On Wednesday evening, February 9, Abacus Resources Energy, a retail electric provider in the Texas energy market, defaulted on its financial obligations to ERCOT, the organization which administers the state's electricity market and grid.
As a result, nearly 8,000 customers of Abacus Energy faced the potential of being transferred to the backstop electric provider, known as the Provider of Last Resort, which may charge a rate much higher than the customer's current rate or other rates in the market. Two retail Texas electric providers stepped in and purchased these customers from Abacus Energy, thereby preventing a transition to the Provider of Last Resort, but these last-minute transitions to a new electric provider, especially under such "fire sale" circumstances, have in the past been rocky and confusing to customers, so all is not well.
Abacus Resources Energy had repeatedly tried to gain a listing on SaveOnEnergy.com, but was each time rejected under SaveOnEnergy.com's rigorous approval criteria which examines an energy supplier's financial position and wherewithal, its risk management practices, and managerial and technical competency, among other factors. By rejecting energy suppliers with poor risk management, shaky finances, and questionable leadership, SaveOnEnergy.com protects its customers from signing up with a suspect electricity provider which may go out of business during the customer's contract.
According to Abacus' executive vice president, Mark Angell, the company was not hedging properly. Though it hedged some of its customers' load, the plan was apparently not a robust and risk averse program, as Angell told the Houston Chronicle that, "It was like playing Russian roulette with a full revolver."
Angell also told the Fort Worth Star-Telegram that the recent, outage-related spike in wholesale power prices discussed in our last blog entry overwhelmed the company's financial resources. According to the Telegram, "Abacus needed to come up with $750,000 to pay its energy bills and also meet cash collateral requirements required by ERCOT. That wiped out the company's reserves."
The Telegram also reported that one of Abacus' investors, who has various investments in European energy providers, was hit hard by cold weather in Europe last month, which precipitated its precarious financial position.
SaveOnEnergy.com's screening process identified these shortcomings in Abacus, and is why Abacus, and many similar electric companies with questionable finances, are not listed on SaveOnEnergy.com, to ensure that customers aren't exposed to the risk of their electric provider going out of business.
It's also why customers can't simply look up the lowest rate on the sate-run energy pricing website, and need a helping hand from SaveOnEnergy.com in finding the best Texas electric supplier. Abacus had been one of the cheapest electric providers in the market, but it could only offer those low rates because its business, and its customers, were exposed to the volatile wholesale energy market, which prompted Abacus to default when prices spiked. Although Abacus' low rates may have appeared enticing, Abacus could not stand behind the rates, and that is the question customers must consider when choosing an energy provider.
SaveOnEnergy.com only recommends reputable, proven energy suppliers that not only offer low rates, but can stand behind their rates and serve customers in the long run. With more electric companies expected to default due to similar financial issues, because of the recent price spikes, customers need to ensure they've enrolled with a stable electric provider that can weather the storm. In painstakingly screening all energy suppliers against its exhaustive criteria, SaveOnEnergy.com offers customers the protection from supplier default, and provides them with the opportunity to find a low rate from a dependable and reliable energy provider.