Question by classictvinc: just got an apartment, dont understand energy plans for my electricity?
i have txu energy. i am signing up for electricity and there are like 10 different plans. They have different kwh (kilowatts per hour i think). Easy enough. But then each plan has about a 1 sentence summary of it. Things like “one of our lowest rates” OR “save money when natural gas prices decrease” OR “guaranteed price protection”. Can someone please just give me a simple way to determine the best plan that will make my bills lowest?
Answer by John W
Yeah, Bush’s deregulation certainly made that difficult. Each of those contracts are different term for a period of time so their real value depends on the probability of price changes over that time frame. There is no standard way of evaluating which would be a better choice. You could try to get historical energy rates and use statistics to create a probability distribution but how applicable that probability distribution will be is questionable. You could try to value each prospect for the worst possible scenario for each plan and compare those thereby limiting your risk or you could compare the most optimistic scenario with each one. With options and futures contracts, the contracts are standardized therefore the probability distribution analysis has been boiled down to the Black Scholes equation but each of the available energy plans are different terms so you would have to go through the calculus on each one to do a proper analysis, no one is going to do that.
Just try to spot plans that could get you into trouble and avoid it.
What do you think? Answer below!