» Will future power bills rise?
Several factors play into price consumers must pay and the future rate structure
Texans potentially face higher retail electricity prices after last week’s power-system meltdown, but how far, how fast, or even if rates go up depends on several factors, including the consumer’s retail electricity provider and plan.
Much attention has been focused on so-called index plans, in which rates are tied directly to and fluctuate with the wholesale power market. Wholesale prices soared to the state cap of $9,0000 per megawatt hour — compared to the usual $25$30 per megawatt hour — and ran up index plan bills into the thousands of dollars.
But those plans make up a tiny sliver of the wholesale power market. Griddy, the company that brought wholesale pricing for retail customers to Texas, has about 30,000 customers, compared to about 7.5 million in the state’s competitive power markets.
About 70 percent of customers have fixed-rate contracts, according to industry analysts, meaning that their prices are locked in during the term of the contracts and won’t be affected by the surge in wholesale prices. Whether their prices will go up after depends on when customers renew, which plans they choose and market conditions.
Prices on the state’s Power to
Choose shopping website on Wednesday were running about 9 to 10 cents per kilowatt hour. Those are average prices, according to industry analysts, but higher than a few weeks ago when some plans were offering rates of about 7 cents per kilowatt hour.
More exposed to rate increases are those with variable rate plans, in which prices change from monthto-month. But analysts and industry officials don’t expect significant changes in the monthly rates beyond normal.
Patricia Hammond, a spokeswoman for NRG, the state’s largest retail electricity provider, said residential rates should remain stable.
Short periods of high wholesale prices are typically offset by lower prices over the month.
Wholesale power, for example, has traded near or even below zero during many periods since the power emergency ended.
“Regardless whether they’re on a term contract or month-to-month electricity plan,” Hammond said, “(NRG residential customers) were not exposed to swings in wholesale electricity prices that occurred during the winter storm.”
Managing risk
Jesson Bradshaw, CEO of Energy Ogre, a Houston company that helps customers find the best electricity deals, said retail power companies tend not to buy a lot of power from spot market. Instead, they secure most of it in advance through futures contracts, also known as hedges.
“What a retail electricity provider does is manage the commodity price risk for customers,” said Bradshaw. “Whether it’s fixed rate or variable, it’s very unlikely many customers are going to see a huge price per kilowatt hour difference due to what we saw last week.”
But industry officials and analysts say residential customers should still expect higher bills because they probably used more electricity during the cold snap — if they had power.
About 60 percent of Texas households heat with electricity, according to the U.S. Energy Department.
The Public Utility Commission is prohibiting retail electricity providers and utilities from disconnecting power or assessing late fees until the financial impact of last week’s widespread power failure is sorted out.
NRG said it is offering several ways to assist customers, including voluntary payment extensions, waiving late fees, and offering financial assistance through the company’s Care program.
Over the long term, power rates could rise if the extended surge in wholesale prices last week raises the costs of futures contracts, said Tim Morstad, associate state director at AARP Texas, which advocates for older Americans.
In addition, analysts predict retail power companies that were not sufficiently hedged could be forced out of business, reducing competition that can hold prices down.
The market was already concentrated before the power crisis, Morstad said. NRG and the Irving power company Vistra Energy control about 70 percent of the state’s retail market.
“With a number of smaller companies likely to go out of business in the coming weeks that means further consolidation,” Morstad said. “It can easily lead to higher prices.”
Last resort
One other price risk to customers with power contacts comes if their retail provider goes out of business. In that case, they would be switched to a provider of last resort, which can charge higher rates.
Customers have the option to find lower-cost plans with the provider of last resort or find a new provider.
The PUC last week moved to expand the pool of companies available to take a potential influx of customers from retail electricity providers that go out of business.
The PUC is also requiring these volunteer companies to charge competitive rates to customers assigned to them from failed providers.