Texas businesses and individuals were hit hard with large-scale power blackouts this past month. Winter Storm Uri knocked out coal and natural gas generators, as well as wind turbines, limiting the Electric Reliability Council of Texas’ (ERCOT) ability to provide power. Up to 3.5 million households were reported at one time to be without power.
The generation outages also pushed hourly prices up 10,000% to $9,000/MWh for days, sending electricity costs skyrocketing for those who still had power.
Or most of them, at least.
Some businesses in Texas were able to both retain power and experience only small increases in power bills. Texas has a deregulated market, which allows electricity consumers to purchase contracts from a wide range of suppliers. Texans can buy floating rate contracts tied to the wholesale price or they can lock in a guaranteed price, regardless of what the market does.
360 Energy has clients in Texas. Here’s what they experienced.
Last summer, winter storms were the farthest thing from our clients’ minds. However, we advised them to be proactive and to lock in portions of their electricity requirements at guaranteed prices of under $0.04/kWh. This price reflected a small premium above the market rate at the time, but it provided excellent cost avoidance.
During Winter Storm Uri, the hourly spot price went to $9.00/kWh each hour for 5 days. Without the hedge, our clients’ electrical costs would have increased by 899%. With the hedge, they avoided paying stratospheric wholesale power prices and literally saved themselves thousands of dollars. The full savings picture will become clear once the billing cycle is completed.
The extreme weather event in Texas is a reminder that market energy prices can increase dramatically with very little warning. A proactive, forward looking procurement strategy can limit risk by reducing the volume of electricity exposed to high prices.
Each business has to determine how much risk it is willing to assume, and how high a premium it is willing to pay for risk mitigation. 360 Energy had that conversation with its customers in Texas. For peace of mind and for avoiding an unpleasant power price shock, the strategy they adopted paid off handsomely.
