SAN ANGELO, TX — The Texas Public Utilities Commission capped the wholesale rate for electricity at 900 cents per kilowatt hour as supply of electricity decreased due to load shedding and power plant (and windmill) outages during this week’s snowstorm and week-long frigid temperatures that caused demand to increase drastically. This is part of the deregulated but slightly regulated electricity market we have in Texas.
Most of San Angelo and the surrounding areas are on an electricity plan for homes and businesses that charges in the neighborhood 10-20 cents per kWh.
If a San Angelo residential customer had to pay the difference, the bill for a regular 2,000 square foot house could be on the hook for a 890 cent rate increase per kWh, or 89 times your current expectation. If you're at 10 cents per kWh currently, that can mean that $400 monthly bill could increase to the neighborhood of $9,000 next month, assuming customers were billed the full 900 cents per kWh for electricity used this week.
Luckily for most, the cost difference will not all be absorbed by residents or small business, said Fred Anders, the founder of Texas Power Guide at TexasPowerGuide.com. Anders has been tracking the deregulated Texas electricity market since 2015 when he launched his website.
“We are trying to bring more transparency to the electricity market in Texas,” Anders said.
Anders said there are basically three types of pricing models for retail electricity customers: variable, fixed, and indexed. All of these plans offer consumers some protection from calamities like this week’s power crisis.
A variable rate is similar to an adjustable rate mortgage. The retail broker offers a lower kWh rate based on the wholesale electricity rate, but there are usually caps on rate increases, just like an adjustable rate mortgage cannot increase several percentage points in a day, week or month.
A fixed rate locks the client in for a specified kWh rate for a specified period of time. This is similar to a fixed rate mortgage. A customer can agree to a 5-year term at 8 cents per kWh, for example.
The electricity customers in jeopardy for being surprised with a massive power bill may be the indexed rate customers, Anders said. Index customers usually enjoy very low electricity rates but in peak times like what happened this week can get hammered. And index rate contract can vary the kWh rate every 5 minutes and may not be capped.
“There are only about 30,000 index rate retail customers in Texas before the storm hit,” Anders said. It’s not a widespread plan in use in Texas. Anders said he was on an index rate but his retail provider contacted him last week and suggested he move to a more fixed rate plan in anticipation of this week’s calamity in the wholesale markets.
Over the next weeks and months, there are two issues electricity customers need to watch, Anders said.
The first likely impacts most residential and small business customers and that is those customers are currently obtaining electricity on a default contract. A default contract goes into effect after the initial contract term expires.
“Most people don’t renew those contracts, or shop for a better rate,” Anders said, adding that electricity rates are generally so low in Texas even under the default rates that most customers are not incentivized to take the time to shop for a better rate by signing a new contract.
Default rate customers may see a bump in the kWh rate next month.
Fixed rate customers — those with contracts — are safe from a rate increase in general. However there may be variable rates like electricity delivery charges added that are in the fine print of those contracts.
The danger for the fixed rate customers is the retail provider is small and undercapitalized and folds. Someone has to pay for the spread between the kWh rate customers are charged and the wholesale rate, that this week has been massive. Anders expects some retail providers will go out of business.
Your contract with an out-of-business provider could then be sold to another provider staying in business saving the customer. However, if the provider goes under while the contract is retained by that provider, then your contract likely ends prematurely and your new contract falls into a risk pool.
“You probably will not like the rate in the risk pool,” Anders said.
Over the next couple of says, Anders suggests Texas electricity customers learn who their retail electricity provider is and what kind of contract their home and/or business is currently subscribed. Some providers are small and may not make it, Anders warned. Other retail providers may be owned by a larger provider. For example, Anders noted that Cirro Energy, Green Mountain Energy, and Xoom Energy are actually owned by NRG.
“If your provider has naming rights to an NFL football stadium, you’re probably okay,” Anders said.
Most of Texas worries about the cost of electricity during the 100-degree F weather during the summer months. You can better regulate your electricity during periods of hot weather by accepting to live in a warmer house. During winter, however, a freezing cold house can cause death.