03/03/2024
🤨It confuses people when they enroll for or are looking for a “fixed rate” electricity plan and when reviewing the (EFL) Electricity Facts Label average rates, they see variation at 500/Kwh, 1000/Kwh, and 2000/Kwh usage….”How is this fixed, but slightly different rates?”
Let’s explain based off the example pic provided for educational purposes (example being in a deregulated area of Texas where you choose your electricity provider)…
You will always be billed by 2 entities/companies although you do choose one company…
1. Retail Electricity Provider (REP) such as TXU, Reliant, Green Mountain, Constellation, Frontier, Cirro, Rhythm, etc.
2. Transmission Distribution Utlitity (TDU) or also known as the Transmission Distribution Service Provider (TDSP) and You do not choose* this company. In Central Tx this company is Oncor. There are currently six TDU’s providing service to different areas of Texas: Oncor, American Electric Power (AEP) Texas Central, AEP Texas North, Lubbock Power & Light (LP&L) and Centerpoint Energy. These companies are responsible for the infrastructure of the poles and lines and repairs during outages.
You will pay both companies and they have separate charges as listed in our example:
* (REP) 8.822/Kwh or cents/per kilowatt-hour. This rate does not change and is what they contractually agreed to charge you for 1,2,or 3yrs, so YES a fixed rate..although not the rate you need to focus on when pricing providers. Once again it does not change…not until the contract term expires and that is a whole different story.
* (TDU) 5.098/kwh & $4.23 monthly fee
* So now let’s add all the above charges together:
* REP 8.822/kwh + TDU 5.098 = 13.92/kwh being charged by both. The 13.92/kwh will be multiplied by your monthly electricity usage and lets say 500kwh was your monthly usage
* 13.92/kwh, move the decimal over .1392 x 500kwh (monthly usage) = $69.60, now we can’t forget to add that monthly charge to it… $69.60 + $4.23 = $73.83 (this would be your final monthly bill minus taxes that you actually cut a check for)
* So we only really care about what we truly have to pay for a final bill right? Well that final rate that includes all the pricing is what’s known as the Average (AVG) rate….and this is exactly why I tell people only the AVG rate matters. Customers want to know and understand everything they are being charged for as much as possible and the AVG rate is the most accurate or truest representation of that. It is also why it is required by law to be available in the Electricity Facts Label document but most companies don’t put it out there front and center, you have to dig for it and then understand it.
*Now if you take your final monthly bill amount at $73.83 and divide it by kwh used for the month ( $73.83/500kwh) = .14766 or 14.766 which rounds up to 14.8/kwh and this 14.8/kwh matches the average rate listed at 500kwh usage on the EFL example.
* When you do this with your own bill it should be very close to the AVG rate being charged on the EFL, it may not be exact because of taxes (my example did not include taxes) but it gives you a very very close idea of what you are paying overall.
* OK, that’s all good to know but still didn’t explain why a Fixed Rate Plan shows some variance or deviation among the AVG rates listed at 500kwh, 1000kwh, and 2000kwh usage?......Remember that flat fee monthly charge of $4.23 cents? The variation in the AVG rate at different usage levels in a fixed-rate plan is primarily influenced by the monthly charge, regardless if that charge is by the REP or the TDU. At lower usage levels, such as 500 kWh, the flat monthly charge represents a larger portion of the total bill, resulting in a slightly higher average rate per kWh. Conversely, as usage increases to 1000 kWh and 2000 kWh, the flat monthly charge is spread out over more electricity consumed, leading to a lower effective average rate per kWh.
I know this was a completely long nerded out detailed explanation with more than you may want to know but hopefully it helps consumers overall understand the confusing pricing in the residential electricity space and therefore helps consumers make better and more informed decisions that they are comfortable with and not feeling gouged or taken advantage of. (Prices are already ridiculously high enough and we all want to know we’re at least getting a fair deal).
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