Texas Electricity Provider Map

Last week’s purchase of First Choice Power by Direct Energy was yet another major acquisition of a Retail Electricity Provider by a major energy conglomerate. There’s been around a half a dozen of these deals in the past year, and in my opinion things have gotten a bit muddled and confusing. So I wanted to write a post to chart exactly who owns who in the deregulated electricity space in Texas.

Dominion Resources: Dominion Energy probably isn’t a name that is very recognized by Texas electricity customers. However, they are a huge energy company that deals in both energy generation and distribution in multiple states. Headquartered in Richmond, Virginia, they own the incumbent and regulated electricity providers in Virginia and North Carolina. In Texas, they own Cirro Energy, which they purchased in 2008. Earlier this year, Cirro Energy purchased Simple Power and absorbed their customers.

NRG: NRG, a new Jersey based company, is another huge energy company with massive power generation resources. On top of energy generation plants, NRG also owns Green Mountain Energy, which they purchased in 2010 for 350 million dollars. In 2009, they purchased former incumbent Texas electricity provider Reliant Energy for 287 million and change when Reliant was under heavy financial distress. This was a steal considering Reliant was the second largest REP in the state at the time and has huge brand recognition. In turn, Reliant Energy owns (and I believe operates) Pennywise Power, which is a new brand they’ve put into the deregulated Texas electricity market to try and capture different customers without effecting their core brand. So NRG owns Green Mountain and Reliant, and Reliant in turn owns Pennywise Power.

Just Energy – Just Energy is yet another big energy company, with resources all over North America. They had been a fairly smaller player in the retail electricity market in Texas until recently. Just Energy itself was mostly a niche provider, offering 5 year long term contracts to customers. However, they recently purchased the entire retail arm of Fulcrum Power. That includes Amigo Energy, Tara Energy, and Smart Prepaid. So now all of those brands are part of the Just Energy portfolio. They’ll likely keep the branding and still do business under the names Tara and Amigo, but it’s all Just Energy. Just Energy also owns another smaller REP, Commerce Energy.

Direct Energy: Direct Energy is actually a subsidiary of a British company called Centrica, but they’re known almost exclusively in North America as Direct Energy, so that’s the name we’re going with. Direct Energy is yet another huge energy generation company with huge and varied resources. In the retail electricity space they do business as Direct Energy and they are one of the biggest REP’s in Texas. They also operate in Texas as WTU Energy and CPL Energy in two respective TDSPs. In the Spring, Direct Energy also purchased Gateway Energy Resources for 90 millions dollars. Since then, Direct has removed Gateway as a brand from doing business in Texas. Just last week, Direct Energy made another huge purchase, this time of First Choice Power for 270 million dollars. Which is a huge price tag. So, as of now, every company I mentioned above is really a subsidiary of Direct Energy.

Constellation Energy: Constellation Energy is the largest energy supplier in America. Their 2007 revenues were 21 billion dollars. So yes, they’re another big energy guy. They own the regulated electricity entity Baltimore Gas and Electric. In 2 month period last spring and summer, Constellation announced purchases of both StarTex Power as well as MX Energy, two retail electricity providers that operate in the Texas deregulated markets.

Gexa Energy: NextEra Energy is the parent company of Florida Power and Light, the regulated electricity provider for much of Florida. They’re another big energy company, having generation resources in over 20 states. In 2005, Florida Power & Light purchased Gexa Energy. They still do business in Texas under the name Gexa.

Dynowatt: Dynowatt is a subsidiary of Accent Energy, which is a large company with natural gas ties in Ohio. Accent also serves deregulated New York, but they do business in Texas as Dynowatt.

TXU Energy: TXU is actually a subsidiary of Energy Future Holdings, which also owns Luminant, the power generation portion of the old TXU company that was forced to split because of deregulation laws. Now Luminant and TXU operate separately. TXU is the largest individual REP in Texas and one of the two former incumbent providers.

