2 Giant Texas Electricity Corporations May Become Even More Powerful After Historic Winter Storm

Mar 11, 2021
Originally published on March 10, 2021 3:35 pm

Texans may soon have fewer electricity providers to choose from, and the most powerful corporations that remain are likely to scoop up even more of the market share.

Right now, most Texans choose from a handful of retail electric providers that offer competing rate plans. The prevailing idea is that more competition helps lower costs, but the market is highly consolidated.

“It's estimated about 70% of the retail market is dominated by just two companies,” said Tim Morstad, an electricity utilities analyst with AARP of Texas.

He and other analysts are worried about the future of the market for consumers, especially after the Public Utility Commission of Texas paved the way for big companies to scoop up consumers from failing businesses.

“What this may lead to is further consolidation and further control of the retail electric market in Texas by large companies,” he said. “And with less competition, consumers can certainly get hurt. The last thing we need is unregulated monopolies. We've already gone through too much as a state with the pandemic and job losses and now this electricity emergency. We don't need long-term consequences from an even less competitive, deregulated electric market.”

The two companies he mentioned are Vistra and NRG.

Melissa Smith lives in the Dallas area, and she’s a customer of TXU Energy, a Vistra subsidiary.

After her pipes burst — causing her home to flood — in mid-February, she heard about a friend whose utility company pulled thousands of dollars out of their banking account through autopay. Smith asked her husband to check their electricity bill.

“It was $1,800 for the month,” she said. “Which is just ridiculous.”

That’s more than double what her family pays in a normal month. TXU said part of that figure is just an estimate for how much the Smith’s would owe for the full month. But the bill also reflected increased electricity use during the extreme cold.

The unusually high demand from Smith and millions of other Texans — coupled with a lack of supply as generators were knocked offline — led to a huge surge in the cost of power for electricity providers, like TXU Energy.

The increasing concerns about market consolidation could be alleviated by retroactively lowering the price of electricity.

During the power outages, the Public Utility Commission of Texas (PUC) allowed the cost of wholesale electricity to spike to its maximum level of $9,000, and the agency also removed a kind of “circuit breaker” that could have forced the price to drop sooner than it did.

“In retrospect, that was a bad decision,” said Beth Garza, who served as independent market monitor until 2019, when she says the PUC pushed her out during contract negotiations.

“In my opinion, the removal of that circuit breaker led to much higher prices in the wholesale market than were necessary,” she said.

The current independent market monitor, which is tasked with watching for companies that break market rules, advised the PUC to retroactively lower the price, arguing that it remained too high for too long. The PUC declined to do so.

Now, many smaller companies and cooperatives are expected to go out of business because of those costs — and their consumers are likely to get scooped up by the larger companies.

“It is a very serious problem,” said Peter Cramton.

Cramton is an economics professor at University of Cologne, and he spent more than five years on the board of directors for the Electric Reliability Council of Texas, more commonly known as ERCOT — the operator of the Texas grid. He resigned in February amid political turmoil after the outages.

He said it will be a problem if the electricity market in Texas becomes even more consolidated.

“It is what led — what leads, in banking, to the problem of ‘too big to fail,’ where the one or two or three banks that remain standing are huge monsters that can't fail,” he said. “And what that does is it destroys the incentives for good behavior.”

Vistra and NRG responded to questions about consolidation with statements on behalf of their subsidiaries. Both said that customers of companies that go bankrupt are free to switch to another provider at any time.

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