Beware variable-rate deals. The popular electricity offers may look tempting, but they can become very expensive … very quickly.
What’s a variable-rate deal? In areas of Texas with electric competition, electricity is typically sold for a fixed-term or on a month-to-month basis. When you get a fixed-term deal, the electric company sells you electricity at a fixed price for a fixed number of months. This is great for avoiding unpleasant surprises. If your bill increases, it’s not because of an increase in the price of power, but just because you used more of it.
But variable-rate deals are different. These are sold on a month-to-month basis, and the rate can change at the discretion of your electric provider. This means that your bill can increase between one month and the next — even if you use the same amount of electricity. In fact, your bill can go up even if you use less electricity.
>Variable-rate deals also typically include plenty of fine print legalese that allow prices to increase substantially between months, typically at the “sole discretion” of the electric company. Sometimes, the retailer can increase prices for the vaguest of reasons or even for no reason at all. We reviewed one deal in which the retailer reserved the right to increase rates at their “sole discretion” and “by any amount.”
The Dallas Morning News recently reported on a number of complaints from residents who suffered big bill increases after a cold snap. It may be that many of the higher bills were simply the result of increased power use. But it’s also likely that some Texans may have been receiving power through variable-rate deals, and— unbeknownst to them — their rates increased. If their consumption went up and their rate increased, this would have resulted in a double wallop.
Other states have instituted reforms. In Pennsylvania, for instance, regulators have announced a number of new disclosure rules after consumers on variable-rate deals got socked with dramatically higher bills over the winter. In Texas, customer protection rules require that sellers of variable-rate deals inform customers on how to obtain information about the price that will apply in the subsequent bill. The rules in Texas also require retailers that sell variable-rate deals to post rate histories online. If an electric company offers to sell you a variable-rate deal, ask to see the rate history first.
Of course, in a variable-rate deal you can drop your electric provider during any given month without penalty. That’s the good news. But it’s nearly impossible for even the most diligent consumer to avoid getting dinged for at least one month if the rate goes up substantially. It’s also easy to pay more than necessary for many months if your variable rate inches up quietly.
Our advice? Unless you can really dig into the fine-print details of your contract, have the patience to closely monitor your billing and have the stomach for sudden price spikes — you should avoid these deals.
Is a policy analyst consultant for TCAP, a coalition of political subdivisions in Texas that purchase electricity in the deregulated market for their own governmental use. Because energy costs are typically a significant budget item to our members, TCAP is consistently looking for ways to save our members money, through cost-saving contracts, energy efficiency or demand response programs.