other political subdivision members. CAPP is a successful municipal aggregation project.  Learn more at http://www.capptx.com/.

Read more here about Recharge Texas and its blog posting on this subject made 22 December, 2010.  Be sure to click on the bar chart to open a larger view.

NATURAL GAS SPOT REPORT

Electricity rates in Texas are greatly affected by the price of natural gas on the commodities market. In 2009, 42 per cent of the state’s electricity was produced with natural gas, with an even higher percentage during periods when electricity demand is high.

Natural gas prices peaked at above $13 per MMBtu during mid-2008. Prices averaged $4.54 per MMBtu in the first nine months of 2010 per the PUCT.

Spot prices at the Henry Hub, as reported at the New York Mercantile Exchange (NYMEX), decreased $0.24 to $4.22 per million Btu (MMBtu) during the week ending Wednesday, December 15, 2010.

SNAPSHOT OF MARKET

The PUCT Power To Choose website discloses the following snapshot of rate prices as of this date.  Data is for the 12 month fixed rate plan products for ZIP 77379 within the CenterPoint service area expressed in cents per kWh, :

Low  8.7
Reliant Energy  9.5
Champion Energy  10.1
TXU  10.9
High  12.2

Twelve non-affiliated REPs offered rate prices below the encumbent Reliant.  Again, EFLs (Facts Labels) must be examined to learn details of all offers.  Promotions, incentives and added charges based on usage level must be considered.

NATIONAL RANKINGS OF STATES FOR ELECTRICITY RESIDENTIAL PRICES

Again, the source for this information is the EIA.  Data is for August, 2010.  Click here to review the full report.

Texas ranked number 19 with a price of 11.95 cents per kWh.  The national average was shown to be 12.02.  The highest price is paid by the consumers in Hawaii at 28.59.  Second highest was New York state at 19.03.  Washington state had the lowest cost at 8.32. 

Among the 15 deregulated states, only 3 had rates lower than Texas (IL, OH and OR).  Of the 19 top rankings, 12 were deregulated states.  Hawaii, Alaska, Vermont, District of Columbia, and Wisconsin are the regulated states reporting higher costs than Texas.  California and Nevada are the suspended states who were higher.  The higher costs are clearly shown to exist in the deregulated states. 

STATUS OF ELECTRICITY RESTRUCTURING BY STATE

Restructuring means that a monopoly system of electric utilities has been replaced with competing sellers as has been the case here in Texas since 1 January 2002.  This report deals with the status existing in the nation as of September, 2010.  Source for the information is the U. S. Energy Information Administration (EIA).

15 states remain active.  Those states are New York, Connecticut, New Jersey, Rhode Island, New Hampshire, Maine, Massachusetts, Maryland, Delaware, Michigan, Pennsylvania, Texas, Illinois, Ohio and Oregon.  Note the high concentration of states in the North East and Mid-Atlantic.  7 states have suspended their deregulation laws.  These include California, Nevada, New Mexico, Arizona, Virginia, Montana and Arkansas.  With the exception of Virginia and Arkansas, these states are located in the West.

Refer to the following posting to see how Texas ranks with regard to electricity residential prices.

TEXAS ENERGY QUICK FACTS

• Texas is the leading crude oil-producing State in the Nation (excluding Federal offshore areas, which produce more than any single State).  
• The State’s signature type of crude oil, known as West Texas Intermediate (WTI), remains the major benchmark of crude oil in the Americas.  
• Texas’s 27 petroleum refineries can process more than 4.7 million barrels of crude oil per day, and they account for more than one-fourth of total U.S. refining capacity.  
• Approximately three-tenths of total U.S. natural gas production occurs in Texas, making it the Nation’s leading natural gas producer.  Natural gas-fired power plants typically account for about one-half of the electricity produced in Texas and coal-fired plants account for much of the remaining generation.
• Texas also leads the Nation in wind-powered generation capacity; there are over 2,000 wind turbines in West Texas alone.  
• Texas produces and consumes more electricity than any other State, and per capita residential use is significantly higher than the national average.

