Texas Electric: What Is a Provider of Last Resort & Why You Want to Avoid Them

Anything with the phrase “last resort” in it is probably something you want to avoid — unless you’re talking about scoping out Caribbean vacation spots (as in, that last resort we toured was gorgeous). When it comes to energy, you don’t want to be in the “last resort” club.

As it relates to Texas electricity, following is what a Provider of Last Resort (POLR) is, and why you want to avoid being a part of their roster.

What is a Provider of Last Resort?

Actually, from a consumer standpoint, a POLR is a good thing. They are Texas energy companies that act as a back-up in case an existing service provider goes out of business.

Texas electricity consumers have a deregulated energy market, which has produced the need for POLRs. Why? Because with deregulation came a lot of competition. And, some of these new companies had neither the market savvy nor the secure financial backing it takes to be in business for the long haul.

Many of them came on the scene offering Texas electricity consumers low rates, but they couldn’t deliver when certain market forces shifted. So, they went out of business – leaving thousands of customers potentially stranded.

Enter POLRs. The Public Utility Commission of Texas (PUC) designated certified retail electric providers (REPs) to act as POLRs for each customer class in each electric utility service area open to competition.

While this is a comfort, it can be a nightmare in that there is no guarantee that the rate you paid with your old Texas electricity company is the one you’ll get with your new one. And, if you’re already paying the high cost of a prepaid electric service plan, your costs could escalate even more.

Why It Pays to Choose a Traditional Texas Electricity Company

This is why it pays to sign on with a traditional Texas energy supplier – even if it means saving up to pay a deposit. Although, many have low-deposit and no-deposit electric service plans you may qualify for. All it takes is a phone call to find out.

To Compare Texas Electricity Rates please click here

PUCT Answers Question on MCPE and POLR Electric Rates

The Public Utility Commission has responded to one of our blog subscribers with some very helpful information regarding rules and law changes that will help lower MCPE rates, POLR rates and hopefully prevent more electric companies from going under. ERCOT has also changed some rules to hopefully make congestion charges less which will reduce the market clearing price rate, specifically in Houston, and hopefully make Houston’s MCPE rates similar to the rates in other location in the state. Houston has the highest MCPE prices in the state.

Background on MCPE Electric Rates

For those not familiar with MCPE, it stands for Market Clearing Price for Energy. National Power, Riverway Power and others had a failed business model that relied on buying energy from the MCPE index which is a variable price and selling it as a fixed rate to their customers. When MCPE went up higher then they anticipated they went backwards on their energy investment and had to get out of the business quick, leaving their customers on a very high POLR rate.

You can read exactly what the Public Utility Commission of Texas has said below:

Mr. Hipp Thanks for your email. I’m sorry that this has happened to
you. Prior to the last couple of weeks, only six REPs had gone out of
business since the retail electricity market was deregulated in Jan
2002. Almost all of those REPs had a flawed business plan whereby they
were buying energy short term through the ERCOT balancing energy market
and then selling it long term to their customers. It seems as if
National Power may have been pursuing the same flawed business model.

With regard to financial stability for REPs, the PUC does have rules
regarding financial resources. We have tried to balance the desire of
the legislature to have robust retail competition (and a multitude of
REPs who can enter the market) versus only having a handful of large
“household name” REPs with larger balance sheets. Having said that, the
PUC will be opening up our rule regarding REP finances to determine if
it needs to be changed.

Our rules do require the “exiting REP” to notify the customer;
unfortunately National Power did not do that and we are considering an
enforcement action against them.

POLR has always been designed as a service that continues the flow of
electricity to your home in case your REP goes out of business. Because
the POLR provider unexpectedly receives a bunch of unplanned customers
almost overnight, the plan was designed to be priced based upon the
Marginal Clearing Price of Electricity in the ERCOT balancing energy
market. That price has been unreasonably high of late. We have asked all
the POLRs to price electricity to you at levels below what our rules
allow. We will also be opening up our POLR rule to see if it needs
adjustment.

As of last Friday, ERCOT changed some of it operational procedures which
we believe will allow transmission congestion to be resolved more
inexpensively. We will be closely monitoring the balancing energy
market this week to see if there is any improvement.

As we have asked of all others in your situation, please switch to
another REP or another product from the POLR as soon as possible.
Thanks again. Barry

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