The following Retail Electricity Providers are stand-alone entities:

Texpo Energy: Texpo Energy is a smaller company operating in Texas. What makes them interesting is that they actually operate under 3 different brand names while all sharing the same PUC Certificate. The other two brands are Southwest Power & Light and YEP. So to sum things up, Texpo, Southwest Power & Light, and YEP are all the same company operating in Texas under different names.

  • Champion Energy
  • Stream Energy
  • Ambit Energy
  • Brilliant Energy
  • Texas Power
  • Liberty Power
  • Mega Energy
  • APNA Energy
  • Bounce Energy
  • Spark Energy
  • Hopefully this helps to give people a clearer picture about who some of the players are in Texas electricity. It is important that people know exactly who the company is that is supplying their electricity. For example, if someone had a bad experience with one company, they might not want to get service from another one of their subsidiaries. And since there’s been so many purchases and mergings of REP’s in the last 6 months, I thought it might be a good idea to chronicle which companies have ended where after the dust has settled. I’ll try to update this page moving forward as well. I doubt we’ve seen the last of big REP acquisitions, so this family tree might change.

    I’ve included a crude flowchart below. Yes, I do realize it looks like it was put together by a 3rd grader.

    Texas Electricity Ratings Update: New Rankings Released

    Good afternoon, everyone. I just wanted to post a quick update that I’ve revised the Texas Electricity Ratings ranking of providers this week. The new rankings and numbers are posted, although there wasn’t much change in the actual order of providers.

    Bounce Energy remained in the top spot, boosted by their great freshman performance in the JD Power Rankings that were released in August. They raised their average a few tenths of a point with that addition and by continuing to work to their strengths as an REP. So congratulations to Bounce Energy!

    Champion Energy held onto the number 2 spot, although Gexa (leapfrogging Direct Energy) closed the gap after Champion was hit with some negative reviews by customers after August heat spikes wreaked havoc on their indexed plans. Direct Energy and StarTex power rounded out the top 5.

    It was a tough summer for electricity providers in Texas. Lots of companies suffered losses because of the energy shortages. And because of some bad pricing scenarios with some variable and indexed plans, many providers have pulled their Month To Month plans from the market completely. By the same turn, lots of customers had bad summers as well, just because of bad circumstances and the worst summer in Texas recorded history. That being said, the wheels keep turning. Below is a full list of the provider rankings.

  • 4.36 Bounce Energy
  • 3.98 Champion Energy
  • 3.93 Gexa Energy
  • 3.65 Direct Energy
  • 3.43 StarTex Power
  • 3.19 Tara Energy
  • 3.05 Green Mountain Energy
  • 2.75 Spark Energy
  • 2.66 Dynowatt
  • 2.51 WTU Energy
  • 2.44 CPL Energy
  • 2.23 Amigo Energy
  • 2.13 TXU Energy
  • 2.08 Reliant Energy
  • Texas Electricity Ratings rates providers in the marketplace based on a number of different factors, including pricing, PUC complaint statistics, Better Business Bureau evaluations, third party surveys, customer service and many other important categories.

    A Dissection of Deregulated Texas Electricity & Regulated Austin Electricity

    I ran across a very interesting article that discusses some of the changes that are taking place with Austin Energy, which services one of the last major regulated cities in Texas (along with San Antonio). The article itself is a good read, but there’s also a lot of information that shines some light on a lot of misconceptions about our DEREGULATED areas of Texas as well. So I want to go through here and discuss and expound on some paragraphs from the article and compare it to deregulated Texas electricity.

    First, lets set the stage. People who are against deregulation in Texas almost always point to Austin electricity being cheaper than the deregulated areas and attempt to (erroneously) make a connection between Austin’s low rates and utility regulation. It’s a lazy argument to make, but people do it anyway, and it always gets on my nerves. Well, now Austin is now raising their rates for the first time in SEVENTEEN years. It will be a 13% rate increase. So they will no longer be cheaper than the other areas of Texas. And to be honest, they haven’t been cheaper in years, but now people won’t be able to point to them falsely anymore, either. Why the 13% rate hike?

