In a deregulated energy market like Texas, companies strive to differentiate themselves through customer service, branding, different pricing, and even new ways to present plans on a utility service. However, sometimes energy companies offer deals or plans that sound too good to be true. While some may work in your favor, others will cost you more in the long run. In this article, we’re exposing some common plan gimmicks and explaining why they may not be the best choice for your budget or energy needs.
Free or discounted nights and weekends plans sound great in theory, but in practice, they’ll likely end up costing you more in the long run. While the hours advertised as free or discounted really are, most electric companies charge inflated rates during the day to cover these costs, which can lead to higher average rates overall.
Moreover, the definition of “nights” and “weekends” can be deceiving. Many customers are surprised to find out that the “night hours” aren’t always all night, and the “weekend” periods aren’t always the entire weekend, thus limiting the free or discounted time frame. In other words, your “free” time could be from 7 pm to 7 am or from 11 pm to 5 am, depending on your contract. The time frame specified in your contract might make it more challenging to take full advantage of those discounted hours.
Finally, keep in mind that these plans require you to change your energy usage habits, often dramatically, to make the most of the rates. Like a fad diet, many people sign up but can’t commit, and the resulting rebound can end up costing you more than if you had skipped the deal entirely.
These plans might work for those who can shift high-usage activities to the free periods, and who don’t work from home during the week. However, to ensure savings, it’s important to check the terms and be very flexible with energy use.
Bill credit plans offer credits and rewards for using a certain amount of energy each month. But to make these plans worthwhile, you need to consistently be within a specific usage range. If your usage regularly falls outside that range, the plan could end up costing you more because the baseline rates are often higher.
Also, keep in mind that seasonal changes and extreme weather events can have a big impact on your energy usage and your bill. During low seasons, the average rate of use is around 700 kWh per month, while during peak seasons, it can easily double to around 1400 kWh. This means that customers can end up with a much higher bill when their usage falls outside the specified range due to external factors like weather.
These plans can work for individuals who consistently use a set amount of energy each month and are willing to pay a little extra to earn rewards. However, it’s important to keep in mind that external factors, such as seasonal changes and extreme weather events, can greatly impact your energy usage and bill. If your energy usage regularly falls outside the specified range due to these factors, a bill credit plan may not be the best choice for you.
With tiered rate plans, energy usage is divided into different tiers, each with its own flat fee. If your energy usage falls within a certain tier, you will be charged the corresponding fee. However, if you go over the specified usage amount, you’ll be moved to a higher, more expensive tier. This pricing structure is quite common in the Texas energy market.
The defining feature of a tiered rate energy plan is that there is no guarantee on the price you pay per kWh – the price changes dramatically based on your actual energy usage. These types of plans can include varying rates, flat fees, and usage credits. However, it’s important to be aware of common tiered rate gimmicks such as usage-dependent rates and non-cumulative rates (more on that later.)
Tiered rates can work well for individuals and families who use a consistent amount of energy each month and are able to manage their usage within a specific range. If you can monitor your energy usage and stay within your tier, tiered rate plans can offer price stability and the potential for lower average rates. But keep in mind that shifts in energy usage from lifestyle changes or extreme weather events can push you into the higher-priced tiers, dramatically changing your bill.
As a sub-category of tiered rates, usage-dependent rates may seem like a good deal at first, offering low prices for specific usage levels. However, it’s important to keep in mind that exceeding those levels can lead to higher bills than you would have with other plans. This is especially true if your energy usage varies widely throughout the year due to seasonal changes or other factors. To avoid any surprises, it’s crucial to read the fine print and make sure that the rates you sign up for make sense for your actual energy usage.
Usage-dependent rates can be a good option for individuals with consistent energy usage, but it’s important to make sure that the rates and usage levels fit your needs. Keep in mind that if your usage falls outside the levels set by the energy company, you may end up paying more for your energy. For those with more variable energy usage, it’s generally a better idea to choose a plan with more stable rates that won’t fluctuate based on your usage levels.
A classic energy plan gimmick and sub-category of tiered rates, non-cumulative rates also charge different rates based on specific usage levels, but with a higher level of risk than usage-dependent rates. These plans may advertise a lower rate for a specific usage threshold, but if you go over that threshold, the higher rate applies to your entire usage for the month.
For example, let’s say you sign up for a plan that charges $0.10 per kWh for the first 500 kWh and $0.15 per kWh for any usage over 500 kWh. If you use exactly 500 kWh in a given month, you would pay $50 for your energy consumption. However, if you use 501 kWh, your bill would jump up to $75.15.
This type of plan can be risky, as a small amount of extra usage can significantly increase your bill. For this reason, non-cumulative rates are generally not recommended. But if you do choose this option, it’s important to read the fine print and make sure that the rates you sign up for make sense for your actual energy usage.
Real-time wholesale rate plans were common on the consumer Texas energy market prior to the winter storms of 2021, where they were featured as variable rate plans by a number of retail electricity providers such as infamous retailer Griddy. The fallout from the 2021 winter storms lead the Texas Legislature to ban wholesale electricity plans to consumers and small business customers. While wholesale energy plans may seem to have some benefit for those who consume most of their energy during off-peak hours, these plans were extremely risky for the average user. The real-time rates are highly volatile, luring unsuspecting customers in with below-retail costs during off-season shoulder periods only to find summertime and wintertime price spikes quickly wiped out the savings accumulated over several months.
As mentioned, wholesale rate plans are no longer offered to residential and small business customers in Texas. Wholesale plans could be an option for large business customers willing to take on more risk and who are able to shift their energy usage to lower-priced periods. However, to make the most of these plans, customers need to be willing to monitor the market and adjust their usage accordingly. This requires a focused effort and/or intense HVAC automation.
Variable rate plans are known for their unpredictability, as they can change based on market pricing, which is influenced by a variety of factors, with demand being the main one, following a typical seasonal curve. Retailers have the discretion to alter pricing without notice, often leading to higher bills for customers.
While they might work for those who are looking to save on their energy bills during certain seasons, these plans come with risks and aren’t for everyone. For those who are willing to take on more risk and monitor the market closely, variable rates may be worth considering, but it is generally recommended to opt for more stable rate plans to avoid surprises on your energy bill.
We hope this guide has been helpful in showing you how to spot common energy plan gimmicks and find the best electricity rates. And if you’re looking for even more guidance, check out our other post on how to choose an energy provider and the right plan1. With our expertise and range of options, we can guide you through this process and help you choose the best (and cheapest) electrical plan for your needs.
