On the heels of announcing the sale of almost a billion dollars worth of power plants in New York City and the Bush Administration announcing an energy conservation campaign centered around a mascot called the “Energy Hog,” Houston-based Reliant Energy Inc. announced Monday that it would be raising its electricity prices for Houston-area customers by almost 15% as soon as possible and could implement an additional increase of about 10% in January. Those price increases will make Reliant’s price for electricity among the highest in the nation.
Under Texas’ deregulation law, Reliant is required to offer a semiregulated price through 2006 that is tied to natural-gas prices. Reliant’s current electricity rate is based on a price of $7.50 per million BTUs for natural gas, so it is increasing its electricity rates based on a benchmark price of $11.38 per unit for natural gas. Reliant’s two-step increase will result in a price of more than 16 cents a kilowatt-hour from the current 12.88 cents.

Reliant’s move comes as markets continue to adjust to the soaring price of natural gas. Supplies of natural gas have been severely constricted as a result of the two Gulf Coast hurricanes over the past month, and federal officials and industry analysts are becoming increasingly concerned about rising energy costs over the winter months. Natural gas heats and cools about 52% of the nation’s homes and, over the past year, natural gas prices have risen to $14.02 per million British thermal units from $6.73 per mBtu, a 108% gain. Similarly, heating oil has risen 50%, to $2.08 a gallon from $1.39 a gallon. Those increases make crude oil’s 31% increase from $49 a barrel to $65.47 seem tame in comparison.
In deregulated markets such as Texas, gas-burning plants generally set the market price. Thus, power companies such as TXU Corp. that have large portfolios of low-cost nuclear and coal-fired plants are allowed to sell electricity at retail prices that far exceed their actual wholesale generating costs because the price is established based on the higher cost natural gas-fired plants. Reliant owns only one big power plant in Texas, so it has to contract to buy electricity from other suppliers such as Texas Genco LLC, which is being purchased by NRG Energy Inc. Those Texas Genco plants once belonged to Reliant, but they were sold as a part of the move toward deregulated market in Texas.
Meanwhile, the seriousness of the problem relating to reduced natural gas supplies was underscored yesterday as the Bush Administration resembled the Carter Administration in calling for energy conservation throughout the nation. The Department of Energy announced a new campaign to educate the public on ways to cut energy use, particularly with regard to home heating. The effort will include radio and television spots, newspaper advertisements and a consumer’s guide with energy-saving tips focusing on tips on improving home insulation, monitoring thermostats and using products to curb energy consumption. The campaign’s mascot is the Energy Hog, which is unlikely to be remembered in the same vein as Ronald McDonald after this current situation passes.