“I almost felt guilty that these people had no electricity because I was complaining about my bill,” she told CNN on Monday. “At the same time my complaint is: how am I going to pay for this?”
Those well acquainted with the Texas energy market say these energy costs are not so much a bug as a feature of the state’s deregulated system.
While the vast majority of Texans pay a flat rate for electricity and get predictable monthly bills, some Texans choose to pay based on the spot price of electricity at any given time. And as anyone who has taken in Econ 101 knows, those prices can reach astronomical heights when supply falls and demand rises.
“It has worked really well, as capitalism theoretically should, until it doesn’t,” said Anthony Shaw, an energy engineer and founder of Progeneration Energy, an energy solutions company. “And when it breaks, it breaks really badly. In this case we saw that.”
Supply and demand pushed up prices
Last week’s winter storm rattled the system in ways consumers knew was possible but not expected.
Spot prices for electricity skyrocketed as a result.
On any given day, the price of electricity is generally around a few cents per kilowatt hour. Last week, the price shot up to the legal maximum, set by the Public Utility Commission of Texas (PUCT), of $ 9 per kilowatt hour.
That in itself is not very rare. The price of electricity sometimes reaches that maximum on the hottest days of summer for an hour or two. Last week, however, the price remained at that maximum number for several days, given the protracted cold spell.
“Businesses and consumers were taken by surprise when they saw prices rise so high in the winter, and what was really extraordinary about this situation is that prices stayed so high for so long,” said Daniel Cohan, associate professor of civil and environmental engineering at Rice University .
Some customers pay market prices
The vast majority of Americans, and even Texans, don’t pay the direct market price for electricity at any point.
However, some Texans, like Tanner, use a service called Griddy, which connects customers directly to the electricity wholesale market for a monthly fee of $ 9.99.
This setup can be cheaper and makes sense. When prices rise, the customer has an incentive to use less electricity. At other times, the price of electricity can even go negative, meaning you can actually be paid to use electricity. Griddy says on her website that the wholesale price of electricity is below the Texas average 96.9% of the time.
But as we saw last week, there is a risk of relying directly on volatile market prices. And that incentive structure doesn’t quite work when the dropout causes life-threatening problems. How much should a customer spend on the potential to develop hypothermia?
“(It) usually means you get a better deal because you’re not paying a profit margin to your retailer, but prices soaring to a level and expensive that no one expected made people really vulnerable,” Cohan said.
“Some of the people in the system got caught with their pants down,” Shaw explained.
That’s what happened to Dallas-based DeAndre Upshaw, who also uses Griddy. He said it was “very shocking” when he opened his last electricity bill.
“As I try to get gas and groceries and keep my pipes from exploding, the last thing on my mind is a $ 7,000 bill from my utility company,” Upshaw told CNN on Saturday.
“We plan to fight this for and alongside our customers for fairness and accountability – to reveal why such price increases were possible because millions of Texans were without power,” said Griddy.
PUCT said Saturday it has “launched an investigation into the factors that, along with the devastating winter weather, are disrupting power to millions of homes in Texas.”
What are officials doing about it?
The high electricity bills aren’t just a problem for people using Griddy.
While most Texans weren’t directly exposed to these high prices, their energy suppliers likely were. Those costs will likely be passed on to customers in the form of future interest rate hikes.
“You’re going to bankrupt a lot of retailers if they don’t bring in enough power,” Cohan said. “When someone gets paid ($ 9 per kilowatt hour) and most consumers pay ($ 0.10 per kilowatt hour), someone gets crushed in between.”
With Griddy, individuals took on those costs, but in other parts of the market, retailers, cities or municipal utilities could run into trouble, he said.
For example, the city of Denton, in the Dallas-Fort Worth metro area, is one of the few cities in Texas to buy power directly. On Monday, the city got a $ 207 million utility bill collected in just four days, a total of three times more than its full fiscal 2020 energy bill.
Denton Assistant City Manager and Chief Financial Officer David Gaines said the “unprecedented” law will gradually be passed to residents in the form of higher rates.
Preparing energy systems to avoid another situation like this will also cost money and likely increase prices for the average consumer, Shaw explained.
“To have contingency plans, they will have to pay a price,” he said.
Texas Gov. Greg Abbott said last week that he is calling an emergency meeting to investigate the situation, he said in a statement.
“It is unacceptable that Texans who have suffered freezing temperatures for days without electricity or heat are now hit by skyrocketing energy costs,” Abbott said. “To protect families, I actively work with the Lieutenant Governor, the Speaker of the House, and members of the legislature to develop solutions to ensure Texans don’t fall for unreasonable spikes in their utility bills. “
“For these exorbitant costs, it is not consumers who have to bear those costs,” Houston Mayor Sylvester Turner told CBS on Sunday. “The bill must go to the state of Texas.”
CNN’s Devan Cole, Anjali Huynh, Shannon Liao, Samira Said and Konstantin Toropin contributed to this report.