# Truth about Reliant’s Cap And Save Plan

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Lately you’ve seen Reliant 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.

#### 45 thoughts on “Truth about Reliant’s Cap And Save Plan”

1. Thank you for taking the time to break out these figures and the skill you use to explain them.

2. Stephen Morisseau says:

Matt – I’m Stephen Morisseau from Reliant Energy. Thanks for taking the time to explains how charges from the energy delivery chages work.

We work to give Texas retail electrtic customers options that respond to what they want, and the Reliant Cap-and-Save Plan does that. Customers told us they want the security of a rate that will not go up, and the benefit of lower rates if prices fall. Customers who chose Cap-and-Save have seen their rates drop by as much as one cent per kilowatt hour.

We have a range of plans and options that gives our customers choices so they can select the plan that works best for them.

1. Stephen,

Thanks, and I appreciate you taking the time to read the article and respond here. I can certainly understand why a company would want to give their customers security of a rate that might drop, and will be capped off. That’s an admirable policy.

What I don’t understand is how that rate is designed in a way so that it will never drop into a competitive range with other long term plans. Why would a customer care if a rate can drop with natural gas prices if it will never be capable of dropping anywhere near a competitive rate they could lock in for 12 months with a dozen or more electricity providers? That seems to defeat the purpose. Is there something I’m missing?

Thanks,

Matt

3. Stephen Morisseau says:

Matt – Cap-and-Save combines the benefit of a rate that drops when prices decline – something that does not happen with a traditional term plan – with the security of knowing that a customer’s rate cannot go above the cap for which they signed up – something that does not happen with traditional variable rate plans. It is that combination that makes the plan unique. It provides customers another option.

4. Stephen,

In your response, you attempted to compare the Cap N’ Save plan to both variable and term plans. I don’t think the natural comparison of plans is between variable month to month plans.
It’s against other 12 month fixed rate plans.

If natural gas prices rise during the course of a traditional 12 month term plan from another provider, the rates don’t increase either. They’re capped at the rate at which a customer signs because it’s a fixed rate plan.

Granted, they can’t go any lower either, if rates drop, but if if the cost of natural gas would have to be NEGATIVE to get anywhere near the current competitive market for other 12 month rate plans, then there isn’t really any benefit, is there? It’s an illusion. It’s the equivalent of talking a car dealer a thousand dollars off the suggested asking price of a car. That’s great. But if the shopper can go across the street and find the asking price to begin with is 3 thousand dollars less to start than the competition across the street, then it doesn’t matter if the salesman takes more off the price. They are already cheaper.

I think the fact that Reliant offers several other 12 month plans at rates lower than the Cap N’ Save will ever be able to achieve are evidence of this as well.

5. Stephen Morisseau says:

Matt – Some customers value the security of the cap and the benefit of the lower rates if prices drop – that’s what they told us. Cap-and-Save is one of the options we offer so customers can choose what works best for them.

6. Stephen –

You’re not really answering the question. Customers like security. That’s fantastic. Any Fixed Rate Plan offers them security, at a price substantially lower than the Cap N’ Save plan will EVER POSSIBLY be able match, no matter how low natural gas prices might fall.

Customers like the idea of having a plan that lowers with the cost of prices. I don’t think customers understand that the price is set so high at the outset that it will never be possible to drop even close to competitive with any other fixed plan, which offers them the same cap and security. Which is the main reason I wrote this article for customers shopping for different plans.

I would strongly urge any customer that is set on Reliant to be their electricity provider to select almost any other Reliant plan available. That’s just my opinion. The beauty of the free market is that customers can compare prices and facts and make up their own mind.

Matt

7. David says:

Excellent write up. I see a class action lawsuit on the horizon. Reliant deliberately charging RELIABLY high rates through the CAP and GOWN Plan. While there are several companies offering a 1 year fixed plan for around 9 cents per KWh in the Houston and Dallas areas. Reliant is charging 30%-40% more for this plan. Reliant has NEVER NOR NEVER will offer a long term plan around 9 cents.

8. Stephen Morisseau says:

Matt – I agree with you that the free market gives customers the ability to compare prices and facts and make up their own minds. In addition to price, they can compare quality of customer service; renewable content included with their plan; a company’s commitment to supporting our communities; and whether the elements of a plan – beyond price – meet their needs. We have plans for price shoppers like David (above), plans with 100% wind for customers who want that, variable plans for customers who want more flexibility, and Cap-and-Save for customers who find the plan’s elements attractive.

9. Laura says:

So what is the best way to compare plans? Just look at fixed rates? What, if anything, in the fine print should consumers be aware of?

