Submitted by: Matt Oberle

Anyone who has been following Texas Electricity Ratings on our Facebook or Twitter pages, or by regularly reading items I ve written on our blog or elsewhere, knows that I ve spoken repeatedly on Introductory/Promotional electricity rates. As I ve written recently, one of the most common complaints I receive through the website is related to the confusion and aftermath of promotional electricity rates.

Well, interestingly enough, the Public Utilities Commission of Texas (PUC) is currently meeting with the Retail Electricity Providers (REPs) to discuss potential changes to the rules governing the way prices for electricity plans can be displayed on Power To Choose, the PUC website for electricity comparison shopping. Potentially, this is good news that could go a long way for customers in regards to simplifying and eliminating one of the must complex and confusing parts of the shopping process for Texans.

How The System Works Now

Currently electricity providers are allowed to advertise their electricity plans at their promotional or introductory rates on the Power To Choose website, and potentially anywhere else they choose. I think this is a perfectly fine practice and is standard in other industries, like cable and satellite television as well as cell phones or even when leasing a car. The problems arise when it s not perfectly clear exactly what customers will be paying per kilowatt-hour in 30 to 60 days after their first bill. The electricity rate customers will typically end up paying is often 30-40% (but depending on the provider s policy, could be as high as 100 or 120%) higher than the introductory rate they re allowed to present to customers. A 40% jump is normal off of a promotional rate because month to month customers are paying a premium by not buying in bulk, and the volatility of the natural gas market and its fluctuations cause the REP s to purchase the electricity at higher prices as they go, which means customers pay higher prices. That s to be expected, but it s still a problem when shoppers will have no idea at what rate they re paying 2 months into the future. How do you compare price points amongst providers when the prices for month to month plans can be a complete mystery?

This all came to a head at the PUC due to First Choice Power starting to advertise their month to month plan on Power To Choose as 0.0 per kWh, basically selling their product as Free Electricity. Whenever any customer would sort through the plans by price, First Choice Power is at the top of the list. But what isn t immediately clear to the customer is that the electricity in question isn t free, it s just free for the first billing cycle. Obviously, this raised the eyebrows of the PUC, because even though common sense would tell you that the electricity wasn t, in fact, free, it gave the customer zero insight as to what the rates would be going forward.

The First Choice situation really just aimed a spotlight on what was already an existing concern by taking their strategy to the extreme. The real problem is that many providers aren t clearly posting historical rates for these plans or any kind of estimation of what their electricity rates will be after the expiration of the promotional rate. Some providers do a good job of this, and some providers do not do a good job of being up front and clear. Some REPs don t make the current rates available to anyone unless they re already an existing customer, which creates exactly zero benefit for anyone currently shopping for a new electricity provider or plan. When it comes to giving customers an idea of what prices might be going forward it is a mixed bag, and there is no market consistency. Reliant Energy and Mega Energy do a real good job of giving customers access to historical rates, with an easy to click link customers can see while shopping for plans. Bounce Energy also has a web link for customers to access historical rates. Most providers seem to have a URL for historical pricing listed in the depths of their EFLs. While not the easiest way to find it, at least it s present if someone really wants to go digging for information. But they will have to dig. TXU Energy is the only provider I discovered that didn t have any kind of link to historical pricing for their month to month plans anywhere I could find. This might be because all of their plans are indexed and offer a formula to determine pricing, however. But it didn t change the fact estimating what pricing might be going forward was extremely difficult.

Additional Market Confusion

Muddying the waters even further is that some providers have different prices all across the internet or varying sales initiatives for the same plans. There s no uniform rule in regards to how plans are priced from one place to another for a provider, and in some instances a customer could end up paying a higher rate for their electricity simply because they shopped at one website versus another. In other words, even though the plan name you select might be the same from one site to another, and even if your usage remains constant, you might end up paying more for an electricity plan depending on where you ordered it. The point in doing this appears to be to take advantage of the confusion.

A perfect example of this is Reliant Energy. A sample of their plans across 3 different websites shows three wildly different price points for their Monthly Flex 100% Texas Wind plan. On the Power To Choose website, it is advertised at a rate of 7.3 cents per kWh (kilowatt per hour). On the Reliant Energy, website, it s advertised at 11.4 cents per kWh, an increase of almost 60% of the advertised price. And on the website for Save On Energy, it s advertised at 11.8 cents per kWh. This is apparently within the rules, and I m sure that many different REP s use this strategy within the marketplace. Reliant even goes so far as to show different EFL s for the same plans.. If you look, you can note a different version number for each EFL printed in the bottom right corner of the page identifying that the plan and pricing is actually different based on where the customer is shopping. This practice is apparently within the rules, although it does not appear to be common for most of the REPs based on the various sites and plans that I ve viewed.

