The Summer Guide to Texas Electricity: 2018
Posted on Summertime is always a very busy season in the world of Texas electricity, and 2018 is no exception. In fact, 2018 as already been an extremely active shopping season, and it will only get busier as the days and weeks continue to tick by into the crucible of the summer heat. We've been doing this for a long time, and for many reasons 2018 is shaping up to be the most fascinating, but more importantly the most dangerous summer for customers since the record breaking summer of 2011. In 2011, the city of Dallas experienced 70 straight days of temperatures of 100 degrees or higher. That is not a typo, it was 70 straight days. The rest of Texas suffered as much as Dallas, with basically the entire state hovering around 100 degrees for two straight months. The net result of this was chaos in the electricity market, even if customers and shoppers didn't always see it front and center. Many REP's sold their books to larger providers to get out of the volatile marketplace. Texans received regular warnings about conserving electricity in the afternoons because there wasn't enough electricity in the grid to power the needs of the state. Rolling brownouts weren't uncommon to try and control the grid shortage. In short it was a nightmare of a summer for the Texas electricity industry. And I'm offering up this little stroll down memory lane because there are some similarities to 2011 happening here in 2018. In fact, here at Texas Electricity Ratings we are starting to see the signs in the energy marketplace.ERCOT and the Texas Consumer
Back in late April, ERCOT (the Electric Reliability Council of Texas) released their summer forecast, which was immediately picked up by the media, predicting record electricity usage by Texans and an extremely slim margin between generation capacity and the expected electricity needs of the state. Now, this in and of itself isn't a big deal for Texas customers. It seems ERCOT forecasts a heavy usage summer with the potential for limited generation every other year. These warnings are not uncommon, and most of the time Texas gets through the heat without rolling brownouts or any major events without breaking a sweat. That being said, what DOES impact the consumer is the effect that these warnings and predictions have on the price of electricity for the Retail Electricity Companies (REPs). Before an electricity company such as TXU or Reliant can sell electricity to customers, they have to buy that energy from the plants that generate power. Most electricity companies buy their energy well in advance, and they hedge their risk, but the problem is that an REP is legally required (by their credit facility agreements) to buy enough energy to service their customers, and when forecasts like this one come in, many REPs do the math and realize they don't have enough energy purchased to meet their customer book. So they have to buy more. The problem is, even if you're buying 3 months out, when the margin between generation and expected demand is so narrow, there isn't much energy to sell, and this makes the price of energy skyrocket for the REPs. And not surprisingly when prices skyrocket for the REPs. Not surprisingly, when the rates go up for the REPs, rates go up for consumers. And this is the behavior we have already begun to see from electricity companies in regards to their products. In the 30 days since ERCOT announced their summer forecast, we would say that, conservatively, electricity rates have risen on average at least 20%. And we honestly think it's more than that on average. Some of the electricity companies we work with have raised there rates multiple times in the last 30 days while they try to figure out their own needs as well as they prepare for the summer. Gone are the days where customers can see plans in the 6 and 7 cent range. And while some remain in the 8 cent range, those plans have pretty strict usage windows where the rates are actually 8...some of those plans might end up costing a customer 14 or 15 cents instead of 8. The point is, plan rates have gone up in Texas, and they might continue to go up as the heat ramps up and the summer continues. But simple rate increases aren't the only thing impacted by this summer's heat forecast, nor are they the only thing customers need to worry about, either, as we'll dig into further.Electricity Company Failures and Withdrawals
The Texas electricity world was rocked this month with the news that Breeze Energy, an REP with over a decade of service in Texas, would be transitioning all of their customers to the designated Providers of Last Resort (POLRs). While companies go out of business all the time in many industries, and this might not seem like that big of a deal to those reading this article, we cannot stress enough what a monumental event this is for Texas electricity. Breeze has been doing business for six years in Texas, and was a fairly well known brand in the electricity world, so they weren't some kind of fly by night operation...or at least, they didn't seem to be one on the surface. But this represents the first failure of an electricity company that had to be shuttered by ERCOT in years, and as the details emerge it looks like Breeze was guilty of mismanagement of their power supply available, their customer demand, and their corporate finances. Although, as an aside, Breeze went into business in 2012, one year after the last major electric rate event in Texas. Anyway, the short summary of this situation is that Breeze Energy had customers locked into electric plans at rates they literally couldn't afford to keep that low, and they didn't have enough cash to buy the amount of electricity on the market that it would cost to meet their customer's demand. As a result, ERCOT shut them down. In short, ERCOT's summer forecast of an energy shortage pushed up the cost of electricity, and Breeze Energy couldn't afford to buy the power necessary to cover their book of customers. And alarmingly, Breeze might not be the only company in danger of this kind of situation. Any REP that has been reckless with their cash flow could be facing a similar situation now, or at any point over the summer. This leaves 10,000 Breeze Energy customers that will be transitioned to extremely expensive POLR electricity plans immediately. The important takeaway here is that these plans are much more expensive because they are current market rates, not the rates a Breeze energy customer might have signed up for last