Being the electricity geeks that we are, we talk way too much with our customers, friends, and family about the price they’re paying for electricity. For whatever reason, people happen to like to swap stories about their electricity provider and rate. The conversation usually starts with “Hey, guess what? I just got a <insert ridiculously low rate>,” and usually (unfortunately) ends with a gotcha and a comment about teaser rates, fine print, and usage.
The biggest piece of advice we give to electricity shoppers is to know your historical electricity usage. This is especially true in markets like Texas where the advertised price of electricity is a combination of an energy rate and a delivery rate, and the final price you pay is completely dependent on your monthly kWh usage.
First, some background on deregulation and rates
Before smart meters, utilities used analog utility meters (the ones with the horizontal spinning wheel) for decades. They were either read by a human meter reader or estimated every month. At the end of the month, the electric utility knew how much electricity you used and sent you a bill without any idea of what time of day or week you actually used electricity. The result? Utilities had no real-time knowledge of your specific peak usage times, and, as a consumer, you had no reason to care as long as your electricity kept flowing.
Then, deregulation and smart meters appeared on the scene and things got more interesting.
With deregulation, the retail electricity markets are open and electricity providers compete for your business because you can now purchase your supply of electricity from someone other than your utility. In almost all deregulated states, the energy rate is the only advertised rate and the utility continues to send you an electric bill which includes the utility’s regulated cost of delivery and the supply (or generation) portion which is collected on behalf of your retail electric supplier.
In Texas, however, the electricity provider is responsible for sending your electric bill and passing through the utility’s regulated cost of delivering electricity. Texas electricity providers quote electricity prices at three different kWh usage levels as required by the Texas Public Utilities Commission. These advertised prices are actually “all-in” prices of electricity at specific usage levels that combine both the energy rate (deregulated) and the utility delivery rate (regulated). This three rate structure, while intending to help consumers find the right plan for their usage, actually creates confusion for consumers and opportunities for marketers to come up with very creative pricing structures.
The mass rollout of smart meters allows electricity providers to offer a much wider variety of plans, all based on your usage patterns and habits. By having near real-time knowledge of your electricity usage, providers can offer cheaper (or free) electricity at certain times, flat fee electricity plans, prepaid electricity plans, and usage driven tiered rate plans.
Why is your electricity usage important?
Think of your electricity usage sort of like a shoe size: You won’t be happy if you don’t find the proper fit. Knowing your specific historical kWh usage will help you size your plan appropriately.
One example is tiered rates. Tiered rate plans are appearing in almost all deregulated markets. These plans typically have different rates for different cumulative usage levels per month. For example, your first 500 kWh per month may be at a certain rate, your next 1000 kWh may be at another rate, and so on. Knowing your historical kWh usage and how it meshes with these tiered rates can help you find the right plan and avoid an expensive mistake. This is especially important in a market like Texas where prices are advertised at specific usage levels: 500 kWh, 1000 kWh, & 2000 kWh. A provider might advertise a amazingly low average price at the 1000 kWh usage level, but, if you use 1001 kWh, the price you pay could more than double with a tiered rate plan.
Similar to tiered rate plans, more and more providers in markets like Connecticut are now offering electricity plans with annual usage caps. Buried in the fine print are the penalties for going over your usage cap. Knowing your annual usage level can help you calculate your effective price per kWh and see how these offers compare to your current rate or other more conventional fixed rate plans.
Another common type of usage based electricity plan is a flat fee electricity plan. Flat fee plans offer electricity at a flat fee per month up to a certain usage level and then a high $/kWh above that specified usage level. If your average monthly kWh usage falls within a certain range, flat fee plans may be a wise choice. If you get it wrong, however, you may over-pay significantly. Knowing your average monthly kWh usage pattern is very important for these types of plans.