1. Laura,

That’s not an easy question to answer. It really depends on what the customer is looking for. If they want to take advantage of lower month to month rates in the winter before locking something in for the summer heat, that makes sense. If someone else just wants to get a fixed rate and be done with the hassle, that makes sense too. It depends on what a customer wants.

In regards to fine print, I’d advise looking over the Electricity Facts Label for the plans you’re considering. All REPs are required to make them available to shoppers, and they’re typically on an REP’s website. In those Facts Label, each provider will have details about the rates, any additional monthly charges, and things of that nature. That’s where all the meat is spelled out. It’s the fine print. And it’s different for every electricity provider’s plans.

If you want the least hassle, I’d compare fixed rate plans and their pricing.

10. Tremaine- a Reliant D2D rep says:

I’m reading this and its a tad bit redic. Matt, I understand the fact that you could be ant-reliant. For all I know you could be an agent from one of the samller companies and that fine. Afterall, its competition.

David, sir. Let me correct you by informing you that Reliant Energy HAS had a plan for 9 cents. Its was one of our fixed plans. We have also had 8.3 and 7.7 believe it our not.

But guys, its like what Miss Laura said…….ITS WHAT THE CUSTOMER WANTS. I’ts based upon hwhat helps that specific customer. Now provided that an AVERAGE of 13 or 13 is high, the security is that the ENERGY CHARGE will decrease with natural gas prices.

1. Well, at least you’re up front about working for Reliant.

The customer doesn’t understand what the details mean. The commercials say “it goes up or down with the cost of natural gas.” That sounds great. It’s a fantastic soundbite. It’s what a customer thinks they want. However, they’re assuming the starting and ending points are FAIR MARKET rates. Right now the gas pump around the corner from me is at \$3.40 for regular gas. A guy a mile down the road is still at \$3.85. Sure, both of their rates will go up and down with the price of oil, but why would anyone pay that much of a higher premium for gas? You can make comments all you want about how Reliant has other plans that are fixed rates that are close to the market, but this article was about the CAP AND SAVE PLAN, specifically. That one plan is what we’re examining here. Why that one plan? Because Reliant spent millions of dollars on TV and Radio spots selling it to customers, and making it sound warm and fuzzy. Do you think if they put on their commercials that the best rate a customer would ever be able to get IF THE COST OF NATURAL GAS DROPS TO ZERO is still 40% above market, that this would be a plan the “customer would want?” I don’t think so. Customers wanted a deal that is tied to natural gas rates at reasonable terms. Not one that is tied to natural gas rates at a monstrous premium.

I suggest you, as a D2D rep, stop telling customers and people in the marketplace exactly what they want. I’d be curious how you can explain that a customer consistently paying 40% above market rates if natural gas costs nothing helps ANY specific customer. Because while you’ve expressed dissatisfaction with my article, you’ve actually done nothing to address the math that is on the back of every single one of Reliant’s Electricity Facts Labels.

1. Tremaine- a Reliant D2D rep says:

What you really need to understand is that we do not push this plan to EVERY SINGLE PROSPECT. Once again, its based upon the CUSTOMER’S beliefs and convictions. When my prospects strongly suggest that electricity rates are subjected to go up in the near future, he has given me a pre-concieved notion that a 12 or 13 cent average is bound to come. At that point it is no longer a specific price issue. That is where the security of a capped rate is appreciated.

Now you’re right about one thing. Price-wise, a 12 or 13 average is a tad bit high in today’s market. But unfortunately we do not gain or win back customers with rates alone..

You also made a comment about “What customers THINK they want.” I dont know what company you represent but I surely hope thats not what you think of your customers. I’d like to believe that our customers KNOW what they want. Yes there are price heads out there but prices alone are not the whole-hearted reason EVERYBODY switches to reliant. You got people out there that dont mind 13 cents if its a green plan for instance. I was baffled by that reality when I first came across it. Some people would pay more for something a little as 24 hour customer service. Or even the lenghth of the contract term. I honestly believe that the reason why alot of other REP’s that object so hard to this plan is simply because they either cant compete with it or match it. Believe it or not, its selling like a child’s lemonade stand.

2. @Tremaine: I’m sure its selling because it SOUNDS like a cool feature. The article points out that the flexibility is false security. Math don’t lie bro.

11. So let me understand this properly. You, a direct salesman, don’t “push” (your words, not mine) this plan on every single customer, and yet Reliant has spent literally millions upon millions of dollars in television and radio advertisement for the Cap N’ Save plan. Tell me, if it’s so specific in it’s target scope, why is it on every single radio and television commercial Reliant has aired in the past 6 months? You still want to claim it’s a small percentage of people, because I think their mass market media campaign says otherwise.