    Seventeen years without increasing its base rate has left Austin Energy with a $131 million shortfall, prompting a 13 percent systemwide rate increase that the utility says is necessary to make ends meet. Opponents, however, believe the increase burdens residential customers in favor of industrial and commercial users.

    As fuel costs have risen over the years, customer bills have been riddled with increasing power supply charges used to meet the utility’s growth, said Larry Weis, general manager of Austin Energy. The rate redesign will bring power supply charges to zero and embed the cost within the new rates.

    Although talk of a rate redesign first began nearly a decade ago, and while the utility has been operating at a loss for years, it was not until AE presented its Resource, Generation and Climate Protection Plan to 2020 last year that the utility felt it necessary to increase rates in order to meet the city’s growth and need, Weis said.

    Personally, I find this absolutely staggering. And not in a good way. I’m not sure where to start with just how wrong it is for a utility to run in the red for year after year after year to the point of running up a 131 million dollar debt. How absolutely irresponsible is it for any company, public or private, to be allowed to borrow money simply because they refused to operate like a normal company and RAISE RATES TO MEET THE COSTS? If this is a hallmark of what regulated electricity is all about, I personally want no part of it. Although it’s hardly shocking these days for a government agency to be running up debt with little concern for accountability.

    But not only is it insane that they’ve simply been operating in increasing debt for so long without acting before now, it also means that Austin’s rates have actually been MUCH HIGHER all along. At least, that is what my interpretation was of the 2nd paragraph quoted above. It says customer’s rates have been riddled with power supply charges to compensate for the growth of demand. That implies that much of this has already been passed onto the customers already, but that it still isn’t enough to have met their needs, hence their debt. At least that is how I’m interpreting things. If I’m correct, it simply means Austin Energy has been tacking on more money to each bill, but it simply wasn’t listed as the Energy Charge. Which means people kept getting to brag about how cheap Austin’s rates were completely erroneously. And on top of all of THAT, they were STILL accruing a huge debt. How big?

    Even if the rate redesign was implemented in January 2012, the utility would have a $30 million deficit for the 2011–12 fiscal year, a $75 million deficit for the 2012–13 fiscal year, and ultimately would not break even until 2016, Clark said. Until the 19 large industrial user contracts expire in 2015, they account for $20 million of the deficit every year. Their rates would then be raised in 2015 to meet the $20 million needed.

    Their debt is so big, as well as the demand, that even if they implement the rates changes they will STILL be operating in the red until 2016. Buy then the estimated debt will be 236 million dollars. And that might not even include interest. So more than a quarter of a BILLION dollars that they won’t even be able to start paying down until 2016. And that’s if they can even pay it down at all, as opposed to just continuing to break even.

    Deregulated electricity has plenty of detractors…but this would NEVER be allowed to happen under our system. Market forces keep the companies honest or they go out of business. Regulated utilities have caps on how much profit they can make, which they exchange for less risk in their marketplace which comes from a lack of competition, among other things. Shockingly enough, when government and politics are responsible for making the decisions and managing entities like a utility company, debts pile up and bureaucracy prevents timely change to evolve with the marketplace. Don’t believe me? Read the following excerpts and tell me I’m wrong:

    Electric Utility Commission member Linda Shaw joined the commission in 1994, the moment the commission began a lengthy series of meetings concerning the last rate redesign.

    Shaw said as more utilities become deregulated across the state, the competitive market rises, resulting in sales and buying of electricity based more on who has the lowest price and not the best long-term goal.

    “If you charge too much for your energy, if you put it out there to sell and it costs you more than what the market bears—you can’t sell your idle generation,” Shaw said.

    In the past, AE has paid for expansion with cash, but recently the utility has had to borrow more and more.

