The Indicator from Planet Money - The $1,000 Power Bill

The recent winter storm caused thousands of Texans to see their power bill climb to hundreds, even thousands of dollars. Can economics explain what happened?

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Content Keywords: Kaitlyn indicator cash Jordan
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NPR

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This is the indicator from Planet Money. I'm Alexi Horowitz Ghazi and I'm Stacey Vanek Smith the snow storms that hit Texas left millions of people without keyed Power and Water including Kaitlyn fan boyfriend. Jordan had no power in their Houston apartment for 3 days, but right before their power went out. They got an email from their power company subject urgent the email read we advise our members to immediately switch to another provider as unprecedented price surges are forecasted. Our electricity provider is telling us to leave

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Kaitlyn and her boyfriend were busy making preparations for the storm. So they just stuck with their power company, but when they got their bill, they wished they'd listened to that email. It was higher than they ever dreamed in electricity bill could be at the heart of the issue economics.

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This message comes from NPR sponsor the Capital One Quicksilver card with Quicksilver. You are an unlimited 1.5% cash back on every purchase everywhere. That's all there is to it. Just unlimited 1.5% cash back on everything you buy what's in your wallet. This message comes from NPR sponsor fundrise making investing in private real estate as easy as investing in stocks bonds, or mutual funds build a more Diversified portfolio today at fundrise fundrise cam indicator. Very own power. Grid Most states are hooked into like big Regional grids and connect it up. But not Texas. Joshua Rhodes is with the Weber Energy Group at the University of Texas at Austin to do our own thing down here. And anybody who wants to think they can make money in that market can come in and build a power plant, which means we have a bunch of our plan and we have a bunch of private companies that sell a

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Tiffany to Consumers and those to interact in this thing. We call the wholesale Market the wholesale Market. This is where the companies that make energy hydroelectric natural gas sell the energy to generate to the power company's turn around and sell it to Texans just like most markets but unlike most markets Josh's electricity is instant like you flip on your light switch. That is the demand and you expect the supply to be there. Right then electricity is the only the only thing I know of that has to be made at the exact same instance that is consumed that means supply and demand are changing all the time every second. And so the price for electricity is also changing all the time to keep up with client demand the Texas power grid has auctions. Every 15 minutes where power companies Place their orders and the energy companies look at their supply of energy and the demand from the power companies and

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Set a price say a bunch of people across the state. I'll get home around 4 p.m. And turn on the air conditioners all at the same time and demand for power goes way up in the same instant that power gets really expensive but maybe only for an hour or so at 3 a.m. There's almost no demand for power prices might be almost zero. It's always Dynamic. It's always changing like the beautiful free market at work. Yes. This is this is what Texas wanted most power companies in Texas charge customers a flat monthly fee and hope that fee covers what they end up paying energy companies in the power options plus a little extra classic middleman markup, most people end up hanging around a hundred twenty bucks a month for power in Texas for you to pay this middleman markup. Just give us a little subscription fee ten bucks a month and we will give you access to the wholesale market. So that was the best choice for us.

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Where is a sophomore at the University of Houston and a couple of months ago? She and her boyfriend Jordan moved into a one-bedroom apartment near campus with their two dogs provider is another thing on top of the stress. So an internet and extreme prices and that's what I'm not in class and Jordan works construction there in a pretty lean budget for a couple of months things were great. Then came the storm Caitlin first heard about it on the little family group chat never experienced anything like that on Monday the 15th, it started snowing and a few hours later Katelynn and Jordan's power went out shortly after that the water shut off Kaitlyn and Jordan 8 canned tuna.

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Dinner stuff blankets around the doors and windows and put the groceries outside in the cold then they huddled up with their dogs. He was like that for three days Thursday in the middle of the night. It came back on and is when the dings started Kaitlyn's boyfriend Jordan pay the electricity bill through his Chase account and he set it up so that he got a text alert every time his card is charged from gradient charge from Grady. What sound does he have on his phone has power grid auctions in the beautiful free market. It did its job. The energy Supply was really low demander through the roof and the prices rows and rows and rows until supply and demand found their balance. The only problem it was a really expensive balance just kept happening. I just keep hearing ding ding like at 5 a.m. $48 6 a.m. $44 7 a.m.

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45 8 a.m. 46 9 a.m. 50 and then it would one down at 37 and then

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33 at 11 a.m. And then

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the highest amount was $51 at 6 p.m.

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13 charges in all for Thursday for a total of $700 for one day of power. And what was the grand total of your February power build so grand total so far?

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Is $1,062.97.

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For a 790 square foot apartment. Wow. Yeah.

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Energy expert Josh Rhodes says there's an economic lesson here depending on how you were probably paying a lot less but you had a lot higher risk that wrist is being realised risk the fixed rate energy companies. Do you have a markup? But they also Shield customers from the volatility of the wholesale energy Market if the market goes Haywire, the fixed-rate power company eats those costs they take on the risk of energy prices going crazy customers are exposed directly to the market was address those risks on its website. It has a section called rice by Chris. It says price bikes only happen to .6% of the time and bites are usually pretty tame the chances of a price bike getting anywhere near as high as it did during the storm Point 1% of the time 1% of .6%

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A tiny tiny risk minuscule offered in his area of Austin. He probably would have signed up for it prices. I mean it would have been highly tempting to do. So also understanding the risks associated with energy power and weather events is really complicated even experts have trouble with it and every once in a while something will happen that nobody saw coming and prices will go nuts when this happens in most markets if prices Spike people will just stop buying whatever it is. The problem with electricity says Josh is that it isn't really a choice. I mean, if you have power and energy, you can't leave the house get down into the 40. I mean you just can't do it. And so it's not like you have an alternative place has the government regulates and in some cases even runs the power grid to protect people from a freak.

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Free market event like the one Texas just saw so they take on that risk and they take the head and stead of a college student and her boyfriend who are trying to make ends meet treatment that I did not make extra money off of a price or just that it only collects. It's $10 a month membership fee and that wholesale prices are always changing.

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Kaitlyn and her boyfriend are done with energy Market volatility. They have switched to a flat rate power company episode of the indicator was produced by Emma Peasley and Nick Fountain the indicators edited by Julie Myers and is the production of NPR

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