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Electricity Pricing Plans

A Different Take on Electricity Pricing

When shopping for home electricity rates, you will find a variety of plans from which to choose. These plans may include smart thermostats to help you manage your energy consumption.  There are plans coupled with home warranties and HVAC maintenance programs.  In some states, you will also see innovative time-of-use plans that reward you for shifting usage to off-peak periods.  For many of us, however, it comes down to selecting a standard plan with the lowest rate.

Most electricity plans are simple. Your energy charge is determined by multiplying your usage by the rate.  The monthly bill may also include fixed charges, taxes, or other standard fees.  However, the energy charge typically drives the bill.  Some electricity providers are experimenting with different ways to market their plans.  One idea involves how our mindset changes from shopping mode to user mode.  We are rate focused when shopping.  After we enroll in a plan, we become more concerned with the amount of the monthly bill.

Innovative Texas Electricity Plans

4Change Energy, an electricity provider in Texas, recently launched a new product that targets the monthly bill mindset. 4Change Energy typically utilizes tiered structures.  Under a tiered structure, you pay one rate for a certain amount of usage, another rate for the next amount of usage, and so on.  The average rate depends on which tiers you reach and how much energy you use in each tier.  The only downside is that you have to do a little math to compare this type of plan to a standard “one-price-for-all usage” plan.  With their new Budget Saver 12 plan, 4Change Energy has transferred their tiered pricing approach to a monthly bill focus.

Under this new plan, you pay a fixed dollar amount for all usage up to 1000 kWh. If you use more than 1000 kWh, you pay another fixed dollar amount for all usage up to 2000 kWh.  Any usage beyond 2000 kWh is charged at a fixed rate per kWh.  It might help to think of it in terms of cell phone data plans.  You pay for a block of data.  If you use it up, you buy another block of data.  Beyond that second block, you pay by the byte.  The only difference is that you are buying kWh of electricity instead of bytes of data.

The graphs below show how the rate works from both an average price and monthly bill perspective.

New Electricity Pricing

Electric Rate Offers

The average price view of this rate plan is a little complicated. It is difficult to compare to traditional fixed rate pricing plans.  The monthly bill view, however, is simple and easy to understand.

Choosing an Electricity Plan

Is this type of rate right for you? If you value having a predictable bill, then this might be a good option.  In the example above, if you use less than 1000 kWh per month, you can count on your electric bill being $67. That might appeal to customers on fixed incomes.  Using just one more kWh beyond 1000, however, will double your bill.  Interestingly, using just one more kWh beyond 2000 does not have the same impact.

When considering any electric plan, it helps to know your usage history. Most of us would have no idea if this plan were right for us without seeing how our usage fits the tiers.  Continuing the cell phone analogies, you might wonder about rollover kWhs.  There are challenges with doing this (e.g., seasonal price differences) but some creativity on how to handle under usage might make this pricing approach popular.  In the meantime, it will be interesting to see if this plan from 4Change Energy starts a trend to focus more on the monthly bill than the rate.

4 Comments on “A Different Take on Electricity Pricing”

  1. I was looking into electricity rates from different providers, and after reading I think I’ll go with the choice that offer’s an agreeable monthly charge. I’ll make sure that I know how much I will be charged monthly, and how much energy I can use. This way I can keep under my energy limits to keep my monthly rate the same.

    1. I choose Payless less power that sends me a message of my daily usage and just pay by the day. I like that cause if I pay double the next day then I think back what activity did we do to get a higher usage of kw.

  2. I have been noticing that our monthly power bill is going up, and wanted to see if there was a cheaper way to get it. I really like the sound of the predictable bill. That way, we can plan out and use power only when we need it.

  3. My wife and I have wondered about changing electricity suppliers for a while now, and I think that being able to have the predictable bill like you talked about would be helpful. We’re pretty big on money planning when it comes to bills and things like that, and I think that being able to have a predictable bill from our electricity suppliers could be something really helpful. I’m going to have to talk to my wife about looking for electricity suppliers that offer a plan like this and see what she thinks! Thanks for the info!

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