    “We have gotten to the point we don’t have cash to do those things; we have to borrow,” Weis said. “Cost of transmission has gone up and a piece of a copper wire has gone up. All of these costs have gone up significantly. We have not addressed that and that is why it’s time.”

    The Electric Utility Commission can only give guidance to the City Council and has no hand in the final decision. Shaw expects that the rate redesign will not pass through City Council smoothly, however, and it might be appealed to Texas’ Public Utility Commission.

    “There has already been some inclinations [by the Public Involvement Committee] that they feel rates are not fair,” Shaw said. “It will be appealed to the PUC, which, of course, would examine everything.”

    They’ve been trying to redesign the rate for SEVENTEEN YEARS? Some of the electricity companies in deregulated areas change their rates every DAY. How else can you explain that other than the fact than getting government and politicians out of the way and turning things into a true business allows for necessary change in the marketplace? Shaw said it herself…the market forces are more effective in setting rates than politicians. These people couldn’t even take into account an increase in costs like copper wire. What is that old adage about too many cooks spoiling the soup? And on top of that, because there are politics and bureaucracy involved, the necessary rate changes might not go through because a city councilman who votes for it might lose his seat next time from angry constituents. And Austin Energy’s own committee might challenge the rate hikes as unfair as well? How does any of this make sense?

    So, to sum up, regulated electricity in Austin has resulted in a massive debt and an inability to make even small changes to evolve along with the electricity market…to the tune of 17 years to figure out how to raise rates to meet costs. Politics and bureaucracy create infighting and slow down the process even further by creating individual interests that might conflict with the necessary changes that a utility needs to make to cover costs. And all of this is on the heels of the revelation that Austin’s regulated electricity actually hasn’t been cheaper than the deregulated areas this entire time.

    Personally, I’ll take deregulated electricity any day of the week and twice on Sunday.

    Texas Electricity Grid Changes: Tres Amigos Redux

    This summer, which blessedly seems past us, has been extremely brutal for Texas Electricity. One thing for sure that this summer has exposed was as some limitations, of the Texas electricity grid. Overall, I’m of the opinion that our grid held up pretty well, all things considered. But there is no denying the fact that at times the Texas grid basically ran out of electricity. We came dangerously close to rolling blackouts on several occasions, and future EPA changes might make things worse.

    Interestingly enough, however, I ran into a couple of snippets in articles last week that could offer solutions that would prevent that kind of dangerous shortage from happening again. The Texas grid is isolated from the rest of the country’s major electric grids. Which means that when we get in trouble there’s not much we can do to get relief from our neighboring states. However, that might change. First was a snippet I saw in a recent Ft. Worth Star-Telegram article:

    The state Public Utility Commission should be receptive to a proposal by Entergy Texas to join an electric grid serving the Upper Midwest for a number of reasons.

    The National Weather Service confirmed that this summer was Texas’ hottest on record. The average temperature from June to August was a sizzling 86.8 degrees. Moreover, the ongoing statewide drought is expected to linger through this winter. If it does, the state’s energy demands could be high again next year.

    Numbers like that support efforts by Texas companies to pursue power-sharing agreements with other utilities. Entergy’s proposal is appealing because it can provide access to affordable electricity in the summer.

    That kind of planning ahead should be encouraged by state agencies. The last thing Texans want to hear about in the midst of a bad summer is the possibility of power blackouts.

    Entergy operates grids in East Texas, Louisiana and Arkansas. This could be an easier solution for shortages going forward. It would enable Texas to get energy when our demands get overwhelming for the grid, and it should act as a buffer against any price escalation that we saw this summer as well.