Source:  EIA.  Data updated as of 2 December 2010 

PENDING RATE INCREASE FOR CENTERPOINT'S SERVICE AREA CUSTOMERS

Two administrative law judges in Austin have proposed that the Houston area's electric power distribution company increase rates by only $26 million instead of the $110 million it wants. The state Public Utility Commission, which asked the judges to examine CenterPoint Energy's proposal, will have the final say and plans to consider the issue in January. The company proposed the rate increase in July. CenterPoint operates the poles and lines that transmit electricity to more than 2 million Houston-area customers, regardless of which retail company sells them their electricity.

CITY OF DALLAS WANTS TO BECOME A REP

Its application to become a licensed Retail Electicity Provider (REP), submitted to the Public Utility Commission in September, was denied.  The City Attorney's office reports it will take court action to overturn the PUCT decision that rejected the idea.  That case is likely to be filed in District Court this month. 

The city believes it absolutely has the right under the statutes to become the first municipality in Texas to operate in this fashion.  Its aim is to eliminate a middle man and purchase electric power for its buildings and facilities at lower costs direct from the wholesale market.  Currently, this initiative doesn't involve residents of the city.

WHAT WAS THE MARKET SITUATION THREE PLUS YEARS BEFORE?

The issue of switching to one of the new non-affiliated REPs, the main theme of aggregation, has been addressed in previous postings but is being revisited again due to its importance. 

A bit of near past history......in his 15 January 2007 Report on the Scope of Competition in Electric Markets, submitted to the state legislature, Mr. Paul Hudson, then PUC Chairman, made an unpopular recommendation.  He urged the legislature to adopt new rules to forcibly switch residential customers still with the affiliated REPs on default plans to the new non-affiliated retail providers that offered more competitive prices.  This was a move to enhance competition.  We all know the legislature failed to act. 

Considering the status of market shares still enjoyed by the affiliates today, the market appears only slightly improved since January, 2007.  See posting dated 12 October for the most recent market share data. The number of accounts remaining with the legacy providers remain too high today.

The new legislature about to convene early next year is highly unlikely to take any similar or related action to force switches.  The consumers/homeowners must act for their own benefit.  Complacency and skepticism among the population dealing with the ills of the deregulated market must go away.  People need to become better informed concerning this electricity deregulation matter and move to help themselves and their neighbor.  The industry and the legislature aren't coming to their aid.

UNDERSTANDING RATE PLAN TIERED STRUCTURE

The PUCT requires all REPs to furnish an EFL (Facts Label) pertaining to each of their rate plan products to all prospective customers either in writing or published online.  The format and content of the form is also dictated.  The division of rates is shown in three levels of usage.....500, 1000 and 2000 kWhs.  This is the tiering the title refers to.

When doing homework involved in the selection of a new REP, the EFL is considered the most important document to review and study.  The data contained therein allows for 'Apples to Apples' comparisons of rate prices.  Of special note is the fact that all rates shown on Power to Choose (PTC) are for 1000 kWh usage.  This is important.  When studying and comparing, keep this in mind.  Usually, the lowest rate cost is shown on the EFL under the 2000 kWh column.  Don't mistakenly compare it to the PTC rate.

Although the EFL format allows for this tiering of rates for the different usage levels, their is no real requirement to do so.  REPs could assign the same rate costs across the board if they wished, and at least one REP for ZIP 77379 currently does.  If all the REPs did this, wouldn't things be simplier and and not so misleading?  Folks, the tiering of rates, in our opinion, benefit the REPS by generating more revenue and higher costs to the customer in the case of the average residential account.  Obviously, the customer using greater than 2000 kWhs for every month is unaffected.

For example, this writer's electric account usage history for a twelve month period shows three months <500 kWhs and only one month >2000 with the balance in the middle.  In general, the account is believed to be typical of an average residential customer. Tiered rates penalize the low user and only provide real savings for the higher usage.  Often, additional monthly service charges are assessed for usage<500 kWhs, therefore the true average costs for those months is increased.  For the average usage customer, a $4.95 service charge adds approximately an effective half penny or five mils cost.  A $9.95 fee raises the cost a full penny.  A quoted $0.10 rate becomes a true $0.105 or $0.11.

