The widespread outages across the Electric Reliability Council of Texas (ERCOT) system were a result of many errors in the wholesale energy markets. Electric generators that could not run when called upon is what everyone is discussing; blame is being passed around to all the ERCOT stakeholders. What people are not recognizing is what retail suppliers have done to help customers.
Everyone has heard of the sky-high electric bills as a result of being on hourly pricing contracts. This means the customer pays the hourly clearing price in the ERCOT wholesale market for their electric commodity. This is a very risky proposition because the only protection is a $9,000 per megawatt price cap. All price risks of the market are placed on the customer, these suppliers are not out to protect customers but to offer them an opportunity to “play the market”. These are the stories that are making the news; what is not making the news are the customers that chose a stable product and are protected from these large price swings.
Under the old regulatory model customers had one choice for their electric supply—the monopoly utility. Utilities would try to manage some of the price risks for customers, but their main priority was making sure the lights stayed on and that all their costs were being recovered through the regulatory paradigm. Then came deregulation and the ability to choose your energy supplier, which included the pricing structure and the source of generation. Deregulation allowed customers to hedge the risks of the wholesale generation markets by choosing a fixed price contract. With a fixed price contract, the supplier—not the customer—takes on the risk of the price increasing. This pricing mechanism may come with a premium, but in times like these that cost is justified. Fixed price contracts aren’t the only products that protect customers from wild price swings, but they are probably the most popular and easiest for your typical customer to understand.
It is uncertain the impact that last week’s price swings will have on customers. Most won’t know how they were impacted until they receive their bills over the next 30-60 days. The ERCOT has put a moratorium on suppliers issuing bills and on customer shutoffs, which is a good step to ensure that the bills customers do receive are accurate and that customers are not shut off as a result of an incorrect bill.
Deregulated retail electric markets offer many benefits to consumers and they should take advantage of them not only as a tool to save money—but also as a way to protect themselves from situations out of their control.
Image credit: Trong Nguyen