When Texas deregulated its electricity market in 2002, the Texas Public Utility Commission set out to protect consumers by establishing rules that standardized bills. But while these rules required retail energy providers to put term and conditions in “plain language,” it’s easy for Texas electricity consumers to get confused. With the Texas Electricity Terms series, we will examine common features of the Texas electricity market and clear up areas where plain language can sometimes seem a little misleading. We will also highlight key places where consumers need to pay closer attention.
The Electricity Facts Label
In short, the EFL is the document that describes an energy plan. Think of it as the nutrition label on a grocery store item. Some Texas Retail Electric Providers (REP’s) let you examine the EFL for each and every play on their website so you can compare plans directly. Texas law requires that all plans for your area are available for viewing at the Power To Choose website.
The EFL will state:
- Whether it is a variable-plan, fixed-rate, month-to-month rate, or an indexed-rate plan
- 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 cents per kilowatt-hour (kWh) for using 1,000 kWh in a month or 10 cents per kWH if you use 2,000 kWh in a month.
- If there is a cancellation fee and if so, how much itis
- Whether or not the rate can change during the contract period (an escape clause in the event the Texas Public Utility Commission) changes rates.
- Whether there are any additional surcharges.
Texas law is very precise and specifically defines the kinds of plans retailers can sell.
- The law even requires that EFL’s “be printed in paragraphs of no more than 250 words in a font no smaller than 10 point.”
- EFL’s must be provided free of charge to customers when they enroll for a plan.
- Each time a REP changes the rate for a given plan, a new EFL is generated for that plan.
If you ever have a question or concern about your energy plan, the first thing to examine is your EFL.
Texas only permits three kinds of rate plans: Variable (Month-to-Month), Fixed, and Indexed. Depending on your circumstance and your needs, each ones offers benefits and drawbacks.
Variable-Rate Residential Plan (also known as Month-to-Month)
This rate for this plan type typically lasts 31 days or less. It lets customers sign up for electricity without making a long-term commitment. Customers also benefit when electricity rates fall, especially during fall and spring when electricity demand in Texas falls. However, the variable nature can be a drawback when Texas energy prices surge, such as in the summer and winter.
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 choose 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.
This plan type has a specific term length at least three months long. During this time, the rate you pay for your energy charge can’t go up or down throughout the contract term. If you sign up for 9 cents per kWh for one year, then you will pay that rate for that entire contract term, no matter if the price of electricity goes up or down. Fixed-rate plans benefit you by insulating you from rising prices, but they can seem rigid when prices drop.
When you choose this plan, the price of electricity is based upon the closing price of a particular commodity. Indexed plans once used natural gas as a basis for pricing because commodity price directly affected whether Texas electricity prices increased or not. However, since natural gas prices have collapsed in the past three years, indexed plans have fallen out of profitable use. Indexed plans can be for three months or more, or month-to-month.
Promotional Rate Plan
A subset of the variable-rate plan, this option can be tricky. Usually, folks sign up for it as soon as they see the (typically) ridiculously low price. However, on the EFL, there’s usually a passage that reads something like:
This promotional rate only applies to your first full monthly billing cycle. After your first full monthly billing cycle, the price per kWh you will pay will be set at a competitive market rate.
This means after the first month, the rate will increase and plan will turn into a variable-rate, month-to-month plan. The drawback for these kind of teaser rates is they aren’t always your best long-term choice. However, you can benefit from them if you need a little extra time to pick a fixed-rate plan from the same provider.
Stay tuned for the next installment of the Texas Electricity Terms series: “What are those TDU Fees?”