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One-Cent Electricity Rates? The Texas retail electricity market is mature and vibrant. Electricity providers are diversifying their offers to include time-of-use rates and value-added services that allow consumers to manage their energy bills. Recent offers posted on the state’s electricity shopping website, however, are tarnishing the market.
Texas requires electricity providers to show consumers a document called an Electricity Facts Label (EFL). The EFL is designed to help consumers make apples-to-apples comparisons between electricity plans. Because residential electricity usage varies significantly from apartments to mid-size homes to larger homes, the EFL must show the effective rates at 500, 1000, and 2000 kWh. This requirement has encouraged electricity providers to optimize their rates to look good at those specific usage levels. Until recently, this practice usually amounted to only moderate rate tweaking.
Some electricity providers, however, have developed questionable residential offers that abuse the fact that the state website defaults to the 1000 kWh effective rate. A search on the state website shows electricity rates around 1.2 cents/kWh in the Dallas-Fort Worth area. The electricity rates must include the estimated utility delivery charges. If the regulated delivery charge for most Texas utilities is around 3.5 to 4 cents/kWh, how can an electricity provider offer a rate lower than what it costs just to deliver electricity to the consumer’s meter?
The answer lies in designing the rate to look amazing at the 1000 kWh level while limiting the ability of consumers to receive that rate. These “slot rates” go to extreme levels to look appealing to consumers. The rates technically comply with the letter of the consumer protection rules but can easily confuse customers.
The graph below demonstrates how the slot rate works. This graph is based on an actual residential offer displayed on the state website on February 15, 2016.
The consumer does very well if they use between 1000 and 1500 kWh during the billing cycle. The rate increases significantly if their usage is between 1500 and 2000 kWh and again for usage in excess of 2000 kWh**.**
In this example, a customer who uses one kWh more than 1500 will see their electric bill increase from $58.97 to $109.06. That is a very expensive kWh! A customer who exceeds 2000 kWh by just one kWh will see their electricity bill jump from $156.37 to $196.47. That single kWh costs the consumer $40.10, not 1.2 cents.
At ElectricityMatch, we are often asked why consumers should use our shopping platform instead of the one operated by the state. The primary reason is that the state is required to display all offers that comply with the letter of the consumer protection rules. ElectricityMatch adds an additional level of review to eliminate rate plans that are misleading or would result in a poor customer experience. Happy shopping and watch out for offers that are clearly too good to be true.