February 26, 2021
A record-setting winter storm left many Texas households without power for days last week—and left those who did manage to get power stuck dividing a $50 billion electric bill, the product of a wild upward swing in wholesale power prices.
This is the gamble at the heart of a deregulated electricity market, in which companies compete to produce and sell electricity, as opposed to a monopoly system with rates fixed by regulators. In this kind of system, which covers about 60% of the US, consumers accept some price volatility in exchange for, in theory, lower rates and better service most of the time. Some types of retail contracts offer more insulation from wholesale price swings than others. But ultimately, all customers have to trust that the companies and officials running the grid will invest and plan in a way that will produce the greatest reliability at lowest cost.