With Memorial Day ushering in the unofficial start of summer, it also means Texas businesses will soon be using more electricity to run air conditioners, and paying traditionally higher summer prices. With energy prices still rising unabated, what are business owners to do?
Locking-in a fixed price contract will carry a premium, but buying power completely on the floating market price, called the Market Clearing Price for Energy (MCPE) is even more risky. Considering natural gas, the biggest driver of Texas electricity rates, hit a record $11.70/Mmbtu last week, and neared $12 in intraday trading, customers can expect a volatile summer of MCPE rates, especially at peak times. Natural gas prices were further pushed higher when federal weather forecasters at NOAA predicted nine Atlantic hurricanes this summer. Even one hurricane hitting the energy-producing Gulf Coast could cause energy prices to reach unthinkable levels.
Energy suppliers realize the quandary customers are in, and have developed special products meant to deal with the dual risks of locking-in prices at the wrong time, and volatile peak energy prices. They’re known as hybrid or blended products, and basically split a business’s power usage so that some is billed on a fixed price, and some is billed on the floating wholesale rate. The blended products give customers the chance to reap savings from potential decreases in the MCPE, while softening any price spikes, since only a part of their energy usage is exposed to volatile peak prices.
Eight energy providers competing head-to-head at SaveOnEnergy.com offer a variety of blended, hybrid and other customized products to insulate business owners from excessive risk, while still giving them chance to ride the market.
For example, many energy suppliers offer a hybrid product that allows a business to choose a percentage of their load to be billed at a locked-in fixed price, with the remainder on the prevailing MCPE rate. One supplier notes that over time, it’s rare that a customer can time the market and choose the best time to completely lock-in their load. And even when they do, the savings is often minimal, less than 1¢ per kilowatt-hour, compared with an over 1¢ premium they are paying for a fixed-price contract, plus the risk of locking-in a price just before energy prices fall.
Essentially, no one can predict electric rates. While summer prices are traditionally higher, last July was one of the least expensive months to buy on MCPE from a monthly average standpoint, due to much cooler than normal weather. And so-called "shoulder" months, such as March and October that are in-between summer and winter peaks and thus expected to produce lower prices, aren’t immune from wild MCPE spikes. While usage may be lower, many power plants shut down for maintenance during these months, meaning normally small transmission problems or an unexpected power plant outage could cause greater strain on the power grid, shooting prices upward. In fact, that’s what happened in April 2006, when unexpected outages and record heat caused rolling blackouts in parts of Texas. It almost happened again in February after a sharp decline in wind power and other power plant unavailability. That’s why a strategy which hedges a customer’s load between a fixed price and MCPE is preferable.
Another type of hybrid product is an on-peak/off-peak deal that offers a fixed price at on-peak times – those times when energy use is highest, such as late afternoon. MCPEs are highest and most volatile during these peak times because of the demand all customers are placing on the electric system, so a fixed price avoids wild price spikes caused by a power plant or power line outage at these critical times. At off-peak times, customers pay the MCPE, which is typically lower off-peak as fewer customers are using power and there is much less strain on the grid. There’s much less risk in any spikes in MCPE during these off-peak times. The product is best suited for customers who use more energy in off-peak times since they’ll be able to reap the most benefit of the lower MCPEs.
Most electric companies provide the opportunity for customers to convert their blended products into fully fixed products as well, if customers decide they want more price protection after experimenting with the MCPE.
Customers are a mouse click away from getting up to eight custom, blended pricing offers from eight vetted and certified energy suppliers at SaveOnEnergy.com. Customers can simply enter their information and request a blended or hybrid product, and receive the energy suppliers’ best quotes for their business.