Fixed price electricity plans are the mainstay of the Texas electricity market. Electricity customers like the peace of mind that comes from locking in a low electricity rate for a specified period. The only downside of fixed price electricity plans is their lack of flexibility. If electricity rates drop after the customer enrolls, moving to a lower rate or switching electricity providers typically incurs an early termination penalty.
For customers willing to sacrifice price security for flexibility, variable rate electricity plans may be a better fit. The electricity rate varies from month-to-month but the customer is free to switch plans or providers at any time without penalty. The problem with most variable rate electricity plans is that there is no transparency as to how or why the rates vary. The TXU Energy MarketEdgeSM plan solves this problem.
Variable Electricity Rate
MarketEdgeSM is classified as an index electricity plan because it varies based on monthly natural gas prices. Each calendar month, the electric rate is determined based on a published natural gas index price and a conversion factor (heat rate) specified in the electric service agreement. In the case of this TXU Energy rate plan, the natural gas index price is the NYMEX Natural Gas Futures Closing Price.
TXU Energy provides customers with historical and current month natural gas prices on its website. It also provides natural gas price projections for the next six months. These projections are the most recent NYMEX daily closing prices for each of the months in question. While it is impossible to predict where natural gas prices will ultimately settle each month, TXU Energy takes a step toward price transparency by pinning their electricity rate to publicly available NYMEX prices.
NYMEX Gas Drives Electricity Rate
The electricity rate calculation is described in the Electricity Facts Label presented to customers prior to enrolling in the plan. For the period of August 2014 to July 2015, the average monthly NYMEX natural gas closing price was $3.28/mmBTU. Monthly gas closing prices ranged from a high of $4.28/mmBTU in December 2014 to a low of $2.52/mmBTU in May 2015.
During this period, the average monthly price in the Houston area would have been 11 cents/kWh for a customer using 2000 kWh per month. In the Dallas/Fort Worth area, the average monthly electricity price would have been 10.2 cents/kWh.
Indexed rates may not be for everyone (see TXU Energy’s disclaimer below). However, customers can convert to another pricing plan or change electricity providers without penalty at any time. If you are a residential customer who likes variable rate electricity plans but prefers to see a transparent formula for how the rate is calculated, TXU Energy’s MarketEdgeSM is worth looking into.
Note TXU Energy’s Disclaimer: Nothing in these materials suggests any prediction regarding any level or movement in forward prices for natural gas commodities. Historical market fundamentals do not predict future price movements or price volatility. Consumers must make their own separate and independent evaluation of their situation and needs.