You read the electricity providers’ information and picked what you thought was the best electricity plan available in your state. You even compared electricity rates offered and chose the cheapest plan.
Now you’ve received your first electric bill, and the power costs are much higher than you expected. What’s going on? Why doesn’t the electricity rate on your bill match what you signed up for? Why is your electric bill higher than you expected?
When it comes to choosing the right electricity plan, it really does pay to spend time reading the fine print. To get an accurate apples to apples comparison, the details buried deep in each plan’s rate documents are the ones that determine how much you’ll actually pay at the end of each month.
Live in Texas? See How To Read An Electricity Facts Label (EFL) for more information.
Unfortunately, many electricity customers pay more than expected on their electric bills and don’t realize it. Let’s break down the most common reasons for unexpectedly high electric bills.
1. Misunderstanding Electricity Rates
Most deregulated states such as Ohio and Connecticut have a fairly straightforward electricity rate structure. In states like these, the quoted electric rate multiplied by your usage equals how much you pay for the energy generation portion of your electricity. The delivery of electricity to your home is not included in the quoted rate and is billed directly by your local utility. However, Texas is unique. The Public Utility Commission of Texas requires electricity providers to show ‘all-in’ rates which include both energy and delivery at three standard usage levels: 500 kWh, 1000 kWh, and 2000 kWh.
See Why Does Texas Have Three Electricity Rates? for more.
Unfortunately, Texans often confuse these three electricity rates as ranges or unit prices for a kWh. They’re not. These three rates are actually just examples of prices along a particular electricity plan’s price curve. Some electricity providers take full advantage of this misunderstanding and offer things like bill credits, tiered usage rates, and other pricing strategies to bring down their rates at one or more of these three usage levels. In reality, the rate you pay for your actual electricity usage will most likely be different than the quoted rates unless you use exactly 500, 1000, or 2000 kWh’s in a given billing cycle.
The best way to accurately estimate your price per kWh and compare offers is to use a comparison site such as ElectricityPlans.com and use the Plan Details page to calculate your monthly electric bill. This calculation is based on your typical energy usage and the plan’s pricing details outlined in the EFL. You can plug in your actual usage (we recommend knowing both your highest and lowest kWh usage) and quickly estimate your electric bill including energy, delivery fees, and other base or minimum use charges.
2. Delivery Fees
Speaking of delivery fees, many electricity shoppers compare rates and fail to also consider delivery fees when calculating their ‘all-in’ electric bill. The delivery fees are for your local utility’s transmission (aka poles and wires) to your location. This includes all utility infrastructure as well as repair work to substations, light poles, wiring, transformers, and other utility assets.
Regardless of where you live, all electric bills have both an energy generation component and a delivery component. The delivery fee portion of your electric bill is still regulated by the state’s utility commission and it is generally the same for everyone in your utility delivery area.
While you cannot comparison shop for utility delivery charges, you definitely need to consider them in your bill estimation exercise since these charges vary based on your usage. Factoring in delivery charges is a common oversight and can account for half or more of your electric bill.
3. Your Contract Expired And You Are Month-to-Month
In deregulated states, if you sign up for a fixed-rate, fixed-term electricity plan you are committed to a specific number of months with that supplier. Sometime near the end of your initial contract term, your electricity supplier will send you a new offer that you must affirmatively accept. In Texas, if you are within 14 days of contract expiration, you also have the option to select another electricity plan with another provider without incurring any penalties. However, if you let your electricity contract expire without accepting the new offer or selecting another electricity provider, your provider will move you to a variable rate month-to-month plan by default.
This can be very costly!
When a provider moves you to a month-to-month default electricity plan, your rate may go up anywhere from 20-50%. This is obviously a huge swing in your electric bill, especially if this occurs in summer (high usage) months.
Why are month-to-month rates higher? It has to do with your electricity provider’s cost of acquiring electricity. Since you are month-to-month without a long-term contract, your electricity provider must purchase short-term electricity for you and that is generally more expensive.
4. Your Plan Has A Tiered Rate
Tiered rate plans take two forms: rates tiered by month and rates tiered by usage levels.
Plans that are tiered by month have promotional rates that are only good for the first few months of your contract. For example, a plan may offer a really good rate for the first 6 months and another so-so rate for the remaining term of your contract. When the latter rate kicks in is when sticker shock usually occurs. The timing on these types of plans is important. The rate increase alone in the latter months of your contract can lead to unexpectedly high electricity bills. If the portion of your contract with the higher rate happens to coincide with higher usage months, then you’ll definitely encounter an even higher electric bill. Reading the fine print on these types of plans and evaluating the total cost of the plan over the life of your contract is important.
The second type of tiered usage plan is by usage level. An example is when a plan offers a rate of, say, $.05/kWh for usage between 800-1200 kWh and $.08/kWh for usage above 1200 kWh. Often, electricity providers will tier their rates to appear exceptionally low to coincide with the 3 standard advertised usage levels in Texas. Since customers naturally go for the cheapest electricity rate, they sign up for these types of plans without knowing that their rate will go up significantly if they go over a certain usage level.
Read How To Sniff Out A Teaser Rate In Texas for more.
5. Prepaid Electricity Fees
In Texas, prepaid electricity plans are gaining in popularity since they are “no deposit” and do not require a credit check. Providers offering prepaid plans advertise getting power turned on for as little as $35. Prepaid plans allow customers to put money in an account with the electricity provider, and, as the customer uses electricity, money is taken from the account at a given rate per kWh used. Most prepaid plans are variable rate plans meaning that the rate changes monthly. The initial advertised rate is likely the lowest rate you’ll ever pay with that provider.
In addition to variable electric rates, prepaid plans tend to come with additional fees. Every provider is different with respect to the fees that they charge, so it’s really important to know what to expect. Read your prepaid provider’s Prepaid Disclosure Statement to get the full scoop on fees. Otherwise, you might think you have, say, $50 in your account but you actually have a much smaller amount.
These are some types of prepaid account fees to be aware of:
- Higher kWh rates if your account balance falls below a certain amount
- Payment Transaction Fee (fees for adding money to your account)
- Disconnection and Re-connection Fees
- Customer Service Call Fee
- Returned Payment Fee
- Account Updates Resend Fee
- Payment Processing Fee with a Customer Care Agent
- Micropayment Convenience Fee (for payments less than a certain amount)
6. Minimum Use Fees & Bill Credits
Minimum use fees kick in when a customer doesn’t use a minimum amount of electricity in a billing cycle. One problem with minimum use fees is that customer’s feel like they’re penalized for using less electricity. Another problem with minimum use fees is that customer’s feel like they’ve been baited and switched. Provider’s advertise what appears to be a great electricity rate, but the rate is only for customers that use, for example, 1000 kWh of power or more. If you were to only use 800 kWh in a given month, your electric bill will be higher than you expect because of a minimum use fee for usage less than 1000 kWh.
Electricity providers in Texas use bill credits to make rates appear cheaper at a particular advertised usage level. Bill credits essentially make advertised rates appear too good to be true. For example, a well-placed bill credit at 2000 kWh can have customers believe they’re getting a rate way below market. If your electricity usage is consistently 2000 kWh each month or slightly more, then this type of bill credit may work great for you. Otherwise, you may not receive the bill credit at all if your usage is too low. On the flip side, if your usage is super high, the bill credit gets diluted and has very little benefit.
At ElectricityPlans.com, all minimum use fees and bill credits are clearly outlined in the pricing details for each plan. We read the fine print for you so you can easily estimate your bill based on your typical usage. No more minimum use fee or bill credit surprises.