Also, you’re flat out mistaken. Not only have electricity rates consistently fallen over the last couple of years, but they’re projected to stay low, in particularly because of more natural gas reserves than ever being able to be mined. The only thing causing any rates to rise now is summer seasonality. If you’re talking about customers who crave the security of a cap, then why don’t you push them towards a much more fairly priced Fixed Rate Plan? Those are capped? They’re also competitively priced. And your company offers them. So why even HAVE a Cap N’ Save when it’s bottom rate isn’t even close to competitive EVEN IF THE COST OF NATURAL GAS WERE HYPOTHETICALLY FREE? Again, you can’t explain the math because it’s inexplicable.

You said it yourself. Your rates are high (more than a tad bit) and you don’t win back customers solely on price. No REP does. Fortunately, Reliant has brand recognition and a history in the marketplace that make people believe they’re safe. As for “what company I represent,” it’s myself. This is my company.And you can say that you’d love for customers to love to know what they want, but the reality is that many people don’t understand the electricity market at all. Which is where I come in, to try and cut down the confusion and ambiguity and help people understand the ins and outs of the marketplace.

Back to why customers choose Reliant. you’re right, it’s not just price. Although in fact, you actually have some very competitively priced plans. Just not the Cap N’ Save plan, which deals on people’s lack of understanding of the marketplace and Reliant’s brand recognition to rack up profits. Tell me, how else would you explain why you have other plans that do the exact same thing (Fixed Rate 12 Month Plans) that are drastically cheaper, have a cap for customer security, yet do not offer the risk of increased prices. And do NOT claim that Cap N’ Save’s benefit is that the rates will lower if natural gas prices. I’ve already debunked that logic repeatedly in the article and the comments section with the math that even if NATURAL GAS RATES WERE FREE, THIS PLAN WOULD STILL BE HEAD AND SHOULDERS OVER OTHER FIXED PLANS ON THE MARKET. Including plans offered by your company. Until you can explain how the math of paying more for the same product is ever beneficial, I suggest you stop trying to comment.

As for the rest of your statement, yes people will pay more, particularly for things like Green Plans. Although this isn’t a green plan. And yes, people choose companies on more than price alone. But you have yet to answer any of my points, you can’t support your claims other than to say “people want it” and it’s selling well.” I’m sure it is selling well. That doesn’t make it a good plan. As for other REPs objecting to it so hard and not being able to keep up, I find that pretty amusing. You don’t think another REP can keep up with charging too much for an electricity plan and not being priced competitively? That’s so absurd I’m having difficulty keeping a straight face. “No other company can overcharge like we can!” That’s a real great claim. I’m sure you’re very proud of that.

12. Tremaine- a Reliant D2D rep says:

Now the Cap and save plan doesnt suit EVERYBODY. Price-wise alone it wouldnt satisfy some people. But we give this plan for those that it DOES satisfy. I also wanted to touch on a comment that was made about natural gas prices. Please note that its NATURAL gases, people. Anything NATURAL is what we as man cannat ever control. Just who are ANY of us to say that gas prices wouldnt drop dramatically. If it has before, then it can again. There was a discovery of 4 centuries of NATURAL gases in Louisiana. When supply is bigger than demand the prices are declining. If you have a Centerpoint gas bill you should have noticed a drop in the prices.

And this talk about spending alot of money on tv/radio commercials/billboard ads. Really guys? What company, or should I say what SUCCESSFUL company doesnt spend money on voiced and visual promos? Im on the freeway alot. All I see most of the time is TXU, Bounce, Direct, Gexa, Spark, Cirro, etc. You think THEY’RE not spending money on THEIR advertisements? What, you think that doesnt cost money? Or are you simply implying that we are charging our customers alot to pay for our commercials? Reliant Energy is a Fortune 500 company with sponsorers all over America.

But at any rate, back to the topic at hand lol. We dont sell based upon what WE feel the customers want. Bust based on what the CUSTOMERS feel they want. Our job is just to present the information, and if it makes sense to THEM, we enroll them into the plant. If it doesnt make sense to the customer, we either give them something else that does or we move on. Its just as simple as that.

