Shopping for low electricity rates can be confusing. This is especially true in Texas where the Electricity Facts Label is required to disclose average electricity prices at three monthly consumption levels: 500, 1000, and 2000 kWh. Consumers in smaller homes or those who live alone often find this perplexing. Their usage may vary significantly between the cooling and heating seasons. Which electric rate plan works best for their particular needs? ElectricityMatch.com frequently receives inquiries on this topic and is glad to provide guidance on choosing an electricity plan for smaller homes.
Types of Electricity Rate Plans
While every electricity provider has their own unique approach, most plans fall into one of three broad categories. The first, straight-line pricing, is the simplest. With straight-line pricing, the plan includes a recurring monthly charge plus a fixed rate for all electricity consumed. One variation of this rate involves waiving the monthly charge if you exceed a minimum usage amount for any given billing period.
The second general category is slot pricing. With slot pricing, you receive a financial incentive if your monthly usage falls within a specified range. The financial incentive acts as a credit to reduce your electricity bill and, therefore, lower your average price. While there is nothing particularly bad about this approach, it has been the subject of abuse by some electricity providers. Knowing your electricity usage history is essential for evaluating these types of offers.
The third broad category of fixed rate electricity rates is tiered pricing. With tiered pricing, your electricity rate varies for different usage bandwidths. For example, you might pay one rate for usage up to 1000 kWh, another rate for usage from 1000 to 2000 kWh, and yet another rate for any usage in excess of 2000 kWh. For many of us, tiered rate plans can be the most challenging to compare.
Choosing the Best Electric Plan
Which type of electric rate plan works best for you? In the case of choosing a home electric plan, the biggest factor to consider is your monthly electricity usage and how it varies throughout the year.
For smaller homes and households with fewer people, it can be a challenge to cut through the marketing hype and complexity to find what works best. After analyzing the various rate categories described above, straight-line pricing plans are usually the best choice for smaller homes. For the consumers we assisted, their monthly usage averaged about 700 kWh. They typically only exceeded 1000 kWh two or three months per year. Fall and spring usage was closer to 400 kWh.
We found that these customers did not benefit significantly from slot pricing because their usage rarely fell within the range where they received a financial incentive. Additionally, tiered pricing plans typically benefit larger users. Smaller homes do not use enough electricity on a consistent basis to reap the benefits of most tiered pricing pans.
When it comes to smaller homes, simple rate plans tend to be a better choice. Examples of these plans include the Direct Energy “Live Brighter” and the First Choice Power “You Got This!” 12-month plans. These plans have a low recurring monthly charge coupled with a low electricity rate. The “Truly Fixed Price” 12-month plan from Amigo Energy waives the recurring monthly charge if your usage exceeds 1000 kWh. This might work well for smaller homes with electric heat where consumers exceed the usage threshold more often.
Your energy usage history is the most important tool you have when it comes to finding the best electricity plan for your home. If your usage is typically less than 1000 kWh, consider a simple straight-line pricing plan to keep your monthly bills low.
Thanks for pointing out that generally straight-line pricing plans are best for smaller homes. I’m going to be getting married pretty soon and we’re going to move into a new home. It’s good to know some good tips to use in choosing an electricity supplier.
I find the analysis of this topic interesting, I think it gives a lot to think about choosing a correct electricity supplier.
My husband and I are moving to a smaller home, and we are in need of deciding what we would like our electricity rate to be. It’s good to know that one option is slot pricing, which will help us receive a financial incentive. It will be nice for us to have some credit to help maybe even reduce the electricity bill.