The REPs would prefer that this knowledge not become commonplace.  We disagree and think the interest of Joe Homeowner overrides.  Also, the imposition of higher costs for less usage opposes conservation.

MONTH TO MONTH RATE PLANS....BEWARE

Many REPs, but not all, offer Month to Month variable rate plan products.  For the consumer, Joe Homeowner, these plans carry high risk.  Although termed Month to Month, the rate may be changed at the whim of the REP any amount it chooses at any time after the introductory month without advance notice to the customer.  In contrast, fixed rate plans guarantee the same rate for the term of the contract.  They are the safest rate plans.

It is believed the majority of homeowners that are on variable rate plans....and many are there without awareness....had that plan chosen by default action.   In the circumstance when fixed term contracts have expired and the customer took no action to switch providers or select a new plan with the same provider, that account may have reverted to a variable rate plan and remained there without recognition by the customer.  However, some customers chose a low price promotional variable rate plan when initially switching to a REP and have allowed the account to remain status quo despite rate increases to levels higher than those on fixed rate plan products.

Our monthly electric bills now show what plan and term the customer is on.  Review your bill to determine your status and act as appropriate.  In addition, it is suggested all electric account holders be more vigilent.  Finally, there are no early cancellation fees connected to variable rate plans. 

HISTORY OF ELECTRIC DEREGULATION.....

I discovered two excellent, comprehensive and factual reports on the history of electric deregulation in the nation and the state of Texas.  Persons with a serious interest is this matter will want to explore this in-depth reading material.  It is highly recommended.  Both reports challenge electricity deregulation and deem it a failure. 

Public Citizen, the people's voice in the nation's capital, is the organization that has authored one of the reports and the other was written by Mr. Jake Dyer who is with the CAPP coalition of communities project here in the state.  Use the links below to find the reports online:

http://www.citizen.org/Page.aspx?pid=2384
http://www.capptx.com/?q=node/5

DID YOU KNOW?

In 2008, a group of six West Texas cities operating in the state's deregulated market tried and failed to use a bulk purchasing strategy in order to lower rates for their constituents.  The strategy, known as opt-in aggregation, is explicitly authorized by Senate Bill 7, the deregulation law for this state.

However, as the cities of Cisco, Comanche, Dublin, Eastland, Hamilton and Snyder discovered in 2008, the aggregation provision in the law doesn't work particular well in practice.

The cities managed to sign up 1,600 households during an extensive outreach program and then attempted to negotiate a bulk rate power deal on their behalf. But citing the relatively small number of customers, the REPs either decided not to participate or would not offer prices lower than those already advertised on Power To Choose.

Organizers of this effort concluded that they would have been more successful using another bulk rate purchasing strategy, known as opt-out aggregation. However, opt-out aggregation is not permitted under Senate Bill 7.

Source for these facts is CAPP, Cities Aggregation Power Project,Inc.

TEXAS ELECTRICITY MARKET DESIGN RANKED MOST SUCCESSFUL IN NORTH AMERICA - DOES IT FEEL LIKE THAT MAY BE TRUE?

According to an industry sponsored report, Texas residential and commercial/industrial deregulated electric markets top the 2010 list of competitive electric markets in North America. Texas has earned the top spot in residential for four consecutive years by being awarded the rating of "Excellent" for its implementation of customer choice.

These are findings of the industry connected firm Distributed Energy Financial Group (DEFG) in its Annual Baseline Assessment of Choice in Canada and the United States (ABACCUS) report which was released yesterday.

DEFG, LLC is a specialized energy consulting and financial services firm focused on innovative energy technologies and solutions that span the entire alternative energy sector.

Market share still held by the state's legacy providers speaks a different tune than this finding.  Refer back to posting dated October 12th.  Comments are certainly invited with regard to this posting.  Click below to read the complete report.

http://www.defgllc.com/Assets/downloads/defg-texas-press-release-2010dec06.pdf