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Understanding Residential Fixed Rate Charges

Understanding residential fixed rate charges before shopping for a new plan.  Texans shopping for residential electricity rates can select from a variety of competitive plans. With so many offers available, how do consumers compare electricity offers? The answer lies in the Electricity Facts Label.

The Electricity Facts Label (EFL) is a standardized document that must be presented to a customer before they enroll in an electric plan. The Public Utility Commission of Texas designed the document to help customers make side-by-side comparisons of electricity plans. The EFL strips away the marketing messages and shows energy shoppers the important aspects of an electricity plan. One of the most important sections of the EFL is the presentation of average price rather than just the energy rate.

For residential customers, the EFL must show the average price at 500, 1000, and 2000 kWh usage levels. The reason this is important is because residential electricity plans in Texas must include utility delivery charges and these charges have fixed rate components. In addition, the electricity provider might also include fixed charges in their plan. The requirement to show average price at these different usage levels shows consumers what they should expect on their electricity bill.

Electricity Delivery Costs

First, utility delivery charges for Texas residential customers include both fixed and variable components. The variable charges are tied to electricity usage while the fixed charges apply regardless of how much electricity is used. Even a customer who uses no electricity in a given month will assessed the fixed charges. These typically include items like customer charges, metering charges, and the cost recovery for smart meters. In other words, fixed delivery charges are tied to the process of measuring, reporting, and processing customer usage information. The electric delivery utility incurs these charges regardless of how much electricity the customer uses.

As of July 2015, fixed utility charges ranged from $5.25 per month for the Oncor service territory to $10.53 per month in AEP Texas North. These charges are approved by the Public Utility Commission of Texas and are subject to periodic review and change.

Electricity Provider Costs

The second source of residential fixed rate charges is the electricity provider. Customer service and billing are typically the two largest non-energy costs. Electricity companies vary widely in how they recover these costs. Some build it into the rate while others apply a fixed charge if the customer’s usage is below a specified amount for a billing period. This must be clearly spelled out in the EFL.

Reporting average prices at specific usage levels discourages electricity companies from luring customers with artificially low rates. For example, Provider A has a rate of 7 cents/kWh with a fixed charge of $15. Provider B has a rate of 8 cents/kWh with a fixed charge of $10 if the customer uses less than 1000 kWh in any given billing period. Provider C has a rate of 9 cents/kWh with no fixed charge. Which is the best offer for a given a customer? The answer depends on the customer’s electricity usage.

Average Price (cents/kWh)
500 kWh 1000 kWh 2000 kWh
Provider A 10 8.5 7.8
Provider B 10 8 8
Provider C 9 9 9

As shown in the table above, each provider has the lowest average price in one of the three usage levels. The only way for a customer to choose the plan that is best for them is to know their usage level before they shop for electricity rates.

Thanks to the EFL, finding the best electricity rate does not have to be a difficult or confusing process. As long as the customer has a good idea of which standard usage level (500, 1000, or 2000 kWh) best represents their home, they can easily shop for and find the best electricity plan.

1 Comment on “Understanding Residential Fixed Rate Charges”

  1. This is some really good information about fixed rate for electrics. It does seem like a good thing to be aware of when you want to keep your bills down. After all, it does seem like a good thing to be aware of when you want to save money.

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