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What happens when an electric company goes out of business?
Rates could increase under the "Provider of Last Resort"

Posted by Shane McLaughlin on 05/14/2014 at 8:00 PM

Customers of a small, Arlington, Texas-based electric company, Reach Energy, are being transferred to a new electric company. This was initiated because Reach Energy has decided to put its Texas electric business on hold.

Fortunately, Reach Energy arranged a deal with Entrust Energy (a TrueCost participant) to acquire all of its customers. As a part of this deal, Entrust Energy will honor the current rate, plan and contract terms offered by Reach Energy.  No interruption of service will occur and no action is required by the customer.

But sometimes a deal like this doesn't come together and the company folds without a larger company willing to serve the customers. Then the protective 'mass transition' market process kicks in and customers are divided and assigned to one of many electric companies. 
While the process is both necessary and somewhat complex, the two big takeaways are: 1. you won't lose power, but 2. you may lose money.

You won't lose power
The good news is that the competitive market has a system in place to keep your lights on and AC running.  

Each service area has a  "Provider of Last Resort"  (POLR), in which companies bid on a regular basis for the right to be the POLR (of course, this bid is won by the LOWEST price).  When providers go out of business or other unusual "forced switching" happens, customers are switched to the POLR automatically.

You may lose money
Whatever contract you had with your old company is no longer valid--you're on a new plan, and often it's not preferable.

The POLR is not meant to be a permanent solution, it's simply there to keep your lights on.  Companies bidding to be the POLR understand the risks of being called on at a moment's notice to take on a group of new customers that they had not been planning for and now need to find last-minute supply.  

Because it is a very risky deal, they typically put high prices on the POLR rates and they are not fixed.  Each plan is priced on a month-to-month basis--the Houston residential estimate ranges from 14 to 22 cents (for the average home), and could be even higher if the market price for electricity is high.

Been there, done that
Back in 2008, my electric company (National Power) went out of business.  It was July, and my kWh rate was 22 cents!  It's still the worst electric bill I've ever seen.  I requested a switch right away, but this was before smart meters so it took over a month to get off the POLR rate.

If you are switched to the POLR rate, you will want to immediately find a better plan.  Even the POLR company can usually switch you to a lower, fixed rate.  TrueCost can help you compare electric rates on participating electric companies, all of which can save you money vs. the POLR rate.

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