December. They will be paying the cost of energy as it is now, which in the midst of this summer heat and a forecast shortage, is a very, very high rate. That's why it is vitally important for any former Breeze customers to shop for a new electricity plan immediately, before they have a month or two with bills that are triple what they were paying before. And for those customers who have been burned by Breeze, they might want to consider plans from bigger electricity companies that aren't in danger of folding, like NRG, TXU, Gexa, Constellation and Champion Energy. While it is unclear if any more electricity companies will go bankrupt, many other providers are taking drastic action in the face of market volatility. Frontier Utilities, another relatively known player in Texas electricity, has stopped selling electricity plans in Texas for the time being. They've pulled up their stakes in Texas and are going to wait out the summer and return to the market later in the year. They aren't going out of business, and current Frontier Utilities customers will continue to receive their power and service without any interruption or reason for concern, but for the time being Frontier has decided it's not worth the risk, potential cost, and uncertainty to bring on any new Texas customers. Frontier is still actively selling electricity in several other states, however. In addition to Frontier, almost every company that is offering Pre-Paid electricity has also temporarily left the market. Electricity Companies that have stopped selling pre-paid electricity include: Frontier, Hello Power, First Choice Power, and Brooklet Energy brands. In fact, currently, the only pre-paid game in town is Payless Power. This is interesting to note because in an extremely hot summer, where some Texans might need same day electricity turn on, their options suddenly decreased dramatically for pre-paid electricity. And it's not just pre-paid plans that are disappearing. It wouldn't be surprising to see even the big REP's remove some of their short term plans from the rotation. Just this week Pennywise Power removed their 3 month electricity plan from the market. Before that, we were strongly recommending the Pennywise 3 month plan to customers as an affordable option for Texans to ride out summer and then shop again in the fall. But Pennywise realized they would be paying a huge price for these customers with zero chance to break even, much less make a profit. We wouldn't be surprised to see most of the REPs remove the short term plans from their offer list, or at the very least a drastic increase in the price of those plans.Tricky Electricity Plans and Problems
So where does that leave Texans who are looking for new electricity plans, and finding higher prices, and less options than they had just 30 days ago? Well, the answer is "Shopping Anywhere BUT Power To Choose." Power To Choose is the state run electricity comparison website, and for years has been the largest marketplace for customers looking to compare different electricity plans. The problem is that Power To Choose doesn't really have any restrictions on what kind of plans they show. What this means is that over the course of the last year or so the plans providers display on Power To Choose have often end up being confusing, predatory, and poor representations of the rates customers would likely end up paying. Lets take a look at an example. Here is a plan at the top of Power to Choose by Infuse Energy:
Now, I know that EFL is difficult to read, so I've made a simply chart that is easier to understand, which I'll then explain below:
The key components to focus on in this EFL is the explanations in the grey block at the bottom. For 1 to 1,000 kWh, you're paying $27, flat. Now, if you're living in an apartment, this is a great deal. If you can use EXACTLY 999 or even 1,000 kWh in a month, you're getting a GREAT deal. The problem is, that some months people will pay less than that even if they own their own home, most months it's going to go over 1,000 and into the 1,001 and higher range. And the second you hit 1,0001, you are paying 16.8 cents for kWh (this is not a great rate). If you use 1,400 kWh in a month this summer, your bill is going to be over $220. That is an extremely high electricity bill for that usage.
This is the kind of thing you see more and more of on Power To Choose...plans that manipulate the pricing just so they can look super attractive to advertise to customers. All they have to do is make 2 out of those 3 boxes at the top look attractive, and a customer can be easily fooled. At 1,001, that rate is 16.8 cents. Sure it will average out lower the closer someone gets to 1,999, but most people don't understand that. At the end of the day, plans like this are designed to look attractive to customers who don't read the fine print, and the reality is that those attractive rates displayed will be extremely difficult to achieve.
But the deceptive plans are only part of the obvious problem for Texans. Yes, the potential is there for a bunch of angry customers who felt like they got a bait and switch plan from an REP. That alone is more than enough to ruffle feathers, especially with the sweltering Texas summers. But to compound this issue is also the record setting summer that is being forecast by ERCOT. Even the odds of saying below usage thresholds was unlikely before, it's even MORE unlikely this summer. So you'll have customers with bills that could be twice, three, or in the case of someone ordering the plan above thinking they're getting a 2.7 cent rate, potentially almost SEVEN times more expensive than they expected. That is going to have Texans screaming bloody murder and probably filing bushels of complaints with the PUC. And heaven forbid one of these companies goes bankrupt like Breeze Energy, and their customers unknowingly spend a month or two paying 25 cents on a POLR plan.
The real issue here is the lack of oversight of what is put on the Power To Choose website, and the rules that dictate how rates are displayed to customers. It's an extremely unfortunate situation, as Power To Choose is far and away the most trafficked website for shopping for electricity in Texas. And making things worse is the stamp of legitimacy the site receives by being run by the PUC of Texas. This association gives Power To Choose a stamp of legitimacy, while at the same time the plans often promoted there can be deceiving at best, and malicious at worst.
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