Texas teaser rates are rates that look great on the surface. But once you dig into the details, you find that your electricity rate isn’t what you expected.
Maybe you’ve seen a teaser rate before. It’s a rate that seems just too good to be true. These teaser electricity rates create confusion for customers looking for the best deal.
It’s one of the reasons we created ElectricityPlans.com. We evaluate electricity plans to find the best ones, so you don’t have to worry about it. But what exactly is a teaser rate, and how do you avoid them?
What is an Electricity Teaser Rate?
An electricity teaser rate is a rate that looks good at a certain level of usage, but has tiered rates, bill credits or a flat bill amount that make it very expensive if you go outside a certain usage level.
We should probably back up first and explain Texas’ electricity rate structure. Texas is the only deregulated state to quote three rates for each plan. (See our post for more details about why Texas has three electricity rates.
The initial intent for requiring the three rates was to give electricity shoppers a best guess on what their actual rate would be for specific common usage levels (500, 1000, and 2000 kWh).
However, this three rate pricing structure is gamed by some electricity providers. Most comparison shopping sites, like the Power to Choose, show electricity rates at one of those three levels. If you look at the rates quickly, you think you’re getting a great deal.
When you look at the Electricity Facts Label you find a complicated formula that gives the best price only at a specific usage level. It’s not what you would actually pay.
This ‘gaming’ of electricity rates is what we consider to be teaser rates.
Teaser rates fall into three categories:
- Bill Credit Electricity Rates (or Usage Credits)
- Tiered Electricity Rates
- Flat Bill Electricity Plan
Understanding Bill Credit Electricity Plans
What is a bill credit electricity plan? A bill credit electricity plan gives you a usage credit when your electricity usage stays within a certain range of kilowatt hours each month. These plans may also include a minimum monthly fee or a minimum usage charge if you don’t use enough.
Electricity providers offer bill credits on some of their plans and strategically place these bill credits in order to create an unusually low rate per kWh so that they rank higher on comparison shopping websites. Here’s an example of a bill credit plan that looks really affordable.
Remember the advertised kWh rates shown are calculated rates that combine an energy charge, utility delivery charges, and, in this case, a bill credit of $85 for usage greater than 999 kWh in a billing cycle.
The advertised rates are what you pay only if you happen to use exactly that much electricity in a billing cycle.
This is the electricity rate graph for this particular plan:
Take a look at the price curve for the corresponding electricity bill:
According to the chart, if your electricity usage ranges between 1000 – 1700 kWhs per month, this plan might be a good choice.
But if you happen to use less electricity and do not qualify for the bill credit, you will be paying a much higher rate for electricity than you expected.
With bill credits, there is a usage sweet spot and you need to determine what that is and stay within it in order for this type of plan to be a good deal. That’s why we consider this a teaser rate.
How to Know if Bill Credit (Usage Credit) Electricity is Right for You
You can benefit from a bill credit electricity plan if you (1) have electricity usage that stays within a certain range all year long and (2) you understand your monthly electricity usage.
While item #2 is easy (look at your bill history), most homes in Texas have a very different usage level in Summer vs. Winter. Fair warning: when we’ve run the numbers, most consumers are better off with a fixed rate electricity plan.
ElectricityPlans.com helps you understand these plans because we do the math for you. You can search for bill credit/tiered rate electricity plans. The plan description will include the amount of the bill credit and the usage level you need to hit. In the plan details, you’ll see all the math that calculates your rate per kWh. And, you can enter your monthly electricity usage to see if you can benefit from this electricity plan. To get started, enter your zip code, then enter your average monthly usage.
Shop Bill Credit and Usage Credit Electricity Plans
Understanding Tiered Rate Electricity Plans in Texas
Tiered rate electricity plans charge a different price per kilowatt hour depending on how much power you use. They are considered a fixed rate electricity plan because the price per kWh is fixed within that usage band and won’t change for the term of your agreement.
What do you notice about this plan? The rate of 4.3¢ for the 1000 kWh usage level is noticeably different compared to the rates for 500 kWh and 2000 kWh usage levels. Sound almost too good to be true? It is, unless you use exactly 1000 kWh in a billing period.