    Along those lines, but much bigger in scope, is the Tres Leches Power Station. I’ve mentioned it before, years back when it was just an idea, but it looks like Tres Leches is moving forward and is not far from breaking ground. This fall, according to the article. The Tres Leches project is a huge, huge construction. It will actually connect all of America’s major, and up until now separate, electricity grids. It will allow renewable energy to pass to other areas of need, which has been a problem up until now. It will allow other areas of the country to help out when electricity becomes scarce. The whole article is actually a great read, and it seems like great news of Texas as well as everywhere else in the country. A deal with Entergy could be a short term solution for Texas electricity, and the Tres Leches sub-station could be a long term fix for any energy shortages like Texas faced this past summer.

    Loren Steffy of the Houston Chronicle Wrongly Bashes Deregulated Electricity

    I ran across an article on the Houston Chronicle’s Fuel Fix Blog this morning. Normally, this is a great blog with lots of interesting articles that I read on a very regular basis. Today’s entry, however, by Loren Steffy, is one of the more backwards and lazy efforts I’ve seen on the Texas deregulated electricity market and the new EPA changes that I’ve seen to date. It’s so odd, I’m wondering if Steffy is being contrarian to get attention. Lets break down my thoughts below.

    First, I’ll give a quick summary of the article for those that chose not to read it for themselves. The article claims that the 500 jobs being lost by Luminent employees because of the new EPA changes aren’t the fault of any new federal rules being enforced. Instead, Steffy says the real culprit for the job losses is electricity deregulation. His reasoning, which is specious as best, is that deregulation has left the power generators weakened.

    It’s unlikely Luminant has the cash to make the sort of investments it needs to reduce its coal-fired pollution. Its parent company, Energy Future Holdings, is struggling with mountains of high-priced debt from its ill-timed $43 billion buyout by two private equity firms in 2007.

    “They couldn’t afford to switch,” said Ed Hirs, a professor of energy economics at the University of Houston. “A coal plant is a sunk cost.”

    Meanwhile, NRG, the second-biggest generator in the state, said it expects to comply with the EPA regulations without any jobs cuts, plants closing or material financial impact.

    So if I’m understanding correctly, Steffy is claiming that the problem here is that since deregulation tied electricity prices to natural gas, and coal became a cheaper option, it’s Luminent’s fault for investing heavily in coal plants to make money? First off, businesses and companies are, by their definition, in existence to make money. It has nothing to do with a regulated or deregulated market. Otherwise, how can anyone explain why many of the REGULATED energy companies in other states are publicly traded on the stock market? And Steffy is choosing to blame Luminent for working within the accepted state guidelines at the time? I find that kind of silly. But we’ll go ahead and ignore that glaring omission. Instead, lets focus on what Steffy writes in his very own article: Luminent stuck with coal plants because they are riddled with debt because of bad business decisions by their parent company, Energy Future Holdings. So the REAL problem is that Luminent and their parent company made some horrible business decisions, are riddled with debt, and can’t afford to upgrade their coal plants? This sounds like a business issue, not an issue with the deregulated electricity market to me, and it sounds like Luminent is being punished for those decisions which is exactly how a free market economy is SUPPOSED to work. Steffy’s claims that deregulated electricity is the culprit look EVEN MORE ridiculous when he praises NRG Energy for having the flexibility to adopt the EPA changes without having to shut down any plants or layoff workers. And this is DESPITE the fact that NRG has been operating IN THE EXACT SAME DEREGULATED ELECTRICITY MARKET as Luminent! Yet this is somehow the fault of the deregulated electricity market? That makes zero sense. You can’t praise NRG for being ahead of the game and being able to adopt the changes while giving Luminent a pass and blaming the marketplace. They is Hypocrisy 101.

    Lets take a look at some other choice quotes:

    In Texas, though, it means more of the same. Having created a system of misplaced incentives, deregulation has left us with higher prices, lower reliability and, now, more expensive and dirtier coal generation.

    1.) To what system of misplaced incentives is Steffy referring? Companies attempting to make a profit or pay their debts by using coal? As I’ve mentioned before, this is America and this would be happening regardless of regulation or deregulation. It’s called the free market. There’s a reason that plenty of regulated utilities in other states are publicly traded companies – they exist to make a profit. Faulting any company for attempting to do that and blaming it on deregulation is not only wrong, it’s willfully naive.

