CoServ’s power purchasing strategy lowers cost for Members

CoServ took 100% control of its power purchases 14 months ago, resulting in less risk for the electric co-op and lower electricity costs for Members.

The Energy Resources team accomplishes that by buying blocks of electricity days, weeks, months or even years ahead of time when prices are lower, rather than buying all its power in the real-time market, where prices can be higher.

“When we look back at 2023, we think we did very well with power purchasing,” said Gary Franzen, Senior Vice President of Energy Resources. “We kept costs as low as we have seen them for the past several years despite a challenging market.”

What happened last summer?

Last summer was particularly challenging because real-time wholesale prices soared to the highest levels since 2011. The Electric Reliability Council of Texas (ERCOT) set 10 records for peak demand in the summer of 2023.

Through the summer and into the fall, CoServ’s Power Cost Recovery Factor (PCRF) remained negative, which means it subtracts from the base rate, keeping costs lower for Members. CoServ adjusts the PCRF up or down based on CoServ’s actual wholesale costs.

Why are costs increasing in 2024?

2024 presents a new set of challenges for the Energy Resources team. In February, for the first time in 13 months, the PCRF became positive again, which means it adds to the base rate.

Forward on-peak power prices for July and August remain elevated. It’s a unique situation where natural gas prices are low yet statewide wholesale electricity prices are being driven by other factors, including the echoes of last year’s extreme summer heat.

“Prices are elevated compared to where we saw them a year ago at this time,” Gary said in February. “Because of the extreme amount of scarcity in the summer of 2023 and the very high prices we saw last summer, there’s an expectation that could happen again. People who have power available to sell are reluctant to sell now, thinking they can sell for a higher price later.”

As Gary explains, availability and concerns about a scarcity of electricity for the upcoming summer are driving market prices higher, causing his team to have to pay more per kilowatt-hour for their pre-summer purchases.

Do these higher prices affect all utilities in Texas?

Yes, the Energy Resources team buys power on the ERCOT market, the same place where for-profit retail electric providers shop. However, as an electric cooperative, we do not markup our wholesale energy costs for profit. Each year, any margins (profits) are allocated to our Members and held until they are retired (paid) in the form of Capital Credits.

Click here to learn more about Capital Credits.