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Texas Prepaid Electric Service Gets Jolted

Innovation is one of the promised benefits of electricity deregulation. In addition to shopping for cheap electricity rates, consumers should have the power to choose new products and services.  Most of the innovations we see involve bundled home energy services and rooftop solar energy.  However, one company recently launched a Texas prepaid electricity plan with a unique pricing approach. As with any new type of service plan, it is important to consider all aspects before making a decision.

No Markup Electricity

The premise is that you pay the real-time power grid price with no markup. This appeals to our desire to cut out the middleman and buy direct from the factory, so to speak. In addition to the grid price and utility delivery and metering charges, you pay a flat monthly membership fee.  This is a prepaid electricity plan so there are no contracts or cancellation penalties. The basic concept is simple but there are risks that all but ignored in this new plan’s marketing shtick.

Electricity Price Risk

Buying direct sounds great for carpet, furniture, and other big-ticket home goods. Why is this not necessarily a good idea for electricity?  The answer lies in the volatility of real-time electricity pricing.  Real-time prices usually vary within a reasonable range.  However, there can be significant electricity price spikes that occur without warning.  Think of it as a gentle roller coaster with occasional periods of sheer terror.

It would seem that if this were a foolproof way to lower to lower your electricity bill, large commercial and industrial customers would have flocked to it a long time ago. In fact, many did and some still do.  The problem they discovered is that the price spikes can be brutal and wipe out any savings.  Those business customers remaining on this type of pricing typically use two approaches to manage their risk.  First, there are those businesses that can quickly and drastically reduce their electricity usage during price spikes.  Second, some commercial and industrial customers incorporate real-time electricity prices with fixed prices as part of a blended strategy.

Our Recommendation

This pricing plan is a tough call. Texas prepaid electricity plans are typically marketed to customers that have credit challenges.  This real-time pricing plan targets a much broader audience.  The electricity provider touts that this plan has no bill shock.  This is true because you pay as you go and receive constant updates through an app.  The provider also claims that this plan encourages higher renewable energy usage. Their logic is that you will be motivated to use electricity during lower priced periods which occur when the grid has a higher percentage of renewable energy.  This is an oversimplification of how power grid pricing works.  At best, it is a very thin supporting argument.

What it comes down to is your risk tolerance. This plan might be a good deal for you.  You will not know until you have been on it for some time and see if your average rate comes out better than a fixed price electricity plan.  Time will tell if this plan catches on with the more innovative but established electricity companies.  If you are shopping for prepaid electricity, it might be worth trying.  If your credit allows you to enroll in a traditional fixed price electricity plan, that remains our recommendation.

About: Suzanne Hewitt

Suzanne Hewitt has extensive experience in the energy industry ranging from oil and gas exploration to coal mining. After raising 2 daughters and managing the family finances for over 26 years, she knows the importance of being energy wise at home. Suzanne has a BS in Geological Sciences from UT Austin (Hook 'em) and a MS in Oceanography from Texas A&M University (Whoop!).

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