Buyer Beware: Electricity Sticker Prices
Not all electricity product offers are created equal. Smart shoppers have learned to watch out for hidden charges and tricks that make a product offer look cheap while you are shopping, but deliver higher prices once they are on your electric bill.
This article uncovers some of the most common dangers and how to spot them.
STICKER PRICE VS OUT-THE-DOOR PRICE
Car dealerships are notorious for drawing a buyer in with an appealing, but deceptive, sticker price. It’s usually just after buyers have reached their personal point-of-no-return that they are enlightened to the “out-the-door” price, which is inevitably much higher than the price that originally brought them in.
Unfortunately, a similar phenomenon has developed with electricity offers. As with any product, there are many ways to advertise an electricity product. You could advertise its features, such as free thermostats or gift cards. You could advertise its cash back rewards or its “free power hours”. The list goes on. In an effort to simplify product comparison for shoppers, the Public Utility Commission of Texas (PUCT), which governs the Texas retail electric market, outlined three price points that must be provided for every electricity product offered in Texas.
These price points are the average price per kWh at three usage levels: 500 kWh, 1000 kWh, and 2000 kWh. The PUCT’s intent with this requirement was to cut through the clutter of features and provide consumers with some easy reference points for an apples-to-apples comparison. Each price point was roughly correlated to a different size home, with a 500kWh price point intended to represent an apartment, the 1000 kWh price point representing a small home, and a 2000 kWh price point representing larger homes.
Example of kWH at Three Usage Levels
Because every electricity product is required to show these three price points, there’s a natural incentive to make those price points look as attractive as possible.
Enter gimmicky plans.
WHAT IS A GIMMICKY PLAN?
We use gimmicky to denote any plan that doesn’t tell you the full story when looking at the average price per kWh. The two most common features of gimmicky plans are tiered rate structures and usage credits.
Tiered rate structures include a variety of prices that turn on and off at various levels of monthly usage. The tiers are engineered to present a low price to shoppers while generating higher effective prices as customers’ usage fluctuate up and down each month.
Example of Energy Charge Per kWh - Chart
Usage credits have the same purpose, but with different mechanics. Usage credit plans provide a bill credit for months when usage exceeds a particular amount (or worse only when usage falls within a specified range). Naturally, the retailers typically present the price for these plans assuming the usage credit is earned, and may even promote the plans to customers that will consistently hit the threshold earning the credits. The unspoken pain of the usage credit plans is that they are designed to overcharge for every kWh except for the one that earns the usage credit. Customers that will hit the usage credit every month will also have many months that greatly exceed the threshold, all charged at high prices.
A bill credit of $30 will be applied for each billing cycle in which usage is 1,200 kWh or more.
Some of our competitors claim to have no hidden charges, but offer plans with BOTH of these features resulting in effective prices that are substantially higher than the simple summary price presented to shoppers. Fortunately, all Texas electricity providers are required to include an Electricity Facts Label (EFL) with their plans that explains all of the charges and reveal the gimmicks. You can usually identify the dangerous plans just by looking at the top table in an EFL. If there is a substantial change in the average prices in the top table, you are looking at a dangerous plan.
Example of Average Monthly Use - Chart
WHY DOES THIS MATTER?
Champion has had a longstanding commitment to price transparency. That commitment, alongside our mission to provide the best value in the market, is what prompted this article.
We’re currently in a very high price environment (we dedicated an entire article to that here). When market prices are high, gimmicky product offers continue to look cheap compared to non-gimmicky products because of the mechanics we described above. Consumers frequently don’t realize how bad these products are for their pocketbooks until it’s too late to get out of their new contract without facing a steep penalty. If you’re shopping for a new electricity product this summer, we strongly encourage you to beware of gimmicky plans. Take a look at the EFLs and review all of the charges. If you need any help, give us a call.