Guide to Navigating Summer Texas Electricity Prices

Posted on Posted in Fixed Rates, Indexed Rate, TER News, Texas Electricity News, Trends, Variable Rates

As we enter May, everyone in Texas is starting to feel the heat beginning to ratchet up to its typical Lone Star Sweltering. We’re not all that far away from the kind of heat and humidity that send visitors fleeing back to their home states as quickly as possible. For Texans shopping for electricity, this is a pretty important time for decision making when it comes to our summer electricity bills. If there’s one recurring theme I see every summer running an electricity website that is powered by user generated content, it is the feeling that they’re being ripped off by the way electricity rates rise during the summer months. And the reason they are so upset is just how MUCH the prices can rise. Electricity companies really aren’t fleecing anyone (well, most are not), it’s just simple math. The price of Natural Gas goes up in the summertime, as well as the cost of producing the electricity in the power plants because of the heat. At the same time, we all use more electricity to keep our homes cool. Combine all those factors, and everyone’s electricity bills are likely to spike. However, the damage can be minimized by planning ahead, and I’m going to point out some things that will help shoppers save money on their summer electricity bills.

Watch out for Promotional Rates

The first thing that customers need to be sure and check out when they’re searching for new electricity plans is to make sure that they review if the rate they are buying (as it as advertised) is a temporary or promotional rate. If a company is offering a promotion, say the first 2 or 3 months of electricity at a lower promotional rate, they’re allowed to advertise that lowered rate as the price. Then, a couple months later, they can raise that rate to higher price, closer to on par with the market or even higher than the market. Think of it like a “Sign up now and get your 20% off your first two months” or a similar promotion that you’d see in any other business, like cable or phone service. This is standard across the board, and shows up most often with Variable or Indexed plans that are in the marketplace. Basically, these are the month to month plans where customers are signing up for a different electricity rate that matches the market each month. These are the plans that get people into the most trouble when it comes to summer heat, because when the prices go up, people can find their electricity rates going up by 20-30% from one month to the next, and they’re shocked and didn’t budget for that more expensive electricity bill. It creates a lot of problems, and a lot of anger in the customer base who thinks the prices are going up for no apparent reason other than their electricity companies are trying to fleece them. The truth is it costs more for the electricity companies to buy the energy from the people who produce it from natural gas and coal plants. And it’s more expensive for them to buy because the Texas heat causes temperatures to rise and plants to overheat, which makes it more costly to produce electricity from coal/natural gas. So in the end, if you’re going to decide on a month to month plan to get through the summer, be ABSOLUTELY sure that you know if your rates are promotional rates, when those rates expire, and have a general idea for what the rates will be close to when the promotional period expires. This should help people prepare for the change in their bills when they hit, and hopefully they won’t be caught outside of their planned budget.

To help me illustrate this point, lets take a look at an example that exists in the market right now. The lowest variable plan in the market place right now is at 7.9 cents per kWh, offered by StarTex power, APNA, Dynowatt and Southwest Power & Light. Dynowatt calls their plan a “Residential Variable Plan”; APNA’s is a “Promotional Newcomer Plan”; StarTex Power calls their plan a “Promotional Month to Month”; and Southwest Power & Light calls theirs a Texas Independence Promotional Month to Month plan (that’s a mouthful). Most of these guys are up front in telling you that it is a promotional plan, and that’s great, but a typical customer might not know exactly what that means. Well, what it means is that while the rate is advertised at 7.9 cents, this is NOT what the rate will be in a month or two when that promotion expires. It will be something much higher. The fact of the matter is that unless each customer reads the details in their electricity facts label, they won’t really have any idea what that rate will be when the promotional period expires. This can be very misleading and confusing to customers unless they already know the exact questions to ask when ordering electricity in Texas. The point is, read the fine print and ask the right questions when you order electricity, otherwise several different factors could add up to a much larger than expected electricity bill come June or July.

Consider Getting a Fixed Rate Plan

Of course, my biggest suggestion in terms of how to save in the summer heat is to bypass any Month to Month plans entirely and sign a fixed rate electricity contract. What is a fixed rate contract? It’s simply a contract with an electricity provider that you’ll stay with them as your provider for a certain amount of months, and if you leave early, you’ll have to pay a fee for breaking your contract. Anyone who has ever had satellite TV is familiar with this kind of agreement. But the benefit is that you’ll be able to lock in your rate at a low price now, and not have to worry about any of the fluctuations that come with the summer heat. The only increase in your bill will be the fact that you’re most likely to use more electricity to keep your home cool in the summer months, but you won’t be vulnerable to any rate increases. Typically, fixed rate plans are a little bit higher than Variable or Indexed rates, but that is simply electricity companies mitigating their own risk at offering longer contracts at certain prices. Two summers ago people were devastated by high summer bills when the cost of natural gas skyrocketed much higher than expected. When this happened, electricity companies were losing money on many of their fixed rate contracts because they were required to sell it to customers at a rate much cheaper than they could buy it for themselves. I believe the same principle applies to this and every summer, which is when things are at their hottest and most expensive, try to lock in a Fixed Rate to carry over through the hottest part of the year and then reevaluate things in the fall. Fortunately, there are plenty of options for fixed rate plans on the market. There are terms of 3, 4, 6, 9 and 12 months rate out there, as well as even longer term options for people interested. The important thing to consider is that there’s a very small window left for consumers to lock in good fixed rates for the summer, because the longer you wait, and as things heat up, the higher the electricity rates will be for fixed term plans as well. Electricity providers set their rates based off the prices they can buy the energy from the companies that generate it, so as they have to buy at more expensive rates so will customers. Right now, rates are at ridiculously low bargain basement prices, the lowest they’ve been in years. So it’s a smart play for customers to lock in those rates when the summer heat starts to overwhelm everyone. I can guarantee if people wait until June to start looking at the cost of fixed rate plans (currently to be found anywhere from 9-11 cents in the marketplace) will be at least 12-14 cents per kWh in just a few short weeks. So now is the time to act for people looking to save money.

Don’t Overlook Rewards and Incentives

While, in my opinion, the most important key to saving money in the sweltering Texas summers is to lock in a fixed electricity rate, another aspect that shouldn’t be overlooked are the customer incentives that are offered by many of the providers. Lots of guys in the marketplace offer some kind of incentive program for customers. Some offer air miles, some offer companion airfare, and some offer free magazines. Hell, some providers even offer most or all of those things, and more. But the important things in terms of saving money that are provided by a few of the electricity providers in the marketplace are direct money saving opportunities and incentive programs. Incentive programs are great because they amount to lower bills, or free electricity. Either one of those things will save customers money. Some providers offer a direct percentage of cash back on each bill if they’re enrolled in a loyalty program, and some providers accumulate points that can be cashed in for a free month of electricity, things like that. There are also companies that give monthly discounts and savings for customers that set up e-bills or auto-debit with their electricity providers. One provider in the marketplace even has a program for some customers that will lower their rates if they pay their electricity bills on time for a designated period, like six straight months. And again, some companies might have several or all of these options for their customers. It’s important for consumers to check out the websites of providers or ask the sales reps they’re speaking with on the phone questions about the different programs they offer to their customers. TXU has a 3% cash back rewards program for customers. Bounce Energy has discounts for on time bill payments, an incentive program, and free electricity for paying your bill for a number of consecutive months. A lot of these things may not seem like much, but in the oppressive Texas heat, every little bit of money saved on a monthly Texas electricity bill can count, particularly in this economy. Hopefully these tips come in handy as a useful guide for customers looking to save money on their electricity bills.

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