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Texas Electricity Rates Expected to Increase

The relatively low electricity rates that many Texans have enjoyed in recent years will likely rise over the next two years as the price of natural gas increases and power supplies struggle to keep pace with rising demand, experts said recently.

Experts offered the prediction to an audience of electricity retailers and brokers at the annual Texas Electricity Professionals Association’s conference in Dallas. David Givens, who follows energy prices for Argus Media, predicted that the confluence of rising natural gas prices and tight electricity supplies could result in electricity prices that increase 10 percent in both 2012 and 2013.

As a result, electricity retailers and brokers should encourage customers to sign up now for one- or two-year fixed-rate electricity plans so they can secure lower prices, said Brandon Schwertner, a consultant with Sumer Capital. “Just tell them to lock in prices,” he said.

Trip Doggett, who heads the Electricity Reliability Council of Texas (ERCOT), which manages the state’s largest electric grid, told audience members that electricity supplies this summer were especially tight because of a record-setting heat wave that strained the system and caused several unexpected power plant shutdowns. During the heat wave, ERCOT experienced record-high electricity demand on three consecutive days in August, peaking at 68,000 megawatts on Aug. 3. The result, Doggett said, was that ERCOT’s reserve power margin was severely reduced from 17.5 percent to 3.8 percent.

While Doggett said ERCOT’s grid was strained by high temperatures and plant shutdowns, he said that he was more concerned that the state’s relatively low electricity prices hadn’t motivated more power generation companies to build power plants or otherwise add generating capacity to meet growing demand in the state. One of the central ideas behind electricity deregulation is that power generators would want to add power to the grid whenever there is demand. In the state’s large deregulated market, generators earn money only when they sell power.

To help relieve stress on the grid, Doggett said that ERCOT is looking at its options, including studying how to get more large power users to agree to contracts that require them to accept power interruptions during periods when electricity supplies are especially tight. One idea being explored would involve offering lower rates to such users in exchange for agreeing to the contracts. Other speakers at the conference suggested that the state modify its deregulated market to allow for capacity payments, which are paid to generators to set and maintain a certain amount of spare electric capacity for emergencies.

Sources

“Texas Electric Rates Expected to Climb Over Next Two YearsFort Worth Star-Telegram, Nov. 3, 2011.

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