1. Tremaine, you’re doing it again. You’re not being clear. Let me tackle your paragraphs one by one:

1.) You’re right, the Cap N’ Save plan doesn’t suit everybody. I would argue it doesn’t suit anyone unless they’re a person who lights candles with hundred dollar bills just for grins. Could you again be specific (you have yet to be specific at all at any point) about who a plan that will never ever have any chance at being competitive to the market DOES suit? What is that customer profile? Could you share that with us? Your muddying of the waters by attempting to say natural gas prices are not predictable is absurd. Why? Because EVEN IF PRICES GO DOWN TO FREE THE CAP N’ SAVE PLAN IS STILL WAY ABOVE MARKET RATES. So who cares if it goes down? It will never be free, and if it were, your plan will still be overpriced to EVERYONE on it. What point are you trying to make, and please respond specifically, as the math is clear for ANYONE to see in the original article. Talking about how gas prices might drop is a smokescreen on your part because even if it were GIVEN away, your plan still wouldn’t be competitive.

2.) My comment about commercials and mass media buys was in direct response to your statement that this plan is marketed to a specific group of people for who it fits. The fact that Reliant is mass-marketing THIS PLAN specifically to everyone who can read, listens to the radio, and watches television, DIRECTLY disproves your attempted statement that Cap N’ Save is offered only to customer to whom it’s a good fit. In which case you’re saying Everyone is a Good fit, which I’ve shown it is not, you yourself has said it is not, and which again disproves your position. I don’t fault any company for advertising. I brought up advertising to prove that the specific stance YOU were taking was fallacious.

3.) You’re right. Your plan is probably selling well because lets face it, it’s a decent concept. You tie it to the natural gas rates, and everyone gets a fair shake. Of course, that is only the case when based on the ASSUMPTION that the starting rates are fair. Not that it’s so far above market competitiveness that it will never have any chance ever of being a price effective plan. If your job is to present the information, ALL the information, then are you pulling out a pencil and paper and a calculator to walk them through exactly how the math of the plan works, where the starting points are, and how it compares to other plans in the market? Heck, even other plans offered by RELIANT? I would wager you do not.

I’m still waiting on you to respond to ANY of the specific points I’ve made in regards to how the math works, how the plan wouldn’t even be priced competitively even if natural gas were free (and lets not forget, if natural gas were free then every OTHER provider’s plan rates would also drop, which means your plan will TILL be unfairly priced), and how suddenly Mass Media is marketing only to a small sect of people that “fit” the plan?

13. David says:

Tremaine can you please tell us what is the current rate for customers who signed up for the Reliant cap and save plan in centerpoint in Sept 2010 at around 12 cents per KWH.

I am sure it is still 12 cents, you get my point.

14. Serulian Marquez says:

This was alot lol.

15. Serulian Marquez says:

Well I just want to say this…….I love Reliant. Whether its Cap and Save or a fixed rate plan, I dont care. If the cap plan isnt what you like, then you have the option of just not choosing it……….right?

1. Tremaine-

This was the winning comment. You should have stopped right here, and you would have gotten away with your spamming. But coming back and back again to make more comments gave you away. Tough break.

16. Serulian Marquez says:

Well from what I have seen personally on my mom’s bill, the Cap plan is great. If its not good for “most people”, then let THEM complain about it. Its crazy how this whole thing about a certain plan from Reliant isnt a “good” plan from most people is being magnified so tough. I mean I could equally point out flaws with these other companies.

1. Yes, Serulian, I mean Tremaine, why don’t you go ahead and point out all the flaws in the plans from other companies. Please, we eagerly await your response with baited breath.

17. Ashley Cartwright says:

Reliant is by the best electric company hands down. After trying TXU, Direct, GEXA, Bounce, and DEFINITELY Just Energy, I will NEVER leave Reliant again. I have learned my lesson lol.

1. So, I’ve been looking over the comments on this article. I’m not sure how I missed it the first time. However, it’s perfectly clear now.

Would anyone here be interested to learn that Ashley Cartwright, Seruclian Marquez, and our good friend Tremaine (the reliant D2D rep) ALL are entering their comments from the same IP and Email addresses? That’s right, they’re all the same person! I’m going to leave all the comments up, because at this point it’s just hilarious. We’ll go ahead and call him Tremaine, since that’s the first name he used. So, Tremaine couldn’t actually defend his stance with actual logical and conversation points. Instead, he just started spamming the comments section with fake praise for Reliant.

Tremaine, for someone who was so incensed at my suggestion that Reliant’s Cap N’ Save plan was dishonest, and outraged that I would suggest such a thing, well here is my response: Coming to my blog and leaving a bunch of fake comments talking about how great Reliant Energy is to customers is not exactly convincing me, or anyone else, of honest business practices. I’d say you’re making Reliant look even worse every time you show up here and leave a comment.