Why Some Texans’ Electricity Bills Went Through the Roof

February 25, 2021

A couple of weeks ago, Texas’ power grid failed after a historic snowstorm and cold snap overwhelmed the state. As millions struggled without electricity or heat, those who had power potentially faced exorbitant electric bills because of changes Texas made to its utility system more than 20 years ago. Back then, much of the state switched from using regulated utilities to a deregulated market where customers could choose from a variety of power providers. As a result, nearly 60 percent of Texans get their power from retail companies rather than local utilities. 

This demand-driven system caused electricity prices for some customers to surge as high as $9,000 per megawatt hour during the height of the winter storm crisis. According to a study by the Wall Street Journal, since 2004 Texas utility customers have paid $28 billion more under this system than they would have through the state’s traditional utility companies. While the monthly rate for customers of regulated Texas utilities was 8 percent lower than the national average, those who purchased power from retail utilities paid 13 percent more than the rest of the country. 

Another group called the Texas Coalition for Affordable Power, which purchases electricity for local governments, conducted a study that reached similar conclusions that the state’s higher rates “must be attributed to the deregulated sector of Texas.” According to critics of the state’s retail utilities, customers of these companies will likely continue to see prices rise if they have contracts that tie their electricity prices to demand. “The prices are definitely going to increase,” said Tim Morstad, associate state director of AARP Texas. “For those on variable contracts, they’ll feel the pinch sooner.”

Questions:

  1. Why did electricity prices significantly increase for some Texans during the recent snowstorm?
  2. Do you think Texas should continue to depend on deregulated utilities to provide power for many of its citizens? Why or why not?

Source: Tom McGinty and Scott Patterson, “Texas Electric Bills Were $28 Billion Higher Under Deregulation,” The Wall Street Journal, February 24, 2021.

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