Electricity Rates Blog

Impact of Heat Rates on Commercial Electricity Rates Explained

Commercial Electricity RatesIf you have spent anytime trying to decipher the mechanics of commercial electricity rates then you know it can be quite confusing. That is why it is prudent, as a business owner, to leverage the experience of Certified Energy Professions like the team here at Live Energy? In large part, because the energy market in Texas can change as fast as the weather. It is often the unseen, misunderstood forces that impact the market in ways that make no sense to the average buyer. Heat rates and their correlation to natural gas prices are one of these components.

Many business owners know that the price of electricity in Texas is closely tied to the natural gas market. Often, when natural gas prices drop, commercial electricity rates drop with them. The temptation for some business owners is to rely too heavily on that bit of information when making their energy decisions. However, there are a whole host of factors that determine business electricity rates, and the cost of natural gas is only one.

For example, the heat rate is an additional factor here in Texas that is just as important as natural gas. At it’s most basic level, the heat rate is a measurement of how efficiently fuel (such as natural gas or coal) is converted to energy. The cost of natural gas impacts commercial electricity rates in a very straight forward manner: natural gas is the fuel used to create energy. The cheaper the fuel, the cheaper it is to create energy, the lower rates tend to be.

The heat rate also effects commercial electricity rates, but is not as easy a thing to track and understand. Primarily because there is no publicly accessible index to track heat rates. As power plants come on and offline, and as other factors such as weather impact plant efficiency, the heat rate fluctuates up and down. It’s impact on commercial electricity rates is great enough that it is possible for the heat rate to drive prices up even as the natural gas price drops. The basic formula that retail electricity suppliers use for calculating a retail electricity rate is as follows:

NG X HR + RA = Your Rate

NG = Price of Natural Gas
HR = Heat Rate
RA = Retail Adder (all the other costs to serve such as billing, customer service, profit margin)

*One other key point is that natural gas prices and heat rates generally have an inverse relationship. That is, heat rates drop when natural gas prices go up and vice versa.

Watching natural gas prices will only give you part of the picture when it comes to understanding commercial electricity rates. As a business owner, you are wise to carefully consider each expense you take on, and it is true that there is an expense associated with enlisting the help of an energy broker. For this reason, some business owners elect to attempt to follow the energy market themselves, relying solely on natural gas prices as their gauge. The unfortunate reality is that following the natural gas market alone can lead one to the wrong conclusion about how commerial electricity rates are trending, and the difference of even a couple of pennies in your commercial electricity rate can cost you thousands.

That’s where a team of professionals like the folks here at Live Energy can help you out greatly. We can take the pressure off of you to try to decipher the natural gas market or to attempt to give yourself a crash course in the complexities of heat rates. We watch the market for you 24 hours a day, 7 days a week, and we are diligent to consider all the factors that contribute to your business electricity rate. With our help, you’ll be able to see the whole picture, not just part of it, enabling you to make the most informed decision possible regarding your energy needs.

After all, the lower your commercial electricity rate, the more of your revenue ends up back in your pocket. Our job is to help you plot a course for that kind of success. If you’d like to discuss comercial electricity rates with us and see firsthand how we can save you money, please give us a call at (877) 810-7770.

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