Wholesale Electricity Plans... Are They Worth It?

As you’re probably aware, we’ve seen some pretty extreme heat in Texas over the past week. In fact, we set a new statewide record on Tuesday 8/13 for energy consumption, with prices reaching the maximum allowable amount of $9,000 per MWh, or $9.00 per kWh. In short, increased demand caused real-time energy prices to skyrocket. If you happen to be on a fixed-rate contract, you were protected against these historic price spikes. If you are paying exclusively real-time prices, however, you haven’t been quite so lucky. One company, in particular, has been actively marketing these “wholesale price plans” all over town. You may have heard their radio ads, seen their provocative billboards or comical social media posts. If you’ve ever wondered how those plans really work, then you’ve come to the right place.

First, let’s define what a traditional fixed-rate electricity plan is, and what your energy provider actually does. Your Retail Electric Provider (REP) anticipates (forecasts) your future usage and sources the necessary power for you as cheaply as possible (procurement). A fixed-rate, meanwhile, means that the company assumes ALL the volatility risk for the duration of your contract. If real-time prices spike – like they did this week – your REP would eat any associated costs, not you. With a fixed-rate contract, therefore, you’ll have the same affordable rate for the duration of your term. It’s like having “energy insurance” for price spikes.

So, what is a wholesale electricity plan? Wholesale, or “real-time,” energy prices are calculated based on the supply/demand of any given moment. The electrical grid is divided into zones, and prices for each zone are calculated every few minutes. Multiple variables go into the localized price, and any of them can cause volatile price spikes with little to no warning. The real-time price, therefore, depends on things like:

• How hot/cold is it outside?
• How hard is the wind blowing?
• How much power are your neighbors using?
• Are there any generators offline for maintenance?
• Are any power lines down in your area?

When a REP claims to give you “access to wholesale prices,” what they really mean is they get to shift all of this risk over to you. What’s more, they often charge “membership fees” to do so! You could potentially find yourself paying just as much – or more – for a service that offers zero price protection. In the event of a significant price spike, it could wipe out your bank account. Yikes!

Wholesale electricity seems like a great idea when prices are low, but Texas weather can be, well, “temperamental.” Just this week, we’ve seen what can happen when things don’t necessarily go as planned. For example, a typical Texas residential customer (using about 1,000 kWh per month) would have likely paid over $100 in wholesale charges yesterday alone, with an effective rate of over 25¢ per kWh for the day. Larger houses were paying over $1 per minute during the peak afternoon hours. If the first two weeks of August are any indication, wholesale customers could wind up with a whopping wholesale energy bill of over $1,000 by the end of the month. 

If we scared you half to death, we’re sorry! But we think it’s every customer’s right to fully understand their energy plan. Now that you’ve seen what a price spike can do, you might be wondering if the risk is worth the reward. Or maybe the thrill of the unknown excites you. Either way, it’s important to remember that energy rates can be highly volatile, and price spikes have been known to hit in colder months as well. You just never know.

Think of it just like an insurance premium. In the majority of months, you will pay more than what you claim, but you’re protected from big incidences. So, before you choose to go with a wholesale electricity plan, be sure that you’re completely comfortable going without “energy insurance” and leaving yourself open to potentially devastating monthly bills.

If you’re a current APG&E customer, you’re all set. You have locked-in price security, and we’ve assumed all the risk without any hidden fees. If you’re looking to switch energy provers, check us out at www.apge.com and see what services we offer in your area.