Tiered Energy Plans: The Latest Scam on Power to Choose

Tiered energy plans are confusing—so confusing, in fact, that 35% of calls to the Power to Choose call center are about their super-complicated pricing. In July, Public Utility Commissioner Brandy Marty Marquez got tired of her phone ringing off the hook and announced an investigation into whether tiered plans are not just confusing, but actually intentionally misleading to customers. “What I’d like to do is find out more about this and write a memo, and talk about it at more length at our next open meeting,” she said.To which we respectfully respond: duh, Commissioner Marquez. Like the low introductory “teaser” rates that used to be all over Power to Choose until PUC banned them, tiered rates are a sneaky way for electricity providers to advertise rates much, much lower than what they actually charge you. And it’s going to take more than a memo to fix the problem. Here’s how the scam works—and what you can do to protect yourself.

How tiered energy plans confuse customers—and make big profits for electricity providers.

Let’s look at the lowest price plan for a Houston zip code in the CenterPoint service area at the time of this writing. They advertised the following rates on the Power to Choose home page:

The reality is that these rates are spectacularly misleading, because tiered plans don’t actually guarantee a particular price per kWh. Instead, they charge customers a flat fee based on which “tier” of energy usage they fall into. If you look at the Facts Sheet linked on Power to Choose, this plan consists of four tiers:

  • Tier 1 Block Charge for 1 to 1,000 kWh used: $39
  • Tier 2 Block Charge for Usage between 1,001 - 1500 kWh: $120
  • Tier 3 Block Charge for Usage between 1,1501 - 2000 kWh: $175
  • Each kWh over 1,000 kWh charged at 8.9 ¢/kWh

What does this mean in practical terms? It means that if you use exactly 1,000 kWh per month, it’s a pretty good deal—your monthly electricity bill would be $39, giving you the 3.9¢ rate that Power to Choose promised. But use just one extra kWh of electricity, and your bill shoots up to $120. That’s a 300% increase! Suddenly, your energy costs around 12¢/kWh.In general, being at the low end of a given tier is a bad deal for customers. That same $39/month tier that was great for the 1,000 kWh user would be awful for someone who goes on vacation and uses only 200 kWh in a given month: They’d end up paying almost 20¢/kWh for their electricity!Very few people use exactly 500, 1000, or 2,000 kWh. In fact, the average residential usage in Texas is approximately 1,255 kWh per month, with fairly large usage swings depending on the month. That means tiered plans are a bad deal, even before you consider the next big problem: All this doesn’t even factor in the cost of getting the electricity to your home—that is, the chunk of your bill that goes to a Transportation Distribution Service Provider (TDSP). Plans like this include estimates of TDSP charges at different levels, just like they do with electricity prices—but TDSP estimates can be even more misleading. Again, most customers most months will fall somewhere between the usage levels, meaning they don’t really tell you what you’ll pay. The TDSP’s pricing includes both a flat monthly fee and a price per kWh, making things even more complicated. Some electricity providers mark up the TDSP charges, too, so they can blame TDSPs for higher bills. To get an exact understanding of what you actually would pay for delivery at your usage level, you would need to look up the TDSP charges in your area and do the calculations yourself. In other words, to understand what you would have to pay for electricity at your current usage level, it takes more than a quick glance at Power to Choose—you’ll need to sharpen your math skills. Luckily, in this case, we’ve done the math for you. If we factor all of this in, here is what you are actually paying for the supposedly cheapest plan on August 8th:

We’ve already pointed out that once you go one kWh above 1,000 kWh, your electricity price jumps from the advertised 3.9¢ to 12¢. With this chart, you can see that when you add the CenterPoint transportation charges, you are actually paying more like 16.1¢ per kWh. The average consumer at 1,255 kWh per month would pay 13.6¢ per kWh for their electricity.

“Whack-a-mole” regulations won’t solve the problem.

Now that Commissioner Marquez is looking into the tiered pricing that is confusing her voter base so drastically, it’s likely that she’ll do something to prevent this kind of rule bending. And maybe, for a little while, the Power to Choose site will reflect realistic electricity prices. However, it’s only a matter of time until electric providers find another technique to make their energy plans show up first on the Power to Choose site. Tiered pricing isn’t the first sleazy method electric providers have attempted: Before that, the Commissioner banned misleading “teaser rates.” This sort of after-the-fact legislation is called “whack-a-mole” regulating, in which bans occur in reaction to new forays at bad behavior—and these rule benders will never fully disappear.  Here’s an idea: What if ERCOT actually mandated that the energy retailers produce a table for each of their energy plans like the one we made for the CenterPoint plan—one that actually showed you what you would pay at every 100 kWh of use? There would be no more room for misleading plans to hide.Here’s what you can do to protect yourself.Until then, what can Texans do to protect themselves? One solution is to buy electricity at the same rates at which electric providers acquire it. With Griddy, they can forgo the entire energy plan song and dance in exchange for simple real-time electricity prices. We’ve already written about how this is both cheaper for consumers and easier to understand than regular electricity plans—well, it’s free of misleading tiered pricing, too. Save yourself a call to the commissioner—it’s time for Texans to take electricity rates into their own hands.

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