The Index continues to run in the Chronicle, but we have expanded our price analysis to include all additional Texas service areas open to electric choice here on MyTrueCost.com.
What have we seen?
- Natural gas prices tend to drive electricity prices - As you may know, about half of the electricity generation in Texas is attributed to natural gas. According to the U.S. Energy Information Administration (EIA), natural gas prices were on a steady decline from July 2011 until around May 2012 when prices began to climb slowly. We found that this most noticeably affected pricing for the longer one- and two-year fixed-rate plans over the course of an entire year. Below, you'll see a statewide comparison of one-year plan prices. Notice how they follow natural gas' drop until about May of 2012, and then climb going forward.
- Shorter-term plans, like six-month contracts, are the most competitive for much of the year - Due to the fact that shorter term plans can occur before, during, or after the hotter, pricier electric seasons, these plans have much more variation throughout the year. They can be either much cheaper or more expensive than longer-term plans depending on the time of year. By far, the most common theme has been six-month plans' value from fall to spring, where they are usually cheaper than any longer-term plan. Three-month fixed-rate plans also follow this trend.
- It doesn't cost much more to go green - The "green premium," or the additional monthly cost of plans with 100% renewable energy, fluctuates in an unpredictable manner, but is usually smallest for two-year plans, and rarely exceeds $6 a month for any plan length. See below for Houston's green premiums, charted for the last year:
What can we expect in 2013?
The trends obvserved in 2011 and 2012 showed us that, more than anything, the seasons play an important role in how electricity is priced. Although we can't be certain about future trends, the seasonal patterns of the past two years could provide a good reference for what we may may see in the coming year:
- WIll natural gas prices stay low? Even though natural gas prices are curently rising, they have remained lower than 2011's price levels for all of this year. As you might assume, electricity prices were lower in 2012 than in 2011, on average. Keeping an eye on what natural gas does in 2013 may prepare you for your next electric plan purchase when the time comes.
- The summer heat spikes electric prices. A basic rule of thumb for signing up for an electric plan is that the more summer/hot months a plan covers, the more expensive it will be when you lock it in. When it's hot outside, it costs more money to generate the amount of electricity needed to cool homes, and electric providers need to be able to charge more money for electric plans to account for that higher cost of the energy that they purchase for the customer. This concept is most apparent with six-month plans, because longer, more stable fixed-rate plans keep the same price throughout the seasons/year. For example, signing up for a six-month plan from October-March won't involve the warmest months, so it's less expensive for the provider to get that electricity for you. If you signed up for a similar plan in July, when costs are high and the weather is hot, that same provider will need to charge you more for that plan. No trend is certain to occur in the next year, but we certainly observed this one in 2011 and 2012.
We look forward to producing the Index for years to come and finding more ways to enhance and expand our analysis of electricity prices. With this tool, consumers can continue to follow changes in the market over time, and best of all, make better buying decisions when looking for their household's next electric plan.