The severe winter storm and bitter cold that swept through Texas and much of the South caused widespread suffering. So far, nearly 80 people are dead, and millions went days on end in subfreezing temperatures without electricity and water.
It was the result of utility infrastructure that was unable to handle the surprisingly cold temperatures. We’re staying out of the debate over whose fault it is.
For some of those Texans lucky enough to keep the lights on, however, there was no silver lining. That’s because some people who chose to go with the wrong electricity provider in Texas’ unregulated energy market were hit with bills in the thousands of dollars.
Very Low Supply, Very High Demand
Temperatures plummeted, Texans cranked up their heat. As the extreme cold knocked power plants offline, the demand for power stayed the same, but the supply dropped.
In most states, you only have one option when it comes to who you pay for electricity and gas. You pay a fixed rate per kilowatt-hour, and your bill reflects that. If there are variations in supply, many power companies will try to spread the price change over a period of months.
Texans, however, have way more choices when it comes to their utilities. And some choose to sign up with power companies that charge wholesale prices. The sales pitch is that, for the most part, these plans are cheaper. However, the rate you pay is also variable.
As a result, when the price for electricity at times hit the legally mandated maximum of $9 per kilowatt-hour, people paying wholesale rates instead of fixed rates saw their bills skyrocket.
The Highest, Worst Bills Imaginable
The news is now filled with testimony from Texans who watched in horror as their electricity bills climbed in real time. One man has already had almost $17,000 deducted from his bank account by the power company Griddy.
Another Texas woman, who received a bill topping $9,000, has already filed a class-action lawsuit against Griddy for price gouging. Griddy, which blames the Public Utility Commission of Texas for setting rates so high and has said that it “stands alongside” its angry customers, called the lawsuit “meritless.”
Is This Legal?
Technically, the problems of sky-high energy bills reflect the free market working “as it should.” Texas Lt. Gov. Dan Patrick echoed this when he told Fox News that people now stuck with high bills “gambled on a very, very low rate … people need to read the fine print in those kinds of bills.”
While he’ll win no points for sensitivity, Patrick isn’t wrong when it comes to reading the fine print. Just like any contract you sign — mortgage, cellphone, plane ticket, etc. — you need to know what you’re signing.
Patrick and Texas authorities are not totally a bunch of Scrooges, however. Gov. Greg Abbott and a host of state lawmakers are pledging to hold hearings and help out ratepayers. For now, billing and disconnecting customers for failure to pay are on hold.
If lawmakers don’t come up with a solution, though, there might be little that consumers can do besides sue. University of Houston Consumer Law Center Director Richard Alderman says the price hikes may run afoul of Texas consumer protection laws.
“Would anyone in their right mind sign a contract knowing this would happen? In my mind, no,” Alderman said. “There’s a decent claim these contracts are unconscionable.”
There is an additional argument that consumers had no say in poorly maintained infrastructure that couldn’t hold up to the demands of winter. If that hadn’t happened, rates wouldn’t have soared, and bills would have been a little higher, but nowhere close to what happened this month.
Even if these ratepayers get relief, bill hikes are likely coming for everyone, even fixed-rate payers. One gas company in Minnesota is already warning that customers will see bill hikes later this year.
The city of Denton, Texas, which also buys power directly at wholesale prices, received a four-day bill for $207 million, close to Denton Municipal Electric’s yearly budget. Without some relief, that bill will likely have to be passed on to consumers.
So, winter has come, and it’s coming again.