Lately you’ve seen Reliant Energy advertising their new Cap & Save plan. It’s been everywhere lately, radio, billboards, television ads, etc. Reliant is throwing a lot of money into this plan because they want it to be a big seller. However, is the plan a good deal for customers?
- What is Cap & Save?
Reliant’s Cap & Save plan is an Indexed Plan – what does that mean? An Indexed plan gets it’s name because the plan in question is tied, or indexed, to something specific. With electricity providers, the plan is almost always tied to natural gas prices, which is the appeal to customers. The basic premise that can be sold to shoppers is “This plan is tied into the price of Natural Gas, so when gas prices are low, your costs are low. When they’re high to us, then they’re high for you.” Sounds good, right?
- How does Reliant calculate the price of electricity for the Cap & Save plan?
Here’s the information from Reliant’s most recent electricity facts label (Centerpoint region) for this plan on how they come up with their prices:
Base Charge: $0.00 per month
Indexed Energy Charge *: $0.093/kWh initially All kWh
CenterPoint Energy Delivery Charge **: Actual Charges from CenterPoint Energy
* Indexed Energy Charge = $0.093/kWh – Natural Gas Discount Factor (NGDF)
NGDF, applicable if Monthly Natural Gas Price/MMBtu is lower than the Initial Natural Gas Price/MMBtu
of $5.00, = ($5.00/MMBtu – Monthly Natural Gas Price/MMBtu †) x 0.003 MMBtu/kWh.
In this formula, Reliant is setting the price for electricity as well as providing for a potential discount based upon the cost of natural gas. Their initial estimate and starting point is for the cost of natural gas to be set at $5. So, when natural gas prices drop below $5, customers receive a discount. Natural gas is currently trading around $4, so what kind of discount does that get the customer? That discount would be ($5-$4) *.003, which is the same as $1 * .003. So the discount is .003, which makes the Indexed Energy cost an even .09 when natural gas costs $4.
- So how does the formula really work?
13.3 cents per kWh locked in for 12 months is an extremely high rate right now. For comparison, it’s currently the highest listed of any 12 month electricity plan in Houston. There are 17 different plans in Houston offering 12 month contracts, all in the 9-10 cent range. So how does Reliant get to 13.3 from a listed Indexed Energy Charge of 9.3 (or 9.0 if gas prices are at $4)? Where does this cost come from? Reliant is listing this as “Centerpoint Energy Delivery Charge.” There will be similar charges for customers in Oncor, Texas New Mexico Power, and both AEP regions as well. But what are these charges? Well, they don’t list them out on Reliant’s electricity facts label, but TDSP’s like Centerpoint all have delivery charges that are passed on to the customer, as well as other additional costs like Hurricane Ike Recovery Fees, Smart Meter installation fees, etc. It’s important for customers to understand that EVERY customer has to pay these fees, regardless of who provides them with electricity. You’d be paying them if you had Reliant or Green Mountain or anyone else. The only difference is that some providers list out all of these charges, and other providers use an “all-inclusive” kind of average rate of electricity. Reliant isn’t listing the specific charges out, they’re taking the “all-inclusive” approach. So whatever those Centerpoint charges are, they’re enough to bring the average cost of energy for customers on this plan of 9.3 to 13.3. That’s a significant hike. It represents more than a 33% increase in the rate charged to customers.
But again, it is important to remember that EVERY electricity company has to pay these charges and pass them off to the customer. However, other electric providers are still offering plans in the 9 cent range with those charges, while Reliant is offering theirs at a starting point of 13.3.
- So what would the cost of natural gas prices have to drop to for Reliant’s Cap & Save plan in order to become competitive with the rest of the market?
Well, the Electricity Facts Label can tell us this as well, even if we don’t know all of the different charges that Reliant is attributing to Centerpoint. Per the Electricity Facts Label, at 1,000 kWh estimated usage an a natural gas price of $5, Reliant is showing a rate of 13.3 cents. At 1,000 kWh estimated usage and a natural gas price of $4, Reliant is showing a rate of 13.0 cents. At 1,000 kWh estimated usage and a natural gas price of $3, Reliant is showing a rate of 12.7 cents. So it’s pretty easy to see the average of rates here, even if we don’t know the specific TDSP charges. Following this pattern, to get the rates to 10.0 kWh, which is the high end of competitive prices in the current market, the cost of natural gas would have to drop to negative $6 dollars, which is obviously never going to happen. Natural gas manufacturers would have to pay RELIANT $6 per unit of natural gas for Reliant to lower their rates enough to be competitive. What if natural gas were simply free? Under this plan, their rates would be 11.8 cents per kWh, which is still not close to competitive.
- What happens if Natural Gas charges go over $5?
If that happens, then the customers who have the Cap & Save plan are getting a deal, right? Maybe, but if other companies are already offering plans at a third of the price as Reliant, how high would the gas prices have to go for things to even out? The answer is that it wouldn’t ever matter. Because if a customer had a 12 month fixed plan from one of the dozen or more competitive priced electricity providers, if the natural gas prices went higher than $5, customers would still have a locked in rate anyway.
For the record, Reliant offers several other 12 month plans in the Centerpoint area for much cheaper rates than the Cap & Save plan. One is at 10.3 cents per kWh, and another is a 100% wind plan at 11.8 cents per kWh. So it’s obvious that Reliant can produce energy for much cheaper rates, but not ones that generate nearly as much profit. So when you hear a commercial or see an advertisement about the security of the Cap & Save plan, don’t buy into the message. There are plenty of other secure 12 month plans on the market that are just at safe, and literally at a fraction of the cost to customers.