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Electricity Rates in Texas Continue to Surge: No End in Sight

May 2022 Texas Electricity Rate Report

If you are currently locked into a long-term contract with your electricity provider, consider yourself lucky.  Pricing on new electricity plans in Texas is at an historically high level.  The cheapest rate electricity plans listed today are more than double what they were a year ago.

May 2022 Texas electricity rate increases

Natural gas prices are at 13-year highs thanks to a confluence of macroeconomic events and war in Europe.  Electricity rates are driven by natural gas prices.  Electric companies are pricing their plans on the expectation that natural gas prices will not see any relief in the near-term future.  There is also an expectation of a hotter than normal summer.  This would put strain on the grid and cause higher cost electricity plants to be brought online to meet demand.

There was one earlier period in the past 20 years where rates were near where they are now.  That was during the winter storm of 2021.  But in that case rates spiked briefly in conjunction with a shock to the electric grid.  Electric companies raised their rates extremely high for a brief period of time.  Once the crisis passed, rates quickly fell again.

This time is different. The cause of this current round of price increases isn’t a multiday weather event.  The causes this time are global, persistent, and have no foreseeable end in sight.

Electric Companies are Spooked

Many companies can’t seem to raise their rates enough to feel safe. Several Texas electricity providers have stopped taking new customers entirely.  Spark Energy, for example, has stopped listing plans on their website.

Some smaller companies are even toying with the idea of paying customers to take their business elsewhere.  Those companies that remain active in the marketplace, are reducing their plan offerings and focusing on longer term 24 month and 36 month plans.  Even TXU has removed several of their 12-month plans.

Consumers are left with little option but to try to ride out the current market volatility. Those who enrolled in 12 to 36 month plans before the current rate increases started are in the best position.  But even they might have to deal with the new pricing reality eventually.

Those coming off of contracts now have to make a tough choice.  They can either start a new 12 or even 24 month contract with rates that might be double what they were paying before or they can pay incredibly high rates on a month to month basis in hopes that prices will go down soon.

2022 Electricity Rates Compared to 2021

The price hikes are stark when you look at the cheapest available electricity rates this time last year compared to now.  Even providers normally known for offering aggressively low pricing are trying to reduce their exposure in the current market conditions.

In June of 2021, Frontier Utilities was offering their Best Value 12 plan in Houston for 6.3¢ per kWh*.  Today their cheapest plan is the 24 Month Frontier Super Value plan at 13.7¢.  Likewise, Express Energy’s cheapest rate went from 5.6¢ to14.5¢ in that same timeframe.  These two companies aren’t alone.  Electric companies are worried right now, and they are passing on their concerns in the form of higher prices.

Electricity Rates Could Go Even Higher

As bad as things are, they could still get far worse.  Natural gas prices in the U.S. have gone up substantially.  But the U.S. has been largely insulated from the price shock being experienced in Europe.  Natural gas prices in Europe are 3 to 4 times higher than in the U.S..  In a global market, prices have a tendency to eventually converge.  This is especially true with the increase in liquified naturel gas (LNG) exports from the U.S. in the last half decade.  Once a smaller player, the U.S. is now the world’s largest LNG exporter.

In years past, the effect of surging natural gas prices could have been somewhat mitigated by switching more electricity production to coal.  But regulation and market forces over the past 10 years have increased the price of producing electricity via coal.  At present, coal-stockpiles are very low making a switch to coal for electricity production difficult.

Electric companies know all this too. The current round or repricing could be as much an attempt to get out ahead of anticipated natural gas prices as a reaction to the current prices. It also reflects the higher premium for hedging their future costs in a market that is on edge.

*Pricing at the 1000 kWh level

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