Energy Professional Brings Meaning to the Madness of Power Pricing

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Wednesday, June 24, 2009

Long Term Contracts Require Thought

Were you guided into a long term contract decision by your electric provider? Did you make a wise decision or a decision based on advice from your current electricity provider who had their own self interest involved? Excellent questions.


In my blogpost Truth About Power, I mentioned that if a Retail Energy Provider (REP) is pushing fixed price deals, it's usually in their best interest, not yours. If you are one of the unfortunates who locked into one of these long term arrangements, you are dissatisfied and may want out.

Why Do You Want Out

Why would you want out of a long term fixed contract? Because you can save money over the course of the year with variable rates. Variable monthly wholesale prices beat fixed priced deals historically, time after time. How much money are we talking about? That depends on several variables including what you are paying now relative to market prices. (To understand this, see my blogpost Alphabet Speak: MCPE).

The chart I've posted above shows possible savings over the last six months relative to the Market Clearing Price for Energy. (Click it to magnify it.) If you are locked into a Fixed Rate, use the numbers above to determine if you are paying more than you should be. The amount under Savings is what you could be putting back in your pocket every month.

Read Your Electricity Contract

Read the contract carefully and focus on the termination clause. What is the length of the contract? What's the cancellation penalty in terms of dollars? If the contract does not allow early termination prior to expiration, there is not much you can do. Sorry! (Contact me when it's getting ready to expire, and we'll see if I can save you money.)

If the terms allow you to cancel early, there is usually a cancellation fee stated. If not, you can easily calculate the dollar amount it would cost to terminate the contract early using the terms of the cancellation clause.

Once you have figured out what the cancellation dollar amount is, compare it to what you would save each month with a variable rate contract. The difference will show you whether it's worth canceling early.

Here's How

Check your monthly bill Energy Charge to get a good idea of your average kW usage. Use your average kW usage times (x) the MCPE rate. Then multiply that number times the remaining months on the contract to get a fairly close estimate of saving. The decision should become very easy whether to cancel the contract and switch to a Retail Energy Provider (REP) who bills out at an MCPE rate. I represent a REP who does not charge penalties or have a cancellation fee. How refreshing!

Bringing Meaning To Madness

Remember, when using MCPE rates in Texas, your electricity bills should reach their highest prices in late July to early September during peak air conditioner load and then possibly again in late December to mid February with the winter heating load. Savings really are possible.

Friday, June 19, 2009

To Compare, Learn Billing Elements

Before you can compare one electricity provider to another, you must first understand your electric bill.

Let me break it down for you so you can compare apples to apples, so to speak, because electric utility bills can be confusing.

A good Retail Energy Provider (REP) will make it easy for you to understand your bill because the bill will be simple and clearly represent the different components that make up the charges billed to you. In fact, it might be said that the more complex the bill, the better the chance that you might find yourself being taken advantage of.

4 Components To Electric Bill

These are what you compare from one provider to the next in order to get the best deal from competing Retail Energy Provider (REP) companies.

Energy Charge

This is the actual negotiated rate per kwh. It's multiplied by the number of kwh's you used. This is what can be negotiated with the REPs competing for your account.

Utility Charges

The utility charge may be called TDSP Charges (Transmission & Distribution) or Demand Charges. These are the charges assessed to you by your service provider (not necessarily your Retail Energy Provider (REP). These charges may be calculated differently by different utility companies.

When it's called a TDSP Charge, it's most important to make sure that the REP states in their contract that they are passing these charges through to you from the utility company without mark-up. This charge cannot be negotiated.

When it's called a Demand Charge, the utility company will quote you a specific rate per KW (Kilowatt or KW, not to be confused with the kwh rate).

Monthly Customer Charge

This is a monthly meter charge that the energy company may or may not charge you. This is strictly an administrative fee.

Gross Receipts Tax/PUC Tax

This is a utilities tax assessed by the Texas Public Utility Commission (PUC). All energy companies have to charge the customer even if they qualify for sales tax exemption status. It's approximately 2% of your total electricity usage as a tax. Some energy companies list this as a separate line item on your bill, and some energy companies roll this tax into their energy rate. Either way, you end up paying it.

That's it. You see now that the two main items of concern are the Energy Charge, the one you can negotiate, and the Utility Charge, the one that you need to make sure is being passed through to you by your REP without mark up.

Bringing Meaning To Madness

Take your electric bill and shop around, comparing apples to apples. Then you can easily see whether you're getting a good deal from your electricity provider. If not, email me. I've got a great REP to recommend to you.

Wednesday, June 17, 2009

Alphabet Speak: MCPE

Today, let's look at MCPE and its benefits. If that particular acronym is unknown to you, let me introduce you to Market Clearing Price for Energy.

What Is MCPE?

Market Clearing Price for Energy is the bare bones price that Texas companies generally use to create a custom tailored contract for wholesale buyers and sellers of electricity. Briefly, these wholesale buyers and wholesale sellers of electricity are utilities, other Retail Energy Providers (REP), municipalities, or corporations that manage their own electricity needs. That pretty much covers everyone.