In short, there s no consistency in the marketplace, and there could, and should, be more transparency for shoppers to easily understand exactly what they re getting into from a pricing perspective on month to month rates.

What Are The Proposed Changes?

In response to these developments, PUC Commissioner Donna Nelson proposed that all plans with promotional rates (variable and potentially qualifying indexed plans) will have to advertise their plans at the rates current customers are paying. In other words, the plans will be advertised at the rates actual customers are paying after their promotional terms have expired, which is a much more accurate snapshot of what new customer bills will look like in the future.

REPs would be forced to advertise their electric rates on what will be a much more level playing field. Promotional rates will appear in a special text or rollover on Power To Choose, so shoppers will still be able to compare promotional deals and calculate who has the better savings for their first month, and move forward. But at the same time, they ll have a clear expectation of what their rates and their bills will look like in the future after the promotional rates expire. I believe this is a great step towards helping Texans navigate the deregulated electricity market with improved understanding and confidence.

So When Does This Take Effect?

Well, not so fast. Right now these changes are just discussions that are being shared between the PUC and the electricity companies. Several REP s seem to be pushing back against these rule changes for different reasons. One of those I ve heard voiced is that this kind of change in policy isn t something that some of the REP s can handle from a technological and established business practice standpoint. I have to admit, I don t really understand how any kind of technology issue could ever be a reasonable excuse for not adopting this kind of market transparency. It does seem clear that there would be an operational nightmare of not only managing the different promotional rates but also all of the varying price points afterwards for any REPs handling the pricing in at least one of the ways I ve alluded to above. However, that issue is of those particular REPs unique creation and they should largely be able to handle it without too much difficulty. Or if it is too difficult, perhaps they change their business practices to something that makes more sense.

In my opinion, if any REP has technology that can t adapt to changes like this, that folly is their responsibility to remedy. Their systems should have been more modern and robust to match with the changing market, especially considering how much technology goes into every aspect of our daily lives. You d think a company s IT and technology systems would be able to easily support and account for market changes such as this one. Additionally, this kind of thing is what a free market is all about. Competition forces companies to be more flexible and efficient and to adapt with the changes to stay competitive and successful. America doesn t halt our technological advancement and changes because other countries can t keep up with us. And we don t fail to rebuild bridges that have collapsed simply because someone isn t paying their taxes. Technological concerns is a tactic companies often use as a way of buying time to prepare a counter-proposal.

Another suggested item I ve heard about is a counter-proposal to the PUC that extends the period of a promotional price moving from the first billing cycle to the 60 days from the service start date. So basically, an REP would still be able to advertise at their promotional rates as long as they gave the customer the introductory rate for two months. Personally, I do not see how this helps things at all. It does nothing to solve the current problem which is market transparency and the ability to understand what a person s bill will look like after the promotional rate. It simply extends the amount of time before a customer is hit with what could potentially be a staggering bill. Beyond that, no doubt the delayed rate adjustment would ultimately lead to an even higher adjusted rate in the next billing cycle.

This notion might actually benefit proactive customers, but I can actually make an argument that this could potentially be worse for consumers overall. They could be sailing along for two months with no idea of what their bill will be, only to be slammed in month 3 and 4 with an obscenely high kWk rate, say 15 cents. An REP could do this, make back the money they lost by giving away 2 months of electricity and be into profitability at a higher kWh for that customer by month 4. I simply fail to see how this concept would be beneficial to the consumers at all. It doesn t create the transparency and relative accountability for REP s that would benefit the consumers in the marketplace. As best as I can tell, the people who think this would be a good idea are probably the ones who don t want market transparency and don t want to have to change their policies and practices.

A Final Consideration

I will definitely say this: It will be interesting to see the final outcome and if any open notes are released to see which electricity companies were lobbying to keep things at the status quo and were therefore opposed to market transparency, as well as the providers who were encouraging and supportive for market changes that helped the consumer navigate the market. In the meantime, every Texasresidential electricity customer should be vocally in favor of any changes that increase our ability to understand and easily navigate the at times confusingTexas deregulated electricity market. And in this case that support means campaigning for improved market transparency.

About the Author: Matt Oberle is the manager of Texas Electricity Ratings (

TexasElectricityRatings.com

), a website that allows customers to take part in the deregulated electricity market of Texas. Consumers can submit reviews about their electricity providers as well as shop by price and company ratings.

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