The 4.3¢/kWh at 1000 kWh usage is not a unit price for a range of electricity usage. It is the rate you pay if you happen to use exactly 1000 kWh of electricity in a billing cycle. Use 1001 kWhs, and your rate more than doubles for this particular plan.
Let’s look at the actual rate curve for this plan:
This is what happens to your electricity bill for this plan:
For this particular tiered energy rate plan, once you use over 1000 kWh in a billing cycle your electricity bill more than doubles and continues to go up from there.
Tiered rate plans can be incredibly complicated. When you look at an Electricity Facts Label (EFL) for a tiered energy use plan, you may see as many as three or four tiers of energy pricing.
Educate yourself about your energy usage and do your homework on these plans to make sure you’re getting what you expect, or just don’t be tempted because there are a lot of other more straightforward, fair-priced plans available.
How to Know if a Tiered Rate Electricity Plan is Right for You?
A tiered rate electricity plan only benefits you if you: (1) have electricity usage that stays within a certain range all year long and (2) you understand your monthly electricity usage.
You may end up paying a higher price per kWh certain times of the year, when your usage is lower. For example, most consumers have a lower electricity usage level in the winter versus the summer. So if you choose a tiered rate electricity plan, make sure you understand how much you will pay for your lowest usage month, your highest usage month and your average usage.
If you are interested in a tiered rate electricity plan, select “Bill Credit/ Tiered Rates/ Flat Fee” when you are shopping, or enter your zip code below.
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Understanding Flat Bill Electricity Plans
A flat bill electricity plan charges you the same amount every month up to a certain usage level. This is a type of fixed rate plan, since the price you pay doesn’t change during your contract term.
Flat bills are very appealing. You pay the same amount every month regardless of how much you use. The teaser rate part comes in with the amount you pay per kWh. Because if you use less than the targeted amount, your price per kilowatt hour is very high. And if you use more than the targeted amount, an even higher price per kWh kicks in.
Here’s an example of a flat bill electricity plan:
With this plan you’ll pay the same bill amount for each month, as long as it’s below the specified usage level of 2000 kWh. But what’s the effective rate per kWh?
If you use 2000 kWh in that month, your effective rate is 8.8 cents per kWh. If you use over that, it’s that flat bill amount PLUS 15.5 cents per kWh for every unit over 2000. And if you use less than that, for example, 1000 kWh, you’ll be paying 17.6 cents per kWh! Talk about a teaser rate!
How to Know if a Flat Bill Electricity Plan is Right for You
You may be considering a flat bill if you want to make budgeting easier. After all, if you know what your electricity bill is every month, you can budget for it and plan ahead.
However, as with the other teaser rates, flat bill electricity plans only work well for you if you know your usage and you know it is right around the target usage level.
TIP: If you want to pay the same amount of money each month for your electricity, you may want to consider average billing. Sign up for the best electricity rate available in your area. Then request a budget bill or average bill. Your electricity company will calculate your estimated monthly bill based on your historical usage. Then you’ll pay around the same amount each month.
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Which Teaser Rate is the Best Type of Electricity Plan?
But these types of teaser rates are are very popular, which is why we include them on our site. ElectricityPlans.com gives you the tools to understand teaser rates and what’s behind them. That’s the only way to know if they are right for you.
In summary, here are the tools to use to see if a teaser rate like Bill Credit, Tiered Rate or Flat Bill might be right for you:
- Understand your electricity usage and how it varies month to month
- Select the type of plan to see only Bill Credit/Tiered Rate/Flat bill
- Use our electricity bill calculator feature to see your rate per kWh based on your usage.
- Read the plan summary, a single one-line description where we highlight the key information
- Read the plan details, where we show you the math that goes into calculating your rate.
You can shop all types of electricity plans on ElectricityPlans.com. Use the tools we provide to find the best price for your home.
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Want to learn more about how to shop for an electricity plan in Texas? Learn more by reading The Definitive Guide to Shopping for Electricity in Texas