One of the most common questions I get asked by people in the deregulated areas Texas is, “When should I shop for electricity plans?” Well, there's an easy answer to that question – Right Now. But more than just giving an answer to that question, I want to explain to people WHY now is the best time for customers to shop for new electricity plans and electricity providers.
Texas is a hot place. It's no coincidence that the population of the state started blowing up right about the time that air conditioners started becoming commonplace. And naturally, our electricity bills are higher in the summer than they are at the other times of the year. This seems like common sense, but there's a bit more at play here than just using more electricity to cool your home. At least, more than most people consider at first blush.
We all know it takes more electricity to to cool our homes in the summer. But the question for consumers is, why do the rates get higher in the summer? There's a lot of suspicion and misunderstanding by customers in the Texas marketplace about how the electricity system works, and one of the most common phrases I hear leveled by some people are “collusion” and “price-gouging,” which I find to be absurd. And the fact that the actual kWh (kilowatt per hour) rates increase in the summer months seems like the kind of thing people might point to as an example of that kind of behavior. But the fact is, that is not true. There's a reason the rates get higher in the summer, and it's perfectly logical.
When the heat increases, so does demand for electricity as more of it is required for each of us to keep our homes and businesses cool. When that demand increases, that extra energy has to come from somewhere. Right now, a vast majority of the electricity generated in Texas comes by way of massive natural gas plants. Natural gas is clean and efficient, and right now the cost of natural gas is at historically low levels. However, when the demand increases past the levels that can be created by our newer natural gas plants, Texas has to fire up some older and more expensive coal plants to cover the disparity of electricity need. It’s an imperfect comparison, but think of it in terms of a gas station. The only station for a hundred miles is out of regular gasoline, so a customer is going to be forced to pay for premium if they want to get to their next destination. It’s the same with the coal plants, except they’re actually more expensive and LESS efficient. It costs more to create the electricity, less of it is created, and it raises the prices across the board for electricity rates in the summer. Just like paying more for gasoline.
As a result of this, it is more expensive for retail electricity providers to purchase the electricity they're selling to customers. Because they have to buy it at the current rates, just like we have have to buy gasoline at the pump price, the rates for customers are higher. Even if a customer is purchasing a long term fixed rate electricity plan, the rates they're buying will still be based upon the current market costs for electricity, and during the hot summer months those rates are higher.
So, to sum up, it’s actually a double whammy of factors that hit Texan’s electricity bills in the summertime. Not only does the heat force us to use more electricity to keep our homes cool, but the increased demand for more electricity forces Texas to fire up a bunch of expensive and inefficient coal plants to compensate for the what we need to keep our homes cool, and this raises the electricity rates.
So what’s the moral of the story? Well, that’s easy. The moral is that there’s a cycle for buying electricity plans that allows customers to save the most money long term. In my opinion the best strategy is to lock in long term fixed rate plans when the rates are at the lowest point from year to year. And that timeframe for the lowest electric rates is any time during the winter up until the beginning of Spring. It’s a pretty easy formula, you simply want to lock in rates before the temperatures start rising. As the temperatures rise, so will the electric rates. So the time to switch electricty plans is anytime from December to March, maybe April. My personal suggestion would be to lock in rates from year to year, which would guarantee you get the lowest possible rates during the hottest and most expensive months of the year. Then, when your plan is up in a year, it will still be the seasonal window for the lowest electricity prices. You can repeat the process for shopping for the best possible electricity plan, and then have the peace of mind that you’ll be locked in at the lowest possible electric rates during the swelting Texas summers.
No comments:
Post a Comment