Confusion That Surrounds Promotional Rates

The Texas electricity market has a lot of nuances that aren’t readily apparent to most shoppers. As someone who is in a position to see many of the complaints that consumers and customers have with the electricity providers in the deregulated areas of Texas, there are some obvious patterns and trends in the complaints. For example, one of the most common gripes and misunderstandings that I see come across involve promotional rates, specifically for month to month electricity plans. There’s a lot of confusion out there, so I’m going to try and clear some things up right now in regards to promotional electric rates, how they’re calculated, and how long they last.

Promotional Rates: What are They?

Ok, promotional rates are exactly what you would expect. They’re a temporary rate that is lower for new customers that are signing up for month to month plans, as a reward or enticement for signing up. This is not a new concept, you see this kind of strategy for cable companies offering the first month or two free. Same principle. So what makes Promotional Rates different for electricity? Well, for starters, electricity companies are allowed to advertise their promotional rates as the standard electric rates. And this is where the confusion begins. When anyone compares electricity on a shopping website of any kind and looks at month to month plans, they see a rate listed. And it’s natural for people to assume that this is going to be their monthly rate going forward. But this is simply not the case.

So What Will A Customer’s Rate Be?

Well, this is a tricky question to answer. For starters, the very nature of month to month plans means that the monthly rate can change, up or down, depending on the cost of natural gas or even just the discretion of the REP (Retail Electricity Provider). So the prices are likely to move from month to month anyway. However, one thing is certain, the chances are good that their monthly rate will be substantially higher than the one they see advertised on shopping websites. Probably somewhere between 15-30% higher per kWh. So a price listed at 8.0 might actually end up being between 9 and 10 cents per kWh. And that is typically true across the board, regardless of the REP. At some point, the month to month rate will get substantially higher after the promotional period expires.

So Why Are REP’s Allowed To Advertise At The Promotional Rate?

This question is actually easier to explain than people might think. The short answer is that because a month to month plan is likely to have rates change every month anyway, simply because of the cost of natural gas, electricity companies only have to advertise their rates for the first month. Because they’ll pretty much always be different next month than they were this past month. And with that in mind, it makes sense for REP’s to advertise their rates for the one month they can guarantee: the first month a new customer’s signing up. On top of that, since every REP has to abide by the same rules, it makes sense for all REP’s to advertise this way. Otherwise they’d simply be conceding a competitive advantage to their competition in the Texas electricity market. Now, one thing to take notice of is the fact that the PUC requires REPs that are offering an introductory rate to say so in the title of the plan. For example, the plan’s name would have to be something along the lines of “Month to Month Introductory Rate Plan.” The words promotional or introductory have to appear in the title of the plan to indicate to shoppers that the rate they’re getting is a special offer for new customers. So when comparing plans, be attentive to whether or not Promotional or Introductory is listed as part of the plan’s name. If so, then it’s another indication that the low rate advertised is temporary.

How Long Is A Promotional Term?

This is another potential problem that creates a lot of confusion for customers, and that confusion often manifests itself in complaints and negative experiences with electricity providers. This is a complaint that I get all of the time, actually. People sign up for month to month plan, and their promotional rate ends up only lasting for a week or two, as opposed to their first month of service. So how does that happen, particularly when everything can be promoted as a “First Month” promotional rate? Well, this is where things get a bit confusing, and where hopefully a little more information will help customers understand the electricity process. It’s not really the first month a customer gets at a promotional rate, but their first billing cycle. REP’s are at the mercy of the TDSPs (Oncor, Centerpoint, etc.) in this matter, although customers really have no way of knowing that. A customer’s billing cycle is based upon when the TDSP reads a customer’s meter, which happens once a month. And that date is different for everyone, although typically the meters are read around the same time each month. But one neighborhood might have their meters read in the first week of every month, while others might have it read in the last week of every month. What is consistent, is that a customer’s billing cycle is based upon when a TDSP reads their meter and then passes that information along to the customer’s electricity company, who then bills the customer. But it’s important to understand that introductory rates are based upon a customer’s first billing period, and not actually their first calendar month.

So What Does That Mean To Customers?

What that means is that a customer who signs up for new service might only have a week or two of service before their meter is read, and that reading will make up the first bill to the customer. And there’s an excellent chance that the REP will look at this as the customer’s first bill, and that will count as the end of the promotional rate, even if it wasn’t a full 30 days. I can’t confirm that this is how every electricity company in Texas manages the bills and promotional rates of customers, but it is true that to my knowledge, all of the electricity companies I am familiar with conduct their business in this manner. I could be mistaken. However, this does explain to customers who don’t understand why their promotional electricity rate only lasted 2 weeks instead of 4. Bills, rates, and promotional periods are all tied to TDSP meter readings, and REP’s can only react to the information and charges that are sent to them by the TDSP. All that being said, if you’re a customer who received less than 20 days at their promotional rate, I would absolutely suggest calling in to their REP and ask them to extend the promo rate for a whole month. They might not agree, but it can’t hurt to ask and they might extend it after all.

Also, there is one more thing that a customer can do to understand and maximize their promotional rate. When looking for a new electricity provider, a customer should be able to request the historical meter reading of their home directly from their TDSP, and possibly from their REP as well. It’s not a guarantee, but if that information shows that their meter is typically read at the end of the month, a shopper can order or switch to a new electricity provider and choose a start date that gives them the best chance of maximizing their promotional rate.

3 thoughts on “Confusion That Surrounds Promotional Rates

  1. This is very helpful. I’ve got a few followup questions:

    1.Does this mean that different customers on the same plan are paying different prices? Are there any constraints at all on this? Can they charge customer A 10 and customer B 20 even if they are nominally on the same plan?

    2. I’m looking at Pennywise Wise Buy Monthly. It is a variable plan, and the quoted price is 6.8 cents. I cannot find anything in the title or even the facts label that shows this is an introductory rate. Where is the mention of the introductory rate?

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