Risk vs Certainty:

Retail Electric Providers (REPs) offer “Fixed Price” contracts up to 6 years, or 72 months. That means if you lock in prices for 6 years you have 100% certainty and 0% risk. The opposite would mean if you floated month-to-month you would have 100% risk and 0% certainty. Mathematically speaking the 36 month Fixed price contract would be a 50/50 hedge.  Let’s keep this on the back burner but this is a very crucial part of managing energy costs; what’s locked in, how much risk do you have.   

Natural gas in Texas:

Before we continue with our strategy it’s worth mentioning that the lion’s share of electricity in Texas is generated using natural gas. This means we need to track, trend, and monitor natural gas prices in order to develop a “Market View” that informs our strategy on how we are going to manage electricity prices.   So when we discuss natural gas, now you know why.

Where are markets now?

Since the shale gas revolution and horizontal drilling innovations circa 2009 natural gas prices have steadily decreased. The graph shows monthly natural gas settlements at the Henry Hub in Erath, Louisiana, also known as the largest nat gas distribution hub and the best indicator of what market prices are for natural gas are.  As you can see here we are very near the price floor or ~ $2.00/Mcf.  So we’re looking good on current price levels and come August 1st, 2023 we will be able to shop for our electricity.

Where are the markets going?

This graph is known as the “Futures curve” or what prices are settling for if you wanted to buy natural gas today for a point in time in the future. You can see the curve is slightly upward sloping due to the inherent uncertainty of the future. If we average together the price settlements of any given time duration of the future we get the average price over time, this is how Retail Electric Providers calculate the “Fixed price contracts” they will be offering you come August 1st, 2023.

What’s the Strategy?

Granted a lot can change in 90 days until the August 1st opening of the shopping window our recommendation will be a 36 month Fully Fixed electricity contract for the Wreck’Em Residential Electricity Buying Group. When you fix all the components of electricity pricing there are no surprises come record heat in the summer or a cold winter and power outages.

We can see that nat gas prices are near their 20 year lows, and with a recession on the horizon the decreased demand will couple with already low prevailing prices and a 36 month contract would be a very sound approach to the market.  More to come on strategy over the coming weeks however as of now a 36 month, hedging 50/50 risk and certainty is a conservative approach we feel comfortable recommending to Lubbock residents.