The Public of Utility Commission of Texas officially approved last week an increase in the wholesale electric price cap in the Electric Reliability Council of Texas (ERCOT) market, which includes 85% of the state's electric load.

Starting August 1, 2012, the ERCOT price cap will be $4,500 per megawatt-hour (MWh), or 50% higher than the current cap of $3,000/MWh.

The price cap is the maximum cost to purchasers -- like retail electric providers -- who buy power in the ERCOT balancing, or "spot," market.

While not directly paid by consumers, except under certain indexed products, the ERCOT price cap is a major driver in Texas retail electric rates, as a higher wholesale price cap means higher costs for retail electric providers, who will then add these costs to their rates.

Raising the wholesale electric price cap increases retail providers' costs in two major ways. First, if the retail electric provider is buying on the spot market, or through a hedge tied to the price in the spot market, the retail provider's exposure has increased. Second, regardless of the retail provider's source of power, a higher wholesale price cap increases collateral and credit costs imposed on retail providers as a condition of participating in the ERCOT market.

This means that Texas electric rates are set to rise. However, low rates are still available, with residential rates in the 7-cent range in the Dallas-Ft. Worth area, and 8-cent range for the Houston area. Business customers can even get lower energy rates.

Even if customers are locked into a low rate already, they could face an increase from their retail provider due to the higher price cap, and therefore would be well advised to review alternatives available.

For large commercial and industrial customers, whether costs related to the increase in the wholesale price cap can be passed onto the customer under an existing contract is governed by the customer's specific contract, and which is why customers should rely on to find a low rate that doesn't have any "escape" clauses that would allow the retail electric provider to increase the rate due to changes in laws or regulations.

For residential customers and small businesses (those under 50 kW demand), the Public Utility Commission has established rules governing fixed rate contracts. Specifically, the price under a fixed rate contract may only change due to a 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 some debate as to whether the higher wholesale price cap equals a change in law or regulation which meets this standard, and whether retail electric providers can raise their existing fixed price contracts to account for their higher costs under the new wholesale price cap. The Public Utility Commission has not opined on whether any such change in a fixed price contract is permissible.

However, now that the higher wholesale price cap has been adopted (and thus is no longer a "change"), what is known is that any fixed price contract entered into today would not be able to be changed as a result of the change in law provision. That means if your current plan is about the same (or especially if it's higher) than the current electric rates available, you may want to consider switching to a new plan for assurance that you won't be subject to a future increase due to the higher wholesale price cap.