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Texas electricity rates have a mind of their own. Considering Texas has an independent electricity grid, electric rates in Texas trade independently of other energy markets in the U.S.

Texas Electricity Rates: Why Did Consumers End Up With Unexpectedly High Power Bills During Winter Storm Uri?

Winter Storm Uri was a major ice storm that spread across North America, from Canada to Mexico, and greatly affected weather patterns and temperatures. In fact, the state of Texas alone experienced unprecedented winter temperatures that led to power system failures. As millions of homes and businesses lost power in Texas, it became one of the largest blackout events in U.S. history and caused an estimated $195 billion in damages.

But What Caused the Power Failures?

To truly understand the root cause of the Texas power outages in Winter Storm Uri, we must go back to 2005 during the boom of natural gas fracking. Natural gas fracking is a form of extracting natural gas from underground caverns. In 2005, with the discovery of large amounts of gas in the United States, energy companies began drilling and the production of natural gas doubled between 2000 and 2005.

texas-natural-gas-production

Gas-Powered Electricity Generation

The excess supply of natural gas caused prices to deflate and natural gas became a mainstream natural resource used in the production of electricity. In fact, by 2020 natural gas overtook coal as the largest resource used in the power generation process, accounting for a whopping 40% of all U.S. electricity generation. Texas, in particular, saw a boom in the development of new natural gas-fired electricity generating plants, as both natural gas and electricity prices reached new historical lows.

Coal-Fired Power Plant Closures

With the new boom in natural gas-fired electricity plants, their coal-fired sister plants struggled to keep up. Coal-fired electricity generation was more expensive than natural gas, more harmful to the environment, and more costly to build. In October 2017, Luminant announced the closure of three of its coal power plants in Texas that accounted for almost 25% of electricity generation in the state. This sudden loss of supply, coupled with future rising demand, created an electricity supply shortage in Texas.

No Capacity Markets

Unlike other power grids in the U.S., such as the PJM grid and the NYISO, the Texas electricity grid (known as ERCOT), does not have a capacity market. In order for an electricity grid to reliably sustain itself, it must have a minimum of 14% greater electricity supply than demand at all times. In order to ensure that these minimums are kept, other markets like PJM and NYISO, instituted regulations that required consumers to pay extra money in their electricity rates. This extra cost, built into the price for electricity, is paid to incentivize power plant development in order to maintain the extra generating capacity needed to avoid blackouts. This is known as a capacity charge and it exists in almost every electricity market – except for Texas.

Due to the coal plant closures and lack of incentive to develop new power plants because of a non-existent capacity market, reserve capacity in Texas dropped to nearly 7% or 50% lower than recommended reliability standards.

Now Comes The Storm

When Winter Storm Uri descended on Texas, electricity demand skyrocketed. It was too cold for many power plants to operate due to freezing temperatures, and the lack of reserve electricity generation created a supply shortage. Because the Texas electricity markets are deregulated energy markets, they are free trading and mainly influenced by supply and demand. The excess demand and supply shortage drove prices nearly 20,000% higher during the storm. For a normal household paying about $4 per day in electricity costs, prices rose in excess of $240 per day! Many consumers and businesses could not afford to pay these prices, causing their energy suppliers to file for bankruptcy.

How Do I Prevent This In The Future For My Home or Business?

A great way to prevent electricity price increases during freak storms or other events that might cause energy prices to rise is to purchase a fixed rate for electricity. Many Texas electricity suppliers offer full-bundled fixed rates that will protect you when market prices rise. You simply pay a fixed price for every kWh of electricity that your home or business uses during the fixed contract period. For more information on the lowest Texas electricity rates, please visit our Texas electric shopping page by clicking here!

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