Free Nights and Weekend electricity plans have also become very popular in Texas. These fall into the category of “Time of Use” or TOU plans. The advertised price of free time electricity plans assumes that approximately one-third of energy is consumed during the free time. Your electricity bill, however, will be based on your actual kWh usage with consideration for energy you use during the designated free time. These TOU plans require that you pay significant attention to your energy usage and the timing of that energy usage. Read Do Free Nights and Weekend Electricity Plans Really Save Money? for more details.
Also, knowing your seasonal usage can help you make smart decisions. For example, the TXU Season Pass electricity plan offers 50% off energy rates for summer (meter reading in June, July, and August) and winter (meter reading in December, January, and February) months. This offer excludes delivery rates. When considering plans like this, make note of the advertised energy rate that you’ll incur multiplied by your specific seasonal usage to determine if this is a good deal, or not, on an annual basis.
The rise of prepaid electricity and the use of smart meters also underscore the importance of knowing your usage. Prepaid electricity requires that your provider know exactly how much electricity you have used. Just like putting gas in your car, under a prepaid plan you need to replenish your electricity when your balance is low. Most providers who offer prepaid plans have apps so that you can check your usage and balance so that you can see when it’s time to replenish your account.
Finally, usage also comes into play when considering average billing. If your usage changes dramatically from hot to cold seasons and you are on a fixed income, average billing (also known as balanced billing) may be very helpful. However, if your usage is fairly flat and predictable, you can avoid the credit balance with an electricity provider that typically results from average billing.
How much electricity do you use?
To see how much electricity you have used previously, you can find it several ways:
- Your utility bill. This is probably the easiest since most utilities/providers now include a small graph showing historical usage. This chart may take several forms. Most northern utilities chart an average usage per day by month and may also overlay monthly temperatures. For example:
Another common form is a straightforward chart of your total historical usage by month:
For exact kWh usage levels, the best source is your prior utility bills. Be sure to note the highest and lowest usage month to determine your usage range.
- Your electricity supplier’s website or app. This varies by state, but almost all utilities or electricity providers (or both) now offer usage history in accordance to the Green Button initiative. This history is generally monthly, but some break it down to daily or weekly also. Monitoring your usage via an app is an especially important feature for prepaid customers. The Direct Energy Power To Go app is a good example:
- Smart Meter Texas. States are increasingly aggregating data into centralized sites for your use. A good example of this is the Smart Meter Texas site, that displays both your daily (in 15 minute increments) and monthly usage. You can also download your exact usage for use when you are shopping for a new electricity plan.
How much can my electricity usage vary?
Electricity usage varies significantly, and it depends on your specific residence, your habits, and factors outside of your control such as weather. As a general rule of thumb, apartment customers tend to use around 500 kWh, small homes are typically in the 1000-1500 kWh range, and larger homes can go from 2000 up to 6000 kWh or more per month. These usage levels can vary significantly depending on factors such as
- Number of residents/family size
- Geographic location
- Home energy efficiency such as insulation and efficient windows
- Energy efficiency of air conditioners, appliances and pool pumps
- Weather – unusually hot or cold seasons.
What if you don’t know your electricity usage?
For new construction, you will initially have to make your best guess. We strongly recommend a basic fixed rate plan without any tiered rates for this situation. Also keep in mind that new homes will tend to be more energy efficient than older homes due to more energy efficient air conditioning and newer appliances.
For existing homes or apartments, you can always ask the previous homeowner, landlord, or neighbors with similar square footage. The key is to ask what their kWh usage was, not how much they paid for electricity, since their price of electricity could be significantly different.
To get a general idea of electricity usage, rates and average bills by state, see EIA’s chart for residential electricity by state.
The Bottom Line On Electricity Usage
The next time you shop for electricity, spend a few minutes doing your homework to find your historical kWh usage. Simply knowing your maximum and minimum usage levels, in what months it occurs, and your current energy rate, will help you quickly find the best deal on an electricity plan. Knowing this information can also help you estimate your future energy bills, calculate your expected savings, and avoid expensive mistakes.