The U.S. flag and the Texas flag fly in front of a high-voltage transmission tower in Houston, Feb. 21, 2021.
Last week’s snowstorm in Texas crippled power facilities, leaving more than four million homes without power in the freezing cold, but adding to the woes of some people was the “sky-high” electricity bill they received after the disaster, which skyrocketed nearly 200 times in price.
Real-Time wholesale electricity prices from the Electric Reliability Council of Texas (ERCOT) jumped 10,000 percent on Feb. 15, soaring from less than $50 to as low as $9,000 per 1,000 kWh. The price spike has hit those who choose to purchase electricity at wholesale prices. Many customers were shocked when they received their electricity bills.
Wholesale prices are usually cheaper than paying a fixed rate on a good day, but when demand outstrips supply and electricity is in high demand, prices soar. According to reports, many people who receive large bills are customers of the electricity supplier “Griddy” (Griddy), a company that operates only in Texas.
Before the storm, Griddy usually charged customers a fixed monthly fee of $9.99.
Susan Hosford, who lives in Denison, Texas, is one of those customers. Before the storm’s future, she paid Nettie less than $2.50 for electricity on an average day in February. But after the disaster, the price of a day’s electricity soared into the hundreds of dollars.
In the first two weeks of February, she was automatically charged $1,346.17 for electricity – more money than she had in her checking account – which led her bank to charge her an overdraft fee and affected credit limits and other bills.
“This whole thing has been a nightmare.” She said.
These rare “sky-high” bills not only showcase Texas’ unique power supply model, but also offer a glimpse into the workings of the free market.
In fact, Texas has the most liberalized and privately involved electricity in the United States. The state of Texas has long been proud of the economic efficiency of “free competition in electricity”. A loosely regulated market also has the obvious benefit of being cheap.
But in this cold snap, the huge fluctuations in electricity prices have led public opinion to question the “efficiency first” approach of Texas electricity suppliers.
Here’s what you need to know about the spike in electricity rates.
- What are wholesale electricity prices?
Wholesale electricity prices fluctuate based on demand.
Joshua Rhodes, an energy research associate at the University of Texas, said that wholesale prices are driven up by high market demand for electricity as natural gas pipelines and wind turbines in Texas freeze up, making less electricity available.
Wholesale prices are usually as low as a few cents per kilowatt hour, but after a snowstorm, that cost spikes to $9 per kilowatt hour. Fixed-rate customers, on the other hand, pay a fixed amount that doesn’t go up as much. Typically, they pay about 12 cents per kilowatt hour.
But Rhodes said fixed-rate customers could see their prices go up a few cents later this year as companies affected by the snow and ice look to recoup their costs, but their bills won’t run into the thousands of dollars.
In Texas, people are able to pay wholesale prices for electricity because it’s one of the only states that lets people choose which company they buy power from, Rhodes said.
- What is Griddy?
Launched in 2017, Griddy charges $10 a month and lets people pay for electricity at a wholesale rate instead of a fixed price.
The electricity provider recently sent a newsletter to customers informing them that it had raised the price of electricity and urging them to switch suppliers. The company said wholesale prices have returned to normal since Feb. 20.
- How many people are affected by the “sky-high” prices?
NetDee said it has 29,000 members. It’s not clear how many other Texans are paying wholesale prices from other companies.
Ed Hirs, an energy researcher at the University of Houston, said, “It may be 30 to 90 days before we get the full picture of the financial damage (to electricity bills).”
- Will people who receive large bills get financial help?
That’s unclear.
Texas Gov. Greg Abbott (R) said Sunday (21) that he is working with the Legislature to address soaring energy bills, trying to “find ways the state can help reduce that burden.” But he did not give specific details.
For now, the state has prevented power companies from cutting power to customers for non-payment.
Rhodes said it’s not easy to get authorities to aid customers who receive sky-high bills because they choose to pay at wholesale rates, and may pay much less than others over time.
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