Texas has undoubtedly been the most successful US electricity deregulation market for residents. A lot of it’s success comes from the Texas Public Utility Commission’s (PUCT) marketing efforts when it launched PowerToChoose.org. Originally known as Texas Electric Choice, today’s Power To Choose site is still very popular for Texas residential electricity shopping, but it’s issues have also come under increasing scrutiny due to rate confusion and misleading electricity plans.
What’s the biggest issue on Power To Choose? Teaser Rates. As you work your way through the various electricity plans offered in your area, you’ve probably come across a few that seem too good to be true. These teaser electricity rates create confusion for customers looking for the best deal they can get using electricity comparison sites like the PUCT’s Power to Choose.
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?
So, what exactly is a teaser rate?
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 in order for their plans to appear first on the Power To Choose plan search page as well as other comparison shopping sites. This ‘gaming’ of electricity rates is what we consider to be teaser rates.
Teaser rates fall into a couple of categories:
Example #1: Tiered Rates Based On kWh Usage (the latest trend)
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.
Power to Choose has pages of search results with tiered energy rate electricity plans that follow a similar formula. When the Power to Choose site added a filter to exclude plans with minimum use fees/credits because of the public outcry against misleading electricity plans, providers came up with this new way to manipulate their advertised rates. 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.
Don’t be drawn in by the electricity rate anomalies that tiered rate plans create and sign up for a plan that likely also has a steep cancellation fee that could leave you in a bind. 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.
Example #2: Bill Credits
Bill credits are helpful if your electricity usage stays within a very predictable range every month. That’s a tall order with the brutally hot Texas summers. 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. Even though Power to Choose gives you the ability to filter out plans with bill credits, they still exist.
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. It’s as if you’re penalized for not using enough electricity if you use less than 1000 kWh. On the flip side, if your electricity usage spikes in the summer, your electricity rate will too because the more electricity you use, the more diluted that bill credit becomes. 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.
Introductory Rates for New Customers
The majority of the rates advertised by electricity providers are for new customers only. These rates aren’t necessarily teaser rates but it is something to be aware of. When it comes time to renew your electricity contract, your provider will notify you at least 30 days before your plan expires and include a new offer. Chances are the new rate won’t be as good as what you’ve been paying. Even though your provider may say this is the ‘best offer available’ and ‘act now’ before it expires, you should still shop around just to make sure. But whatever you do, don’t ignore the contract expiration notification.
If you let that contract expiration slide without acknowledging the renewal offer or enrolling in a different plan, you will be enrolled in what is called a “default product” and these typically have much higher rates than your previous plan. It’s generally a variable rate, month-to-month plan and you will be surprised with a very unpleasant electricity bill. This is standard industry practice and happens with any electricity plan regardless of the initial contract term.
ElectricityPlans.com Makes Shopping Electricity Plans Simple
Although sites like Power to Choose are meant to be impartial outlets for electricity plans, many of the electricity providers have confused the situation by adding plans with teaser rates, plans that use assumed credits in their kWh pricing, or perform other interesting math in order to look like they’re giving you the cheapest rate for electricity.
ElectricityPlans.com fully vets their plans to ensure that there are no teaser rates, no hidden fees, and no surprises. We present all of the information you need to make a good decision about your electricity plan in an easy-to-understand format. You simply need to click on the Plan Details and Pricing for any electricity plans you want to compare and we’ll show you exactly how the average price per kWh is calculated.
Learn more by reading The Definitive Guide to Shopping for Electricity in Texas