    2.) Deregulation has not left Texas with higher prices. Prices in Houston and Dallas are the same or cheaper than they are in Austin, currently, as quoted by a member of Austin’s very own city council. And they’ll be MORE expensive in Austin when the subsidies are removed next year and the estimated 20% rate hike goes into effect for customers of Austin Energy, which I’m sure you know, is a regulated entity. So prices are not higher. And if you really want to talk about higher prices, compare Texas with the rest of the country. It’s hard to make an apples to apples comparison, but when you crunch the numbers, Texas electricity is as cheap as it comes. If you don’t believe me, I’ve written about it extensively in the past, which you can read Here.

    3.) Steffy claims in the beginning of his article that “consumers worrying about blackouts” is a result of deregulated electricity. What does deregulation have to do with Low Reliability? I’m not even sure what Low Reliability he is referring to, quite frankly. Does he mean the grid operation this summer and energy shortages because of the heat? Because the generation of electricity is the same as it always was during regulated or deregulated eras. And by the same token, any lack of reliability of the grid would be consistent regardless of deregulation. Steffy has failed to support his claim with any kind of fact. Instead he has just thrown out a baseless accusations. And I find it laughable that he has chosen to cite the fear of rolling blackouts as a problem of deregulation but completely IGNORES the fact that the EPA changes being forced upon Texas have removed at least 1,200 megawatts from the grid, will admittedly RAISE our electricity prices, and generally make our grid even LESS reliable. In short, the EPA changes will directly be doing every single thing he has erroneously blamed on deregulation.

    It’s easy – and politically feasible – to blame the EPA, but the 500 jobs Luminant is cutting aren’t being lost to higher air quality standards. They’re simply the latest victims of deregulation’s failed legacy.

    Actually, deregulation has not a failed at anything. For starters, deregulation works, and there’s a reason other states are adopting it and using Texas for a model. Ask residents of New York and Chicago how much they’ve enjoyed their drastically lower bills. As for the other part of Steffy’s claim, it’s pretty simple cause and effect. Those jobs were safe until the EPA changes, which MANY people think are unrealistic, questionable, and have impossible timeline expectations. Then the EPA made changes, and the jobs were lost. That is simple cause and effect. In fact, you can take it a step further and say that those 500 jobs might not have existed in the first place except FOR deregulation. If he wants to make unfounded claims about how energy generation works in Texas, I see no reason why I cannot do the same. Steffy seem to think it’s Luminent’s fault for not being able to predict the future and timing of these unexpected changes (Texas was a last minute addition and a borderline admission to the EPA rules in terms of qualifying) and them not being able to predict the future is their own fault. I didn’t realize that it has come to a point now where acceptable excuses being made for some of the decisions by our government and their rules, policies, and decisions now include claiming that everyone should have been able to accurately look into their crystal ball and divine the future. How sad.

    Texas Electricity: Market Rates

    It’s been a long time since I posted a blog update with the list of different electricity rates throughout the 5 different regions of Texas. To be perfectly honest, making that post became too cumbersome, and I was trying to find some easier ways to do that regularly with some technological solutions. Well, that hasn’t happened, although I’m still working on a long term solution. In the meantime, however, I wanted to give everyone an idea of the electric prices in a more general sense around the market this week, now that the summer energy crisis seems to be behind our state. This should give people an idea moving forward about what the fair rates are in the market for their region of deregulated Texas electricity.

    Lets start with Oncor. Oncor is the biggest and most populated deregulated region of Texas. Their electric rates are also typically the cheapest. Right now, the cheap variable rates with promotional pricing are listed between 5 and 6 cents per kWh. After the promotional rate expires, it’s impossible what to tell what the rates would be, but I’d expect anything between 9 and 11 cents per kWh. A fair price for any long term fixed rate electricity plan, anywhere from 6 months to a year or two, should be between 8 and 9.5 cents per kWh. For green energy fixed rate plans, expect between 9.5 and 11 cents per kWh.

