Gas prices will drive up Texas summer power costs

By the OGJ Online Staff

HOUSTON, June 21 -- Texas consumers will have plenty of electricity this summer, but they can expect to pay 18-30% more for it than last summer, state regulators said.

The Texas Public Utility Commission (PUC) said Texas has an abundant supply of electricity to meet the summer peak, but electric customers should be prepared for higher electricity bills due to higher natural gas fuel costs.

State law allows utilities to pass along higher fuel costs to customers as long as the utility makes no additional profit from the higher costs. Natural gas supplies more than 45% of the fuel to generate electricity in Texas.

July gas futures closed at $3.73/Mcf on the New York Mercantile Exchange Wednesday, down from a winter peak of about $10/Mcf. But PUC spokesman Terry Hadley said Texas electric utilities haven't caught up with their gas charge undercollections yet.

"We are not at a point yet to lower [electric] prices based on the downturn in [gas] prices," Hadley said.

With more than 50 new plants completed or under construction since open transmission access and wholesale competition began in Texas in 1995, the state will have plenty of electricity to meet summer demand, the PUC said.

Demand is projected to peak at about 67,000 Mw, while statewide capacity will be at least 83,000 Mw, resulting in a 24% reserve margin, the PUC said. The previous peak of 57,606 Mw was set Aug. 31, 2000.

With competition set to begin Jan. 1, 2000, Hadley said the PUC must set the "price to beat" fuel cost factor for retail affiliates of utilities participating in the Texas market by the end of the year. Other retailers will use that number to compete against. How high or low the number is set will help determine how competitive the market will be.

It's already off to a slow start. A pilot scheduled to begin June 1 has been delayed. It's still unclear if it will begin July 6, the most recent start date, Hadley said. The Electric Reliability Council of Texas (ERCOT) is "not ready to make the call yet," he said. Still unclear is whether systems will be ready in time for utilities to switch to a single control area run by ERCOT.