Recently, I was reading through some provider reviews and found several classic examples where customers made mistakes with their with their Texas electricity plans that wound up costing them more. In the interest of helping our other energy customers I’m sharing a few edited examples as common mistakes to show how other customers can avoid problems with their energy suppliers.
Electricity Variable Rate Plans Have Rates That…Vary?
“I signed up for a promotional rate with an offer of free airline points. The good rate held steady for several months, then it went from less than 5 cents per kWh, to 5 1/2 cents, to 9 cents and then up to 12 cents! I never got any notification about the increases. Are they within their rights?”
The short answer— yes! In some variable rate plans with promotional rates, the “good rate” only applies for a short time. After it’s done, the rate each month afterwards varies.
In a related example, another customer knowingly signs up for a variable rate plan but puts their trust in what the sales rep tells them about future rates.
“I switched to XZ Company because they had a low variable rate and no cancellation fee. When I signed up I asked if the rate would stay around the current level and was told that it would. They also said that the rate I got was not a teaser rate. However, I only got the low rate for one month. The second month the rate increased by 70% and the third month almost doubled the first month.”
As you can see, the frustration and anger of these customers is understandable, especially since they don’t see that they did anything wrong. Variable rate plans are really attractive to some customers. They’re usually month-to-month, no contract, no cancellation fee plans. Providers often offer them with low introductory rates that are well below the wholesale price. And that’s the problem. Their cheap, no-commitment nature usually distracts customers from giving them a closer look — and that mistake can wind up costing them a lot more.
Customers forget that variable rate plans will VARY their rates from month to month depending on demand and weather. Usually, that low introductory price only lasts for the first month. Afterwards, the price goes up to the going market rate for that month. The amount that energy rates change depends on the market price of electricity or natural gas in your state’s wholesale market.
That means that Texas electricity rate fluctuations during winter and summer can get pretty painful.
The Annual Energy Price Cycle
A sales person could conceivably say almost anything about future electricity rates —but they don’t know for sure. After all, they’re not energy analysts, they’re in sales and that’s what they’re interested in.
Energy prices follow a predictable yearly cycle and generally stay within a normal-ish range. You can even check out Texas historical energy rates in your city to see when they spiked. On a broader national scale, prices for electricity and natural gas tend to dip in the fall and then dip again from late March through April due to lower demand. In fact, these “shoulder months” in fall and spring are the best times to shop for a cheap fixed rate energy plan. BUT — once May arrives and summer heat begins increasing demand for air conditioning then —BOOM — wholesale prices for both electricity and natural gas shoot rates to the moon and you’re paying $.90 kWh by late August.
Read the Plan EFL
The first customer who complained about increases without notification seems to have signed on to the deal without fully understanding the plan’s electricity facts label (EFL). Basically, the EFL details the plan’s name, the price per kWh. whether it has a fixed or variable rate, tier pricing, whether the rate is an introductory rate or not, the term or duration, and delivery charges. Customer NEED to read their EFL when comparing and shopping for electricity plans because the terms are part of the legal agreement between customer and company. Consequently, customers should always fully understand the terms of the EFL before agreeing to the plan.
If you agree to a plan over the phone, remember that you’re not trapped. Under the Texas Right of Recession for retail electricity sales, you have three business days to reconsider the energy contract after you receive it in the mail and cancel it if you’re not satisfied.
How Variable Plans Can Work for You
But variable rate plans are not inherently evil. Variable rate energy plans work best when customers know how and when to use them. They can be just the thing for some customers who are looking for a new fixed rate plan but want an extra month to shop around. Customers can sign up for an introductory plan to power their home for a few weeks while they shop and then switch at the end of the month. Variable rates can also be cost-effective to carry customers over the “shoulder months” in spring time and autumn while fixed rates fall to their seasonal low. The trick is you’ve got to pay attention and switch to that fixed rate plan at just the right time or face paying more.
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One of life’s best ways to learn is to make mistakes. By learning from these examples, I’m hoping that energy customers will be better able to understand what they can expect and need to do in order to avoid having problems with their energy suppliers.