May has arrived in Texas, so it’s time for music, weddings, Cinco de Mayo, and the first waves of summertime heat and humidity. In a state where the daily summer temperature hovers between “well-done” and “nuclear,” you know how hard it is to cool your home while not overheating your electricity bills. Don’t sweat it – our Summer Prep Series will show you how to get your home ready for summer, save energy, and keep your cool.
How to Shop for Electricity in Texas
In this first installment, we’re going to review one of the most important (but often most misunderstood) things about life in Texas: shopping for Electricity. Believe it or not, shopping for the best deal for electric plans does not always come with a cheap electricity price. Savvy energy consumers read about and compare several plans before making a decision. Plus, understanding how retail electricity works in Texas can help you save energy and money down the road.
Who Does What?
The Public Utility Commission of Texas (PUCT) regulates both the retail and wholesale electrical markets in Texas. The PUCT sets rates for transmission and distribution and develops rules to keep the system safe and fair. In particular, the PUCT established rules that standardized billing, including the Energy Facts Label (EFL), to protect consumers. The PUCT also regulates ERCOT.
The Electric Reliability Council of Texas (ERCOT) runs the bulk of the Texas grid and oversees the electricity market. The ERCOT region covers approximately 85 percent of the state’s electricity load for roughly 22 million Texans. ERCOT coordinates electricity transmissions from generator to customers on the bulk power network with Transmission and Distribution Service Providers (TDSPs) so all consumer demand can be met safely — even during periods of ultra-high demand in the summer.
The Transmission and Distribution Service Providers (TDSPs) are, for the most part, the old utility companies. These investor-owned utilities (sometimes called IOUs) are responsible for transmitting and distributing electricity as well as maintaining the “poles and wires” that bring electricity to your home. You pay for this service through the transmission and distribution utility (TDU) charges on your monthly bill.
The TDSP companies serving the ERCOT areas of Texas are:
- American Electric Power (AEP)
- Centerpoint Energy
- Texas-New Mexico Power Company (TNMP)
Retail Energy Providers (REPs) sell electricity and related services to retail customers in the deregulated ERCOT area. REPs buy electricity on the ERCOT competitive wholesale market and pay for the transmission and distribution to get that energy to their customers. The TDU rate is set by the PUCT for each TDSP’s area, so all electricity customers in a TDSP service area pay the same TDU rate. Since REPs must compete with each other, they must be able to find lower priced electricity and incentives to attract and keep customers.
By choosing the right REP and the right plan can save you money on cooling your home.
Let’s Go Shopping
Shopping for a better electricity plan starts at Powertochoose.org, the PUCT’s official retail electricity website. Enter your zip code and all the offers for your area are displayed.
You can sort plans by name, details, price/kWh, and other pricing details. You can also modify your results to display plans according to TDU area, estimated usage, price/kWh range, contract length, minimum fees, plan type, prepaid plans, time of use plans, company score, percentage of renewable fuels, or just according to specific company’s plans.
Texas law is very precise and specifically defines the kinds of plans retailers can sell. Only three kinds of residential rate plans can be sold in Texas: Variable (Month-to-Month), Fixed, and Indexed. Depending on your circumstance and your needs, each one offers benefits and drawbacks.
A variable-rate plan (month-to-month) lasts 31 days or less. These plans let customers sign up for electricity without making a long term commitment. They also benefit when electricity rates fall when electricity demand in Texas falls. However, there can be a drawback when Texas energy prices surge, such as in the summer. By law, variable rate plan prices “can increase no more than a defined percentage as indexed to the customer’s previous billing month’s price.”
So, if you have a variable plan, there should be a statement showing the maximum increase allowable from the previous month’s rate. Pay attention with variable rate plans because while the maximum increase sounds like some protection, month after month of rate increases DO add up.
Usually, customers sign up for a Promotional Rate Plan as soon as they see the big graphics and ridiculous low price. However, the low promotional rate may only apply to your first monthly billing cycle. After your first monthly billing cycle, your price per kWh will rise to the competitive market rate (variable month-to-month plan). While teaser rates like this aren’t always your best long term choice, you can benefit from them in the short term if you need a little extra time to pick a fixed rate plan from the same provider.
A fixed-rate plan has a contract term length for at least three months. During this time, the rate for your electricity can’t go up or down. If you sign up for 9¢/kWh for one year, then you will pay 9¢/kWh for 12 months, no matter if the price of electricity goes up or down. Fixed rate plans benefit you by insulating you from rising prices but they are a drawback when prices drop.
Indexed plans once used natural gas as a basis for pricing because the natural gas commodity price directly affected Texas electricity prices. However, natural gas prices have collapsed in the past three years and indexed plans have fallen out of profitable use. Indexed plans can be for three months or more, or month-to-month.
What Exactly is the Electricity Facts Label (EFL)?
This is the document that describes an energy plan, sort of like that nutrition label on a grocery store item. Some REPs let you read the EFLs online at their website so you can compare plans directly.
Texas law requires that all plans for your area are available for viewing at at Powertochoose.org. For example, Texas law requires EFLs “be printed in paragraphs of no more than 250 words in a font no smaller than 10 point.” EFLs must be provided free of charge to customers when they enroll for a plan.
The EFL will state:
- Whether the rate is variable, fixed, month-to-month, or indexed.
- The length of term or duration of the plan.
- Whether the plan has an introductory rate and what happens to that rate at the end of the introductory period.
- The rate per kilowatt hour (kWh) and if that rate depends on a usage rate. For example, whether you pay 11¢/kWh for using 1,000 kWh/month or ¢10/kWh if you use 2,000 kWh/month.
- If there is a cancellation fee and, if so, how much it costs.
- Whether or not the rate can change during the contract period. This is an escape clause in the event the Texas PUC changes rates.
- Whether there are any additional surcharges.
What Else Should I Know?
The Terms of Service contains the contract terms with an REP. They spell out dates, payment deadlines, deposits, monthly fees, and penalties for late payments and re-connections. While some plans seem to be good deals, their terms of service can contain numerous fees for paying your bill by telephone, check, cash, or online. That’s why it’s important to compare plan EFLs and terms of service before you sign up with a provider.
Compare incentive offers. This includes promotions for referring your friends, rewards programs, smartphone apps, and more. See which company not only gives you the most to become their customer, but also goes the extra mile to keep you as one of their valued customers.
How financially stable is the company? How long have they been in the Texas market? How do they rate?
You are probably going to spend several hundred dollars a year on electricity, most of it during the summer. We recommend you take the time to gather information and ask questions before you sign any agreement. After all, it’s your hard-earned money.
Stay tuned for Summer Prep Series Part 2 —Why You Should Lock in a Fixed-Rate Plan Now!