5 Important Issues You Must Understand About Electricity Shopping
We all know the feeling. You see a great price for something you need, so you buy it. But when you use it, you feel like you’ve been duped by a promotion because, like most of us, you didn’t read the fine print. Luckily, you only lost a little money, and you learned a valuable lesson about the importance of doing your research before buying anything.
Unfortunately, recovery isn’t as simple if you sign up for a bad electricity plan because you found what you thought was a good rate. This means you could be stuck with that energy company and its bad rate for a long time – and for a lot of money, unless you’re willing to cancel early and pay a hefty early termination fee.
But not every Texas energy company shares what you should know about that excellent rate. We’ve assembled 5 fundamental facts every Texas electricity consumer needs to know as you shop for a new electricity plan.
#1 The type of plan: fixed-rate v. variable-rate
Case in point: that super-low rate you see might simply be an “introductory rate” for only the first bill on a variable-rate plan. That means the rate and your balance could spike on the next bill. You could then see fluctuations on every subsequent bill.
Luckily, most variable-rate plans don’t have long-term contracts or early termination fees, so you can switch to a new plan or new company without a fee. You can save stress and money by understanding the difference between a fixed-rate and variable-rate plan. The former locks in your rate for a specific period of time, while the latter can vary as often as each bill.
In other words, if your rate and bill jump between the first and second bills on that variable-rate plan, there’s a good chance you’ll get frustrated with the power company.
#2 What that rate really means
Things can get tricky if you lock in what appears to be a good fixed rate for several months (or a couple of years!).
The rate you see advertised represents the aggregate rate for the average person using 1,000 kWh exactly during a billing cycle. That rate also encompasses any and all fees and taxes assessed by the utility company for your area.
Confused? Then it’s time to learn how to read the Electricity Facts Label (EFL).
An EFL could be considered the information label for any electricity plan, as it explains the ins, outs, and nuances of the exact plan you’re selecting. Every plan created by every Texas Retail Electricity Provider (REP) must have an EFL. The Public Utility Commission of Texas (PUCT) ensures consistent formatting to help customers recognize what’s important.
Every EFL contains the following information, which is crucial to understanding what you’ll be charged.
- Average Monthly Use – Three usage levels used to calculate the rate based on how much electricity people use in a billing cycle
- Average Price per kWh – An estimate of the rate you’ll pay at a particular usage level
- Energy Charge – The actual fixed rate you’ll pay per kWh of usage to the energy company (also known as your REP)
- Base Charge – A flat amount you’re charged on each bill, no matter your usage
- Utility Delivery Charges – The rate you’ll pay per month and per kWh of usage to the utility company (not your REP)
Still confused? We don’t blame you. We recommend paying attention to the last three items in that list to better estimate your bill. For example, if you used 1,500 kWh during your last billing cycle, the math would look like this:
A: 1,500 kWh x Energy Charge per kWh
B: Base Charge
C: (1,500 kWh x Utility Delivery Charge per kWh) + Utility Flat Monthly Fee
A + B + C = Your bill
It gets more complicated for plans that have multiple energy charges based on usage levels, or overage charges. While your average energy company provides you this information (because they’re legally required to), they aren’t necessarily explaining it to you.
#3 The breakdown of fees, taxes, and charges
We discussed this earlier, but it bears repeating – most electricity companies don’t share the fees with their customers with any sort of transparency. That’s why you need to figure out whether a company charges for items like:
- Customer service fees
- Minimum usage fees
- Utility company fees
- Local taxes
- State taxes
To be clear, you’ll always see some of those fees, no matter which company you choose. For instance, you’ll always pay utility company delivery charges and taxes. But you must understand how those fees will appear on your bill before signing up.
#4 The perils of switching early
What happens if you sign up for a plan you don’t like and customer service that isn’t helpful at all? If you’re on a variable-rate plan, you can just switch without a penalty. But if you’re on a fixed-rate plan in Texas, switching early usually comes with an actual financial cost, and it appears in three forms.
- Early Termination Fee (ETF) – the fee for terminating your contract early
- Cancellation Fee – another name for the ETF, but also used if you end a specific sub-service too early
- Device Reclamation Fee – the fee charged if you received a smart thermostat or similar device with your plan
Depending upon how much time you have left on your current contract and the ETF for your plan (which can vary by contract term), it could be worth breaking your contract if you find a good rate at a new company. But if not, you’ll have to stay until your contract ends. You’ll have to make that decision if the time comes. That said, the new company and plan might be a better fit, even if you have to pay a large fee to leave.
#5 How promotions impact the rate
There’s a simple reason many Texas electricity companies offer promotions as a way to encourage people to sign up for a plan: They work.
People like promotions because they make the electricity process feel less like a transaction. But they often come with a cost in the form of a higher electricity rate and deeper obligation to the energy company than just paying your bill each month.
For example, let’s examine an electricity plan offering a smart thermostat. This plan often charges more per kWh than a standard plan, and you must remain a customer for a specific period of time (often two years). Also, if you switch companies too early, you’ll get hit with a “Device Reclamation Fee” on your last bill to pay for that thermostat.
You can apply that concept to many plans offering a promotion beyond a basic gift card. You must investigate the terms, conditions, and details of any promotion – or you might pay more than you thought.
Our goal in sharing these 5 “watch-out-fors” isn’t to make you nervous. We just want to help you recognize what’s most important so you can choose the right electricity plan and the best Texas energy company for you. Since you need electricity in your home, you should understand what’s happening before you get stuck with a plan and company you don’t like.
It’s also why we created Power Wizard. Since most people aren’t experts in the Texas energy industry (nor want to be!), we developed our subscription service to help customers just like you. Our platform analyzes your usage and needs, searches thousands of electricity plans to find the best possible one that fits your needs.
Power Wizard will:
- Locate the right plan that can save you the most money
- Handle the entire process of switching to a new company
- Checks your bills to ensure you save money each month
A firm believer in transparency, Power Wizard even monitors your contract to ensure you get the best possible deal when it’s up for renewal. This helps you avoid default rates, out-of-contract fees, and inflated renewal rates. We’re so proud of this service that there’s even a satisfaction guarantee to save you money, time, and hassle!
Check out our Savings Calculator today to learn how much you could save with Power Wizard!