4 ms·

Do wholesale prices directly translate to consumer prices?

by lainga 6y ago

gruez 6y ago
Likely not, and that's part of the reason why it's so high in the first place. Price is a function of supply and demand. In this case the supply is limited, but demand stays the same because there's basically zero incentive for consumers to reduce discretionary electricity usage.
- jstrong 6y ago
  it's pretty crazy. even when we are not in the middle of a 'once in a generation' winter storm electricity prices regularly spike as much as 100x as peak gen ramps up, and the whole world (basically) goes on consuming it as if the price is static. like what if gasoline cost gas stations $30/gallon between 4-7pm and they just kept on selling it at $2-3/gallon?
nimos 6y ago
Depends on your contract but a lot the time no. Interesting article: https://www.houstonchronicle.com/business/energy/article/Texas-power-retailers-to-customers-in-face-of-15953843.php https://www.houstonchronicle.com/business/energy/article/Tex...
ardy42 6y ago
> Do wholesale prices directly translate to consumer prices? I don't think they do where I live, because the rates are regulated and the power company needs permission to raise them.
twunde 6y ago
Not directly. In Texas and other deregulated markets, you can be on either a fixed rate for n months or on a variable rate. If you're on a variable rate, the rate will be much higher than normal for the next few months. If you're on a fixed rate you're fine for now, but keep an eye on when your fixed rate expires. This assumes that your supplier is still in business after the next few months (many suppliers will go bankrupt because of this). For the suppliers, they're going to be hit hard by people who either decide not to pay their supplier next month, or have people who switch to budget billing. They're going to suffer a cash crunch for a bit. If you are in a regulated market or are using the regulated utilities like ConEd in NYC, you'll see limited rate increases to deal with the increased cost to supply. These rate increases need to be approved by the state's Public Utility Commission.
- cmdli 6y ago
  > If you are in a regulated market or are using the regulated utilities like ConEd in NYC, you'll see limited rate increases to deal with the increased cost to supply. These rate increases need to be approved by the state's Public Utility Commission. If deregulated suppliers are having to raise prices to cover costs, wouldn't that apply to regulated suppliers as well? Unless they have enough cash on hand to ride it out, then they will have to raise prices or go bankrupt. I would feel like the risk of bankruptcy would be higher if they have limited ability to raise prices. I'm assuming regulated and deregulated suppliers operate similarly. I don't know if regulated suppliers are required to have some sort of backup for this situation.
  - URSpider94 6y ago
    For the most part, regulated utilities factor in cost spikes into their rates, so they’ll have some reserve built in to cover. They may not make as much profit this quarter, but they won’t go bankrupt. Additionally, keep in mind that a lot of regulated utility companies own their own generating plants. In that case, the cost of power on the open market is basically irrelevant. Heck, they may even be SELLING power into this market.
    - twunde 6y ago
      Small quibble here. I'm pretty sure that most regulated companies do NOT own their own generating plants, since for a long time they were legally not allowed to be in both the distribution business and the generator business. I _think_ this was from the Public Utility Holding Company Act (https://en.wikipedia.org/wiki/Public_Utility_Holding_Company_Act_of_1935 https://en.wikipedia.org/wiki/Public_Utility_Holding_Company...) but it was ~ 15 years ago when I toured an Entergy power plant and heard the explanation so I may be wrong. I suspect that this still holds true for regulated utilities since the conflict of interest is pretty high. What has been a recent trend is generator companies purchasing supplier companies (for example Calpine purchased Champion Energy and Noble Solutions)
  - mleonhard 6y ago
    Would you like to find out the answers to these questions and post them here?
jpindar 6y ago
Sometimes. https://news.ycombinator.com/item?id=26174534 https://news.ycombinator.com/item?id=26174534

Do wholesale prices directly translate to consumer prices?

by lainga 6y ago

Do wholesale prices directly translate to consumer prices?

Likely not, and that's part of the reason why it's so high in the first place. Price is a function of supply and demand. In this case the supply is limited, but demand stays the same because there's basically zero incentive for consumers to reduce discretionary electricity usage.

jstrong 6y ago
it's pretty crazy. even when we are not in the middle of a 'once in a generation' winter storm electricity prices regularly spike as much as 100x as peak gen ramps up, and the whole world (basically) goes on consuming it as if the price is static. like what if gasoline cost gas stations $30/gallon between 4-7pm and they just kept on selling it at $2-3/gallon?

nimos 6y ago

Depends on your contract but a lot the time no. Interesting article: https://www.houstonchronicle.com/business/energy/article/Texas-power-retailers-to-customers-in-face-of-15953843.php https://www.houstonchronicle.com/business/energy/article/Tex...

ardy42 6y ago

> Do wholesale prices directly translate to consumer prices? I don't think they do where I live, because the rates are regulated and the power company needs permission to raise them.

twunde 6y ago

Not directly. In Texas and other deregulated markets, you can be on either a fixed rate for n months or on a variable rate. If you're on a variable rate, the rate will be much higher than normal for the next few months. If you're on a fixed rate you're fine for now, but keep an eye on when your fixed rate expires. This assumes that your supplier is still in business after the next few months (many suppliers will go bankrupt because of this). For the suppliers, they're going to be hit hard by people who either decide not to pay their supplier next month, or have people who switch to budget billing. They're going to suffer a cash crunch for a bit. If you are in a regulated market or are using the regulated utilities like ConEd in NYC, you'll see limited rate increases to deal with the increased cost to supply. These rate increases need to be approved by the state's Public Utility Commission.

cmdli 6y ago
> If you are in a regulated market or are using the regulated utilities like ConEd in NYC, you'll see limited rate increases to deal with the increased cost to supply. These rate increases need to be approved by the state's Public Utility Commission. If deregulated suppliers are having to raise prices to cover costs, wouldn't that apply to regulated suppliers as well? Unless they have enough cash on hand to ride it out, then they will have to raise prices or go bankrupt. I would feel like the risk of bankruptcy would be higher if they have limited ability to raise prices. I'm assuming regulated and deregulated suppliers operate similarly. I don't know if regulated suppliers are required to have some sort of backup for this situation.
- URSpider94 6y ago
  For the most part, regulated utilities factor in cost spikes into their rates, so they’ll have some reserve built in to cover. They may not make as much profit this quarter, but they won’t go bankrupt. Additionally, keep in mind that a lot of regulated utility companies own their own generating plants. In that case, the cost of power on the open market is basically irrelevant. Heck, they may even be SELLING power into this market.
  - twunde 6y ago
    Small quibble here. I'm pretty sure that most regulated companies do NOT own their own generating plants, since for a long time they were legally not allowed to be in both the distribution business and the generator business. I _think_ this was from the Public Utility Holding Company Act (https://en.wikipedia.org/wiki/Public_Utility_Holding_Company_Act_of_1935 https://en.wikipedia.org/wiki/Public_Utility_Holding_Company...) but it was ~ 15 years ago when I toured an Entergy power plant and heard the explanation so I may be wrong. I suspect that this still holds true for regulated utilities since the conflict of interest is pretty high. What has been a recent trend is generator companies purchasing supplier companies (for example Calpine purchased Champion Energy and Noble Solutions)
- mleonhard 6y ago
  Would you like to find out the answers to these questions and post them here?

jpindar 6y ago

Sometimes. https://news.ycombinator.com/item?id=26174534 https://news.ycombinator.com/item?id=26174534