Ambit Energy - Dallas Morning News: Be aware before locking in power rate
When it comes to his electric bill, Don Wilson is like most consumers: He wants the lowest rate he can get.
But he and some of his neighbors can’t decide whether to take TXU Energy up on its offer to freeze their electricity rates for the entire year.
“We don’t know whether it’s beneficial or not,” says Mr. Wilson, a retired Dallas banker. “What’s the tactic; why are they doing this?”
Last October, TXU Energy responded to customer frustration over pending price hikes by offering to lock in new January rates for the whole year.
If prices go up this year, customers in North Texas who take the deal won’t have to pay more.
If prices go down, customers can exit the program without penalty and take advantage of the lower rates.
The offer came soon after TXU Energy proposed increasing prices 24 percent by January, citing higher prices for natural gas, which it uses to generate electricity. The Public Utility Commission of Texas approved that request.
“The volatile natural gas market has affected us all, and we are giving our customers an option to lock in their electricity price for the entire year,” Jim Burke, chairman and chief executive of TXU Energy, said when the TXU Energy Freedom Plan was announced. “This will allow them to anticipate their electricity bills and budget accordingly throughout 2006.”
TXU Energy customers have until the end of March to sign up for the program.
The plan can be appealing to customers who want to protect themselves from price hikes. It also helps TXU Energy encourage customers to stay with it amid the fierce competition of deregulation.
In addition to the Freedom Plan, TXU Energy is testing another rate lock-in program called the Price Guarantee 24 Program, which freezes your rate for 24 months. However, if you find lower rates elsewhere and want to get out of the TXU Energy plan, you pay a $200 cancellation fee if you leave before 24 months are up.
Experts advise consumers to be careful about rate lock-in plans.
“Caution is warranted here because TXU is offering to lock in a rate that was set using record high natural gas prices that were set in the wake of Hurricane Katrina,” says Tim Morstad, analyst at the Office of Public Utility Counsel, which represents consumers and small commercial utility customers in proceedings before the PUC.
Since October, when TXU Energy’s current rate was established, natural gas prices have fallen about 50 percent.
“When they created this, there was a lot of uncertainty as to what would happen with natural gas prices,” Mr. Morstad says.
Today, “by locking in a long-term rate, the consumer is betting that they’re locking in a low rate, and they’re hedging against possible higher rates, but what we’re witnessing now is that natural gas prices are going down,” he says.
If electricity prices go down, the onus would be on the consumer to opt out of the locked-in higher prices. A customer who forgot he was in the program could wind up paying higher prices than everyone else is.
Electric deregulation has been in effect in Texas for a few years now. It’s supposed to reduce prices for customers, but navigating the system is complicated.
The best place to do your electricity shopping is www.powerto choose.org, the Web site established by the PUC to help consumers shop for a power company.
When you get to the Web site, enter your ZIP code and the site will pull up rate offers from several companies, including TXU Energy. Some firms will offer a percentage of savings off of TXU Energy’s price.
Make sure you read a company’s terms of service.
“Sometimes there are term commitments; sometimes there are terms for leaving,” Mr. Morstad says.
What’s more, while some rate offers will tell you how much you’ll save in the first year, others say the savings are “variable.”
“After Rita and Katrina, natural gas prices went up, and the prices to beat [the maximum rate that an incumbent provider, such as TXU, can charge in their home territories] around the state all went up to those levels,” says Terry Hadley, spokesman for the PUC. “Since then, the price of natural gas has gone down, but everybody is kind of slow to lower rates. If they don’t have to, they won’t, and there’s a lot of volatility. Just because prices are going down, they may go back up.”
Hedging their bets
So some companies are hedging their bets.
“The ‘variable’ is a bit of a caution sign,” Mr. Hadley says. “A lot of these providers are going more to a month-to-month basis instead of a set contract term for one or two years.
Look at it as a caution sign that your rate can change month to month.”
TXU Energy officials say they don’t necessarily charge the lowest rates.
“We’re not the lowest, but we are one of the lowest,” spokeswoman Sophia Stoller says. “We do offer very competitive prices.”
That’s all Mr. Wilson wants. He says he hasn’t decided what to do about the rate plan.
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ABOUT THE AUTHOR
Smoky is a regular contributing editor of Energy Consultants, Inc. As Founding Consultants of Ambit Energy in Dallas, TX, Smoky shares information about how to save money and lower your energy bills. With Ambit Energy's move into the New York energy market there are now more people to show how to lower their energy bills