What is a Retail Electricity Provider and How Do they Work?

The principle of supply and demand is straightforward, isn’t it? When demand goes up, supply needs to go up to provide enough product to meet demand. And when demand drops, companies have to scale down production so there isn’t more product than they can sell.

But the supply and demand principle goes out the window with electricity, because electricity isn’t something you can save up to use later. You can’t fill a few five-gallon cans of it, and store it in your pantry for those 110-degree days when you need to use more than usual.

What is a Retail Electricity Provider and How Do they Work?

First it’s important to understand the players in the deregulated Texas electricity market. The power generation company owns and operates the facilities that actually create the electricity we use in Texas. This includes all power plants, whether it’s coal, nuclear, natural gas, or renewable. As defined by the Public Utility Commission of Texas (PUCT), each power generation company produces the electricity that will be sold on the energy wholesale market.

The Transmission and Distribution Service Provider (TDSP) does exactly what its title suggests – it is responsible for the transmission and distribution of electricity service to all the homes and businesses within its service area. It does this because it owns all the lines, wires, poles, and meters in that service area. The TDSP conducts any and all maintenance and repairs required for those lines, wires, poles, and meters.

Finally, a Retail Electricity Provider, or REP, is the company at the “last mile,” or fulfillment end, of the electricity “supply chain.” They contract with customers to switch on (or off) electrical service, and pay for it. REPs don’t have warehouses to store big boxes full of electricity–or even a back room. You know the saying: “Use it or lose it.” This principle means REPs must forecast demand and buy enough electricity to cover that demand.

Jesson Bradshaw, Energy Ogre CEO, says REPs take a price risk. They have to manage the price exposure that results from the difference between the way the wholesale blocks are sold and the way the customers choose to consume electricity.  Here is Bradshaw telling us more during a recent phone interview.

Why do we need an REP?

The wholesale electric market can be extremely volatile. A REP steps in and provides demand procurement, buying expertise and handles risk management. REPs must possess the skill to buy at affordable rates rather than be subject to the pricing whims of the real-time electricity marketplace. For example, Bradshaw says, we’ve seen wholesale prices go up to as much as $9 per kilowatt hour.

Yep, being an REP can be “risky business.”  So that low kilowatt per hour rate you may have gotten from a REP as a new member may be a price you never see again once that offer period is completed.

Energy Ogre acts as your agent with REPs

Energy Ogre wants REPs to be successful.  We want them to make a reasonable margin as, after all, they are in this business to earn money. But we want you to be successful, too. Our job is to work with REPs to get you the best rate based on the way you use energy. And because we work solely for you, we go to bat on your behalf when it comes to avoiding potential egregious situations such as hidden fees, transfers, contract issues, and more.

Are REPs different from one another? Sure. We are not suggesting that REPs are bad, either. In fact, we explained precisely why customers need them. But Energy Ogre is here to make sure REPs don’t get too greedy and play competitively with your hard earned dollars.  And keep in mind, all of the electricity they sell is the same. You don’t get better electricity from another REP. So why should you pay more for it? Shouldn’t you get the most energy for the lowest cost, and optimize your budget?

Similar articles: “It’s time for a break up with your REP”

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