    Next is Centerpoint. Right now, Centerpoint is pretty close to the rates in Oncor. Actually, they’re almost identical in terms of their ranges for what is a competitive market rate. I’d except them to match pretty closely to the rates in Oncor, with maybe just a few tenths of a cent more expensive across the board.

    AEP Central’s range of electric rates is pretty much identical to Centerpoint’s. Typically, AEP Central is the most expensive region in Texas. And while they have less options for promotional variable rates, in general a customer can still get a decently priced fixed rate electricity plan in the 8 to 11 cent range, pending on the term of the contract.

    AEP North is a bit more pricey, but again, not much. The promotional rates for variable electricity plans start close to the 7 cent per kWh rate. And the fixed rate electricity plans start at about the 9 cent per kWh range and end at about the 11 or 11.5 cent kWh point. Green electricity plans start at about a half cent per kWh higher and range accordingly.

    Finally, is TNMP (Texas New Mexico Power). This region is a bit cheaper than both of the AEP regions mentioned above, and settles in right around the same rates as Centerpoint.

    Again, this post isn’t as detailed per region with specific electricity plans and electricity providers, like it has in the past, but it should give consumers an idea of the market prices if they’re looking for new plans now that the summer heat seems to be subsiding.

    Indexed Plans Explained

    Indexed Plans have always been a quiet, and rarely understood part of the Texas electricity market. They’ve been present on the market for a couple years now, but for the most part have been sitting in the background behind Fixed Rate Electricity Plans and Variable Rate Electricity Plans.

    Recently, however, that has changed. For starters, TXU Energy has started spending millions upon millions of dollars in television commercials advertising the “safety and reliability” of indexed plans. It’s been an effective, if somewhat misleading, marketing campaign. Which brings me to the second item that has brought Indexed Plans to the attention of people recently…the Texas heat wave. There’s been many articles written and barrels of attention brought to bear on Indexed Plans in recent weeks. But we’ll get to that in a minute.

    What is an Indexed Plan?

    An Indexed plan is very simply a plan that is tied directly, through a mathematical formula, to, well, anything really. In theory, you could tie the pricing of an Indexed Plan to the cost of oil, the cost of the Dow Jones Index, or even the cost of pork bellies. However, in practice, Indexed Plans are tied to the cost of natural gas market prices. Now, it’s important to note that the cost of natural gas prices set the market prices for ALL electricity plans, be they Fixed Rate, Variable, or Indexed. The difference is that the free-market acts as a control of the electricity prices for variable and fixed-rate plans. And what that means is that Retail Electricity Providers (REPs) have to keep their prices somewhat close and competitive to their competition, otherwise they’ll never get any customers. For Indexed Plans, however, the prices aren’t controlled by the free-market. Instead the cost of the plans is tired directly to the cost of natural gas by a mathematical formula. Here is the formula for one of TXU’s Indexed plans from their Electricity Facts Label:

    Price per kWh = (Monthly NYMEX Natural Gas Price multiplied by applicable Seasonal Natural Gas Factor)
    + Energy Charge + Storm Recovery Charge + Storm Recovery Tax Credit + ((Base Charge + EECRF
    Charge + CenterPoint Advanced Meter Charge)/Monthly billed kWh Usage)

    Now, I’m not going to go through the formula like I have in other write-ups, because to be perfectly honest, it doesn’t really matter for our purposes here. All you really need to know is that Indexed Plans are Month to Month Plans, just like variable electricity plans, but the rate is determined by the cost of natural gas and the formula above. It’s very cut and dry and easy to track if you’re so inclined.