Essentially MCPE allows a Texas company to purchase a block or blocks of power without fear of penalty if their Load (Demand) exceeds the block they purchased. If a company's Load exceeds the block amount purchased, the company simply pays whatever the variable market rate is at that time for the amount exceeding the block purchased.

MCPE Pricing

The MCPE price for energy is a variable rate that changes every 15 minutes and the average price is historically much lower than a fixed price rate.

The smartest way to use MCPE pricing is in a block purchase contract when you know about how much energy you will use, but you don't want to pay a large amount if you exceed the usage you have forecasted. Every 15 minutes, the Real Time Data is posted on the ERCOT site.

Bringing Meaning To Madness

A good REP takes advantage of this pricing mechanism and passes that advantage on to its customers.

Monday, June 15, 2009

Change Brings Rewards

Why are people reluctant to change their Retail Energy Provider, commonly known as REP? Here are some of the reasons why, I think, people don't take action to save money on their electric bills.


Some people are just procrastinators like me. I try hard not to procrastinate but often end up doing that very thing either because I'm short of time, energy, or motivation.

Takes Too Much Time

Some people know they should change their REP, but they are too busy and don't have the time to research the different REPs.

Change Resistant

Some people are just plain resistant to change. It could be they have a false sense of loyalty to the company that provides their electricity. After all, they may have used that same electric company for years or even decades. Why rock the boat?

Action Needed

Regardless of the reason you've stayed with your long time electricity provider, this is your call to action to change. Action must be taken to achieve a better result. The first required action is to determine who is consistently providing not just electricity, because they all provide that, but to find out who gives quality service along with the best possible price.

Second, you must determine which REPs are financially stable and strong. You don't want to change REPs only to discover the one you selected has gone belly up. Do your own research or rely on someone you trust who has already done it and is willing to share it with you.

Benefit Of Changing

The biggest reason to initiate change is that you can probably save money. I mean, why pay more money when you can pay less? Yes, folks, there really is a wide variance in what Retail Energy Providers charge a consumer. Consumer Smith may use 1000 KWH of electricty every month and pay twice as much as Consumer Jones for the very same KWH.

Give Yourself A Raise

Take action and give yourself a raise today. If you own a small or large business or manage one for someone else and want to lower costs with a quality REP, email me to discuss your situation.

Bringing Meaning To Madness

Wake up, folks! It’s your money. Why give more than necessary to the power company? You deserve the best price, and the best service for your hard earned dollars.

Friday, June 12, 2009

Truth About Power

Electricity is a generated product that cannot be stored like its relatives, natural gas, natural gas liquids, or even crude oil.

The power that is generated has to match what will be used (remember, that's called Load). If what is generated isn't matched, the power generated is lost forever. That's bad for all of us consumers and for the utilities and ultimately for the environment.

Factors Governing Costs

Since generation and load forecasting are integral parts of the economics that affect all of us, it's good to have quality people managing the generation and load forecasting on our behalf.

For that, you can thank your transmission system operators known as the Independent System Operator, or ISO. The ISO coordinates the dispatch of generating units to meet the demand or load of the users across the transmission grid.

What's REP & What Do They Do

When there are competing generators in a region on the same grid, they will sell their generated electricity to retailers thus creating a wholesale electricity market. This is where money can be saved by a prudent and knowledgeable professional Retail Energy Provider, or REP.

Bringing Meaning To Madness

A really good REP should be there to help you lower your costs. If your REP is pushing fixed deals, he has a reason, and that reason is that it means more money in his pocket. Less in yours.

Wednesday, June 10, 2009

What Is Electricity?

Electricity is the “juice” that flows to your business and home to provide you with the means to enjoy the life you live. It helps you stay cool, see at night, keeps your food from spoiling, keeps drinks cold, and provides you with fantastic entertainment options. All by just flipping a switch!

Electricity As Commodity

Electricity is also a commodity that can be bought and sold in a marketplace. The price is set by supply and demand factors.

Wholesale transactions are normally cleared and settled by an Independent System Operator, commonly known as ISO. Each ISO has a designated generating and transmission region. Here in Texas, this ISO is called ERCOT which stands for Electricity Reliability Council of Texas.

Purpose of ISO

These ISOs ensure reliability between the generating utilities (the actual power plant that produces the electricity) and the end users who are you and me. They do this by managing the demand as well as the generating and transmission assets of its region.

Demand, sometimes called load, is how much electricity users need during a specific time period.

Other Electricity Financial Instruments

There are also markets for electricity derivatives. Derivatives are simply other financial instruments derived from electricity, for instance, futures, options, and OTC (over the counter) financial transactions.

Deregulation: Curse or Blessing

All these electricity financial instruments resulted from deregulation which is the process of removing or simplifying government rules and regulations. This occurred in Texas in January 1 , 2002.

Bringing Meaning To Madness

Electricity is a more complicated issue than you think, but a little education goes a long way toward helping you make an informed decision about your provider.
"If it weren't for electricity, we'd all be watching television by candlelight." ~ George Gobel

Copyright 2009 by Larry A. Reeves

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