The Texas energy market and how it works

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By Arthur Murray February 23rd, 2021
For business

The Texas energy market generally rolls on without much of a thought on behalf of customers. The lights come on when they’re supposed to, residential electricity rates are in the bottom half of states, and service is, on the whole, reliable. That changed starting 10 days ago, when a severe winter storm caused millions of residents to go without power for days.

Since then, many people inside and outside of Texas have wondered exactly what’s up with Texas electricity and those bills costing thousands of dollars.

Here’s a quick rundown:

Texas energy market business as usual

About 90 percent of Texans live in a deregulated energy market, meaning they have their choice of energy providers. Providers are energy companies that buy electricity wholesale and then resell it to residential and business customers. They offer plans with different term lengths, rate types, renewable energy content, and more to differentiate themselves from one another.

Utilities in deregulated Texas deliver electricity from the providers to customers. They maintain the electricity infrastructure, such as power lines. They neither buy, sell, nor generate electricity – they just deliver it.

The Energy Reliability Council of Texas, known by the acronym ERCOT, manages the state’s electricity grid. It schedules how much electricity is available to the grid at any given time and maintains reserves in case of high usage.

What went wrong

ERCOT underestimated the amount of power it would need in advance of the winter storm that struck the state beginning on the Valentine’s Day weekend. It said in a Feb. 12 statement that it had sufficient reserves but warned that it might need to institute rolling blackouts of less than an hour to manage the expected high usage expected to hit Feb. 16.

The reality – it got colder sooner than expected. Usage was higher than expected. And there was less power available than expected because some wind turbines froze (and couldn’t generate power) and some natural gas fueled plants had trouble operating in the conditions.

  • Result No. 1: Massive outages across the state. Millions lost power for days, with conditions only returning to normal late last week.
  • Result No. 2: Huge spikes in wholesale electricity prices, up to the cap of $9,000 per megawatt hour. Prices normally range between $30 and $45 per megawatt.

The aftereffects of the storm

State and federal authorities have announced investigations into what happened during the storm. Four members of ERCOT’s board said they would resign at the end of Wednesday’s meeting.

Also being investigated are high energy bills some customers incurred during the storm. There are two basic types of plans available to residential customers.

  • Fixed-rate plans. Customers keep the same electricity supply rates throughout the term of the plan. The only variables are changes in transmission fees, changes in government taxes and fees, and changes in usage.
  • Variable-rate plans. A customer’s electricity supply rate is tied to the wholesale price of electricity. Customers who have these plans are the ones facing the high electricity bills – hundreds or thousands of dollars – mentioned in reports about the winter storm.

One feature of variable-rate plans is that they generally run month-to-month, meaning a customer can leave the plan without being charged an early termination fee. However, many are finding providers offering more expensive fixed-rate plans than existed a month ago.

Arthur Murray
Energy Expert
Arthur directs content strategy for ChooseEnergy.com, taking advantage of more than 20 years of newspaper and magazine experience. His articles have appeared on Zillow.com, Business.com, Nasdaq.com, and USNews.com, among others. You may reach him at
 amurray@chooseenergy.com.

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