“I felt almost guilty that these people had no electricity because they were complaining about my account,” she told CNN on Monday. “At the same time, my complaint is: how am I going to pay this?”
Those intimately familiar with the Texas energy market say that these energy costs are less of a bug than a feature of the state’s deregulated system.
While the vast majority of Texans pay a flat fee for energy and receive predictable monthly bills, some Texans choose to pay based on the spot price of electricity at any given time. And as anyone who has done Econ 101 knows, when supply drops and demand soars, these prices can reach astronomical heights.
“It worked very well, like capitalism kind of, in theory, should work, 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 very, very badly. In this case, that’s what we saw.”
Supply-demand raised prices
Last week’s winter storm shook the system in a way that consumers knew was possible, but they didn’t expect.
Spot electricity prices have therefore skyrocketed in response.
On any given day, the price of electricity is usually around a few cents per kilowatt hour. Last week, the price skyrocketed to the legal maximum, set by the Texas Public Utility Commission (PUCT), at $ 9 per kilowatt hour.
This in itself is not particularly rare. The price of electricity sometimes reaches this maximum on the hottest days of summer for an hour or two. However, last week, the price remained at that maximum number for several days, due to the long wave of cold.
“Businesses and consumers were taken by surprise to see prices so high in the winter, and what was really extraordinary about this situation is that prices have remained 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, do not pay the direct market price for electricity at any given time.
However, some Texans, like Tanner, use a service called Griddy, which connects customers directly to the wholesale electricity market for a monthly fee of $ 9.99.
This configuration can be cheaper and has some logical meaning. When prices go up, the customer has an incentive to use less energy. At other times, the price of electricity may even become negative, which means that you may actually be paid to use electricity. Griddy says on its 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 directly depending on volatile market prices. And this incentive structure doesn’t work very well when interruptions create life-threatening problems. How much dollars should a client invest in the potential for hypothermia?
“(That) usually means that you are getting a better deal because you are not paying your retailer a profit margin, but prices reaching a level and duration that no one anticipated really leave people vulnerable,” said Cohan.
“Some people inside the system were caught with their pants down,” explained Shaw.
That’s what happened to Dallas resident DeAndre Upshaw, who also uses Griddy. He said it was “very shocking” when he opened his last electricity bill.
“While I’m trying to get gas and groceries and making sure my pipes don’t explode, the last thing I’m thinking about is a $ 7,000 bill from my utility company,” Upshaw told CNN on Saturday.
“We intend to fight for that and alongside our customers for equity and accountability – to reveal why such price increases were allowed when millions of Texans were left without power,” said Griddy.
PUCT said on Saturday that it “launched an investigation into the factors that, combined with the devastating winter weather, stopped the flow of energy to millions of homes in Texas”.
What employees are doing about it
High electricity bills are not just an issue for Griddy users.
Although most Texans were not directly exposed to these high prices, their retail energy suppliers probably were. This cost is likely to be passed on to customers in the form of future rate increases.
“You will have a lot of retailers going bankrupt if they don’t get enough energy,” said Cohan. “When someone is being paid ($ 9 per kilowatt hour) and most consumers are paying ($ 0.10 per kilowatt hour), someone is being crushed in the middle.”
With Griddy, individuals have borne that cost, but in other parts of the market, retail suppliers, cities or municipal utilities may have problems, he said.
For example, the city of Denton, in the Dallas-Fort Worth metropolitan area, is one of the few cities in Texas that buys energy directly. On Monday, the city received an energy bill of $ 207 million accumulated in just four days, a total three times more than its energy costs for the entire fiscal year 2020.
David Gaines, assistant manager of the city of Denton and chief financial officer, said the “unprecedented” bill will gradually be passed on to residents in the form of higher fees.
Preparing power systems to avoid another situation like this will also cost money and is likely to raise prices for the average consumer, Shaw explained.
“To have contingency plans, they will have a cost,” he said.
Texas Governor Greg Abbott said last week that he was calling an emergency meeting to examine the situation, he said in a statement.
“It is unacceptable for Texans who suffered for days in the freezing cold without electricity or heating now to be hit by skyrocketing energy costs,” said Abbott. “To protect families, I am actively working with the vice governor, the mayor and members of the legislature to develop solutions that ensure that Texans are not caught in excessive spikes in their energy bills.”
“Because of these exorbitant costs, it is not consumers who should bear these 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.