The Public Utility Commission (PUC) of Texas last week voted to double the wholesale electric price cap to $9,000 under a phased increase.  While not directly paid by Texas electric customers, the wholesale price cap drives the pricing offered by retail electric providers.

The higher wholesale price cap, for the ERCOT region covering most of the state, was adopted to incent new generation to meet forecast supply shortages in available generating capacity.  The cap will increase from $4,500 per megawatt-hour (MWh) to $5,000/MWh on June 1, 2013; to $7,000/MWh on June 1, 2014, and $9,000/MWh on June 1, 2015.

The Public Utility Commission had already raised the price cap on August 1 of this year from $3,000/MWh to $4,500/MWh as an interim measure.

At that time,® warned customers that some retail electric providers may try to pass-on costs under these higher wholesale electric price caps to customers on fixed-rate electric contracts, under a provision that allows changes in fixed-rate contracts due to changes in "law or regulation."

Last week, the Forth Worth Star-Telegram publicized the first report of a retail electric provider trying to pass-through costs under the higher $4,500 price cap to a customer on a fixed-rate contract.  There have been reports from customers that additional retail electric providers have passed on the higher costs as well.

The PUC has not ruled specifically on the permissibility of such fixed-price pass-throughs.  To alter a fixed energy rate provided to a customer under 50 kW (e.g. residential or small commercial), the PUC's regulation provides that there must be change in law or regulation which occurs that, "impose[s] new or modified fees or costs on a REP [retail electric provider] that are beyond the REP's control."

There is debate as to whether the higher wholesale price caps impose "new or modified fees or costs" on retail electric providers directly (since many REPs buy power outside of the spot market where the price cap applies).  Even if there are higher costs directly placed on REPs, there is debate as to whether such costs are "beyond the REP's control."

In the Star-Telegram article, the PUC indicated that it would review fixed-rate contract rate changes, due to the higher price caps, on a case-by-case basis.

One thing is clear -- Texas electric rates are going to rise in response to a doubling of the wholesale electric price cap.  That means customers need to work with an expert to minimize their exposure to these higher prices, and get the lowest electric rate possible.

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