    Indexed Plans: Perception vs. Practice

    So lets talk a bit about how Indexed electricity plans are often portrayed to customers by different REPs, as well as some realistic examples of things that aren’t talked about as often. A common refrain you may hear about Indexed Plans is that they’re more stable and that they’re “safer” than regular variable plans. The justification for this is that a variable rate plan’s rate can go up and down “solely at the provider’s discretion.” And that’s absolutely true, although the way that statement is wielded, by design, often makes it sound like an REP that might raise their electric rates are doing it solely for purposes of profiting at the expense of consumers. Again, it paints a nice story. However, being a slightly more cynical person, I would point that the profits on Indexed for their proponents are consistent and built right into the monthly mathematical formula on the Electricity Facts Label. The fact of the matter is, Indexed plans are very safe for REPs in terms of making a profit, while at the same time allowing their proponents to take a step back and blame any of their electricity rate changes entirely on the cost of natural gas and avoid any responsibility. Meanwhile, variable rate plans, which are also based on the natural gas market (because ALL electricity plans are based on the natural gas market in some regards, because all REPs still have to BUY the electricity for their customers), rely upon the market forces to keep their rates competitive. So instead of a formula, their pricing is based on:

  • a.) What a provider can afford to sell the electricity at in any given month and keep their doors open
  • b.) Whether or not they’re competitive in the market place, because if they’re not they won’t get any customers regardless
  • So upon closer examination, the two plans aren’t really that dissimilar after all. But there are some definite differences, and recently those differences have reared their ugly head in a way that really brings to question just how much of a “safer” option Indexed Plans are in practice.

    How has the Heat Wave affected Indexed Plans and Consumers?

    The heat wave has made things ugly for pretty much everyone in Texas, not just the people suffering from the heat or their high electricity bills. It’s also been hell on the Texas Electricity Grid and the individual Retail Electricity Providers. Recently Indexed Plans have been thrust into the limelight, and not for good reasons. Recently, ABC News ran a story about a Champion Energy customer who opened his bill to a shock. Champion Energy deals almost exclusively in Fixed Rate electricity plans and when customers fail to renew their contracts at the end of term but fail to cancel service, they are rolled over onto an Indexed Plan, which is tied to the rates of the natural gas market. Which is all well and good, except that due to this heat wave and the struggles of the electricity grid to meet the needs of Texans, the cost of natural gas has shot to SIXTY TIMES the normal price. It’s not price gouging, it’s not profiteering, it’s just an unfortunate fact that the cost of natural gas has risen exponentially during this heat wave when the grid faces shutdown. And for customers with Indexed Plans, where the costs are automatically tied into the natural gas market through simple math, the fact of the matter is that those colossal cost increases are passed on directly to the customer. Which is why Robin Jansen was shocked to find an electricity bill covering 4 days of service that was almost as much as their entire last month’s bill. Which is a perfect illustration of one of the rarely discussed dangers of an Indexed Plan. And this is hardly just one instance that was reported, I’ve personally received dozens of similar complaints from customers over at Texas Electricity Ratings.

    Closing Thoughts

    I actually find the interplay between Indexed Plans and Variable plans to be pretty interesting. In some ways, it’s kind of a microcosm of the differences between regulated and deregulated electricity markets. Indexed Plans represent the regulated market, where things are more cut and dry, things are more simple, and easy to understand. Variable plans represent the deregulated electricity markets, where the free market forces are the power that shapes the cost of electricity and forces providers to find ways to stay competitive with their peers.

    It’s fair to note that when Indexed Plans get risky is particularly during times of natural disaster, so it’s not as if they’re this volatile on a regular basis. By the same note, prices on Variable plans have risen during this drought, but the market forces worked to keep prices at acceptable levels, and the losses were incurred by the electricity providers more than the consumers themselves in an effort not to lose customers. Personally, I find the dynamic pretty fascinating, although I’m probably in the minority on that one. Most people just want a reasonable electricity bill without any unexpected surprises. Either way, I hope that this post explains how Indexed Plans work to customers, so they know what they can expect, as well as what to be cautious about if you’re a considering an Indexed plan.