The US residential power supply system is messed up at all times, but Texas’s power supply is particularly problematic right now. And worse, it’s about to be crushing financially for millions of families impacted by winter weather, especially the families that are poor, or elderly, or not white (or all three).
Because many states have deregulated their power markets, a lot of people get their power through retail energy suppliers. These companies are, essentially, energy arbitrage firms. They spend a lot of time and money analyzing weather and usage and production to decide how much power to buy for their customers, and how much to charge for that power. They usually make sure that their costs are significantly below the rate they offer customers — that’s how they make money. Except for when something unexpected happens, like an extreme weather event.
Right now, for a lot of reasons, energy providers don’t have access to a lot of power to purchase, and the massive winter demand coupled with huge supply problems are causing the wholesale price of power to skyrocket from $50 per megawatt-hour to over $9,000 per megawatt-hour.
But these retail energy suppliers still need to make money, so how do they make up this ginormous deficit? They charge people more for the power! They might be able to legally add a surcharge to your bill in some areas, or they might adjust rates next year. The easiest thing to do, though, is just charge people more – and the consumers they can charge more are the consumers with variable-rate plans (VRP).
There can be a lot of good reasons to choose a variable rate plan, but there are also a lot of bad reasons to choose (or be assigned) a VRP. Sometimes a VRP is all that’s available to a consumer (they have bad credit, they can’t afford to put a deposit down for a contract with a fixed rate), or it’s assigned to a consumer. Much like credit card companies, if you miss a payment, energy suppliers can put you in the metaphorical penalty box by charging you interest on your overdue balance while also raising your rates – penalty plans are often variable rate plans.
Sometimes people end up with a VRP because of an information asymmetry — for example, when an elderly person signs up for a bad plan because it was incorrectly recommended or the first option offered, or when someone with limited English proficiency or literacy deficits doesn’t understand their options.
After the 2014 polar vortex, households on VRPs experienced astronomical bills. In some areas, the cost of electricity jumped to $2 per kWh. For context, the average cost of residential electricity was In Chicago, one 72-year-old man reported that his monthly bill jumped from $81 to over $300.
That’s why marginalized people are likely to be extra financially burdened by this storm. They are more likely than average to be on VRPs.
This winter weather is bad news for everyone – people are dying, people don’t have power in frigid conditions. This weather crisis has the potential to be financially disastrous for families, on top of the costs of repairs from weather damage. Help these families by donating to charities that assist with paying heating and electric bills, demanding accountability from lawmakers and energy regulators, and taking steps to stop climate change so these storms don’t get worse every year.
If you have power right now, you can help these households by trying not to use your power. Rationing is effective against blackouts, but it also helps drive down demand, and thus cost.