Encourage Changes Instead of Prohibitions in the Retail Energy Pricing System for Customers
Millions of Texans faced power outages and skyrocketing energy bills during the severe winter storms that hit the state in February, causing its energy grid to collapse. The crisis highlighted the need for consumer-friendly legislation to encourage the adoption of dynamic pricing models while protecting consumers from exorbitant rates during emergencies.
Wholesale pricing can reduce overall peak demand, which is good for the environment. Texas allowed electricity providers to offer dynamic rate electricity plans, including wholesale market plans. However, the majority of Texas residents do not have dynamic pricing, which may have limited their financial incentive to conserve energy during the winter storm.
To address this issue, legislators could consider implementing mandatory price caps or rate ceilings during declared emergencies. This would prevent excessive spikes in prices when demand surges, as demonstrated by the winter storm crisis. Transparency and disclosure requirements for businesses using dynamic or algorithmic pricing would also be beneficial. Retailers would have to disclose when prices are set by algorithms and potentially explain input factors, protecting consumers from hidden or discriminatory pricing.
Consumer protections against surprise billing are also essential. Requiring pre-authorization or notifications when prices exceed normal thresholds in emergency conditions would ensure that consumers are not blindsided by unexpected charges. Support for consumer tools, such as prepaid electronic tags used in toll dynamic pricing systems, could moderate pricing volatility and offer discounts to consumers.
Balancing incentives for supply flexibility and cost sharing is another important consideration. This could draw from energy legislation that encourages reliable generation and cost sharing to avoid stranded costs, suggesting a parallel for dynamic pricing in utilities or infrastructure. Legislative postponements or reviews after disasters could also be beneficial, allowing policymakers to assess the impact of price surges on consumers and adjust policies accordingly.
Currently, HB 16, a new law, prohibits companies from offering wholesale indexed electricity plans to residential or small commercial customers. However, lawmakers should focus on enacting consumer-friendly legislation that limits exposure to huge spikes in dynamic pricing during emergencies. This would prevent electricity companies from passing real-time energy costs onto consumers.
More research is necessary to determine the optimal rate structure for dynamic pricing models. The goal should be to design a system that allows consumers to take advantage of the flexibility and cost-savings of dynamic pricing models, but protects them from exorbitant rates during extraordinary circumstances. Oklahoma has legislation that prohibits companies from increasing prices for goods or services by more than 10 percent after the governor declares an emergency, offering useful models to tailor for Texas needs.
The LBJ TEXpress Lanes dynamic pricing toll system shows operational models with electronic payment discounts and usage monitoring that policymakers could adapt for consumer benefit. Together, such provisions would foster the benefits of dynamic pricing — efficient resource use and traffic or energy management — while shielding consumers from price gouging and ensuring transparency and fairness during emergencies.
[1] LBJ TEXpress Lanes: https://www.txdot.gov/driver/drive/toll-roads/lbj-texpress-lanes.html
[2] Energy legislation encouraging reliable generation and cost sharing: https://www.congress.gov/bill/115th-congress/house-bill/3671
[3] Algorithmic Pricing Disclosure Act: https://www.congress.gov/bill/117th-congress/house-bill/4442
[5] Legislative postponements or reviews after disasters: https://www.congress.gov/bill/117th-congress/house-bill/550
- The crisis in Texas, where millions faced power outages and escalating energy bills during winter storms, emphasizes the need for legislation that encourages the adoption of dynamic pricing models while safeguarding consumers from exorbitant rates during emergencies.
- During declared emergencies, price caps or rate ceilings could prevent excessive price surges when demand peaks, as demonstrated by the winter storm crisis in Texas.
- Transparency and disclosure requirements for businesses using dynamic or algorithmic pricing could protect consumers from hidden or discriminatory pricing by requiring retailers to disclose when prices are set by algorithms and potentially explain input factors.
- In Oklahoma, legislation prohibits companies from increasing prices for goods or services by more than 10 percent after the governor declares an emergency, offering a potential model for Texas to tailor consumer protections against excessive dynamic pricing during emergencies.
