Texas Electricity Rate Increase – How Much Will Your Bill Go Up?

No, Texas, your electricity bills are not going to triple despite what you may have seen in a number of recent headlines.  That’s the good news.  The bad news is that it seems unavoidable that your electricity rates will go up some. 

The misleading headlines of late have been alluding to the PUC plan to raise (triple) the cap on wholesale rates from the current $3,000 per megawatt hour to $4,500 in the summer of 2012 and to $9,000 per megawatt hour by 2015. This wholesale rate cap is not the rate paid directly by consumers.  If it were, the average electricity bill in Texas would be a few thousand dollars a month.

As the name implies, the wholesale rate cap is the legal maximum rate that electricity producers can charge for electricity in the real-time wholesale market for electricity in Texas.  The cap is only reached under rare circumstances where there is either a huge spike in the demand for electricity, a supply disruption, or both.  The wholesale price cap is only reached a tiny fraction of the time.  That’s a fortunate thing because this rate is many times more than what consumers typically pay for electricity in Texas. For example: the cheapest electricity rates in Houston are around 8 cents per kwh.  That equates to $80 per megawatt.

Texas electricity officials hope the increased price cap will incentivize producers to build new power plants to help fill the need in Texas for more power.   Lack of incentive is a serious problem for the Texas power grid.  Deregulated electricity in Texas means the state relies on private investment to ensure that power plants are built.  Like any other free market, producers produce their product (in this case electricity) in hopes of reselling it at a profit to consumers.

But recent market conditions have spooked would-be electricity producers.  The large drop in natural gas prices in recent years has squeezed the margins out of the electricity production business.  Private capital that might otherwise have been used to build new power plants is being put to use in other ventures that promise higher returns, lower risk, or both.

This leaves operators of the Texas grid in a difficult situation.  The Texas economy continues to stubbornly grow.  This creates more and more demand on the grid.  However, at the current rate of investment supply is not going to keep up.

So what does all this mean?  Are my rates going up?

Unfortunately, it’s almost a certainty that retail electric rates will go up; though they won’t triple.  One study put the potential consumer impact of a raise in the wholesale rate cap at about $15 per month once the cap goes to $4,500 this summer and $40 per month once the cap hits $9,000 in 2015.

So what can I do to keep from seeing my bills go up?

One thing consumers can do is conserve during peak hours for electricity demand.  These are the times when capacity shortages are felt and wholesale prices spike.  The other thing you can do is make sure you have compared rates and that you are on the cheapest electricity plan available.  With dozens of electric providers in Texas rates can sometimes vary dramatically from one company to another.

2 thoughts on “Texas Electricity Rate Increase – How Much Will Your Bill Go Up?

  1. How can a higher cap incentivize producers to build new powerlants? More supply reduces the probability of those “rare circumstances”. The incentive is to keep the status quo and hope for high demand.

    The current low natural gas prices could increase margins for producers were they burning gas instead of coal.

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