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A Remote Outpost

Joined: 07/08/2020 Posts: 384
Likes: 475

Its a market condition involving contracts being bought and sold

Energy companies normally buy enough fixed-rate contracts at a low price to meet their customers need. However, when there is a shortage they go to the 'free' market to see if any short-term contracts can be bought to cover a deficiency. The cost of these contracts (like most anything) does not represent the cost to produce but the demand for them. Price is determined by the highest bidder in an auction-like format. The seller could be anyone who owns a contract. Could be a wind-farm or an energy distributor/provider.

This type of situation happens in California all the time when there are 'brown-outs'. In fact, the Texas grid will often sell California energy companies short-term contracts during times of shortage. Not sure how California handles its billing, but these types of costs are probably absorbed by a large fixed-based user pool that might not be aware of it. By the same token, it's possible and likely, that California sold Texas short-term contracts during the recent crisis under the same basis, and with the desired effect of reducing its own energy costs.

In Texas, I do not think anyone foresaw the risk level that the variable ratepayer was exposed to. Not sure what the solution is but I think most would agree that they should not be left holding the bag. Another option is to take the excess cost and pool them with the larger base of fixed rate payers.

[Post edited by A Remote Outpost at 02/23/2021 1:19PM]

(In response to this post by buffaloaded)

Posted: 02/23/2021 at 12:14PM


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