Will Texas Blackouts Cause Higher Electric Rates?

Hey, Texplainer: Will my rates go up because of last week's electricity mess?

Lots of Texans are asking that question in the wake of last week's rolling blackouts, and nobody's going to be happy with the answer, which is: "It depends" (if you ask the electricity industry); or "Yes" (if you ask consumer advocates).

The debacle clearly will carry a hefty price-tag. While Texans' lights went out, real-time wholesale prices of electricity shot up to more than 100 times above normal  — and stayed astronomical, limited only by a price cap, for hours. That's how the laws of supply and demand work when 15 percent of the state's power plants fail at once.

Ordinary Texans won't see any immediate change in their electricity rates. That's because we don't buy electricity from that see-saw wholesale market. Instead, people who live in certain cities, like Austin and San Antonio, buy their power from municipal utilities, which generate some of their own electricity from power plants but also buy electricity on the wholesale market. Texans living in "deregulated" parts of the state — which is to say, most of the rest of Texas, including Dallas-Fort Worth and Houston — buy power from retail electric companies, which buy all their power on the wholesale market.

But in the next few months, rates for some Texans are likely to rise because of the blackouts, says Tom "Smitty" Smith of Public Citizen, an environmental and consumer advocacy group. Texans in deregulated parts of the state who signed up for a flexible rate plan, which allows the power company to change its rates based on fluctuating energy costs, could see an impact in 60 to 90 days, he said.

 

Texans with fixed-rate plans — those whose rates for electricity are guaranteed to stay the same from month to month over a given time-period — will probably see an impact from the blackouts, but over the long term, Smitty said.

It bears noting that Texans' electric bills may jump for many other reasons besides the blackouts. For example, this month's cold snap will cause energy consumption — and hence utility bills — to rise sharply, even when rates are steady. And rate increases unrelated to the blackouts are already in the works for some Texans: Oncor is currently petitioning state regulators to raise its rates by 16 percent, and Centerpoint just got a rate increase; these moves would push up electric bills in Dallas and Houston, respectively.

Last week's crazy wholesale price jump will affect each company that sells power to consumers differently. That means the potential impact of the blackouts will vary widely. Most companies that sell power to consumers likely did not acquire all their wholesale power at the astronomical prices. Austin Energy, for example, did a small amount of buying and selling wholesale power on the day of the blackouts and probably broke about even, according to spokesman Ed Clark. And even if it didn't break even, the difference would be "too small to have any significant impact" on consumers' bills. (Because Austin Energy owns power plants, it also stood to earn money from selling electricity it generated.)

Catherine Webking of the Texas Energy Association for Marketers, which represents a dozen companies that sell power to consumers, estimated that in general just 5 percent of wholesale power is bought and sold on the "spot" market, where prices soared by 100 times last week. The vast majority of power sales are governed by contract arrangements which would use a different, and presumably more stable, price of electricity. What all this means is: companies that sell power to consumers should have been mostly protected — hopefully — from the high prices. But some undoubtedly were hit harder than others, and ratepayers could end up paying for that. There is no public information — as yet — about the total price tag for power bought last Wednesday at the astronomical prices; but such information would help to deduce the scale of the potential impact on Texas rates.

There is also a risk that some companies that sell power to consumers will go out of business, as several did a few years ago after sharp increases in energy prices. However, Webking noted that state regulators have instituted more safeguards since that happened — like requiring the companies' managers to have a certain amount of experience. So that should, in theory, help the companies stay afloat.

Bottom line: Smitty of Public Citizen sums it up: "Most of [the blackout costs] will be borne eventually by the public one way or another, because the public always pays for this stuff."

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