If you’ve been living under a rock for the past few weeks, Summer 2019 in Texas has been hot. You’ve probably been cool under that rock! But you’ve also missed the most significant debate in Texas energy circles: locking in a fixed-rate plan versus riding the wholesale electricity wave.
An upstart Texas electricity company, a retail electric provider (REP) called Griddy, has attracted attention (and new customers) by encouraging Texans to leave their old energy company. Griddy’s promise – “You only pay the actual market price of electricity!”
This idea is known alternatively as “wholesale” or “indexed” electricity. The energy price is the live price of the commodity on the market with no markups or additional fees. You can take advantage of low seasonal prices instead of being tied to a fixed-rate plan for months or years.
While this sounds great, there’s a big problem with that approach: Texans use LOTS of electricity in the summer.
Texas set new records for electricity demand over several consecutive days in mid-August 2019. At one point, the price of wholesale electricity hit $9,000 per megawatt-hour. That meant the average Griddy customer was paying $9.00 per kilowatt-hour! In the greater context, the average price for residential electricity in Texas in 2019 has stayed around 12 CENTS per kilowatt-hour. Griddy reportedly faced backlash when some of its customers said their electricity bills soared to over $100 per day for one or more days.
Power Wizard decided to present our unbiased explanation of the difference between fixed-rate and wholesale electricity. Think of it as a public service announcement to Texas energy customers. We hope it helps.
Lucky for you, we answered this question in another blog post. But since REPs don’t purchase electricity like average energy customers, we wanted to re-emphasize a few key points.
Electricity prices would be higher during the times of the year when people use the most energy. Everything else is a balancing act between how a company wants to make money and how it takes care of customers.
At its most fundamental level, a fixed-rate plan locks in your rate for a specific time. It’s a promise made by an electricity company not to change the price you pay per kilowatt-hour for your contract term. It is a security blanket you can depend upon during the hottest and coldest times of the year. The rate for your plan will stay the same because your REP bought energy on the market.
Admittedly, during milder times of the year, electricity prices might drop below your locked-in fixed rate. On the flip side, your fixed-rate will probably be lower than the industry rate when summer and winter appear. Additionally, REPs could change the price they offer tomorrow because they bought another large amount of energy at a different average price.
Then again, there’s a reason the 12-month fixed-rate plan is the most popular one for many Texas electricity companies. People like knowing what they’ll pay over an extended time.
REPs who offer wholesale electricity sell energy to their customers at the same price the REP pays, but they also charge a “membership” or subscription fee, like Costco and Sam’s Club. You can face the high prices we discussed earlier, but you could also pay far less than you might with a traditional fixed-rate plan when rates are low. It all depends upon the market.
We see the appeal in such a setup. You should pay the best possible electricity price without markups or additional fees. However, wholesale electricity means the price you pay for electricity could vary wildly over a single day. Hence, the problem with wholesale electricity is that the average household doesn’t have someone watching the real-time market price of electricity all day long.
To take advantage of the promises proclaimed by wholesale electricity companies, you’d have to check the real-time electricity price every 15 minutes. You’d then have to determine how to adjust your home energy usage so you don’t use electricity when prices are highest. THEN you’d have to do that all day long while also working, eating, seeing your friends, talking to your family, and living life.
If you’re interested in a wholesale electricity plan, it means you want to save money by paying less for your home electricity. We get it. Your electricity bill can represent a sizable portion of your budget each month, so you should look for ways to manage those costs.
That’s why Power Wizard will usually recommend a fixed-rate energy plan, but it all depends on your needs and lifestyle.
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