Posted by: Frank Eakin | June 5, 2019

The Most Common Examples of Electricity Gimmick Rates

What are examples of “gimmick rates”?

Even the largest light companies (electric companies) in Texas have gimmick rates and plans. Some plans that are gimmicks can reduce the cost of electricity for homeowners with certain usage patterns, and others are designed to stack the deck against virtually all customers.

This is why it’s so important to enroll in an energy plan with a trusted electric company who will not intentionally deceive you. Read reviews of Texas electric companies and check our list of the most trusted light companies. Also, check our Electricity Rate Chart to review energy plans side by side.

Free Evenings Plans:

Energy plans offering free electicity every night or every weekend are a common marketing tactic from REPs in Texas.  The truth is these plans are often only a good deal for a relatively small number of customers. The daytime weekday rate for these plans is usually highly inflated, so when you’re using energy outside of your free time, you are paying much more than the market average for electricity.

The Electricity Facts Label (EFL) will help you determine what you’ll actually pay under these plans, since the rates per usage level listed at the top of the EFL reflect an average of all hours of usage. Plans that tout “free” usage almost always have a higher than average rate, which means they will probably not give you savings on your electricity bill. One of the most advertised examples of this type of plan typically has an average rate of over 14 cents per kWh!

Month-to-month Plans:

There are some valid reasons to choose a month-to-month energy plan from an REP, but they are unusual.  If you wish to switch providers every month or two to take advantage of cheap introductory rates offered by month-to-month plans (which last a very short time), or electricity market rates have spiked recently, you might want the flexibility of a month-to-month term.

However, rates for month-to-month plans often change quickly and drastically, and usually are not in the customer’s favor.  If you are on a month-to-month plan, your provider may have advertised a low front-end rate, but they often dramatically increase the rate after a short period because most customers don’t monitor their rate each month. If you don’t monitor it and cancel service when the rate increases, you may be in for a significant billing surprise.

It’s normally a better decision to lock in a good rate for at least a year.  Then you can revisit the market and switch to a lower rate with a different REP at the end of your term, or renew with your current provider if you’re happy with the service.  Either way, you won’t have to constantly worry about what you’re paying for your electricity.

Narrow Range Tiered Rate Plans:

They offer low rates, but your monthly usage must stay within a very narrow range or you’ll likely pay a high rate. For example, the plan’s EFL may show that the energy rate you’ll pay if you use 1000 kWh in a given month is only 6 cents/kWh, but the fine print may effectively state that if you dip below 1000 kWh or exceed 1,200 kWh, the rate is 20 cents/kWh! It’s almost impossible for your usage to stay within a small range of just 200 kWh, especially due to the large fluctuations in Texas weather.

However, it’s important to note that there are legitimate plans with very low rates that are based on reasonable monthly energy usage ranges. You’ll just need to carefully read the EFL and make sure that the plan fits your home’s usage pattern.

Cash Reward Plans:

Some providers offer dollar rewards when you sign up, sometimes for hundreds of dollars, but it’s a good bet that you’re paying for the reward with a much higher rate. And many times cash reward plans are only offered for 24 or 36-month terms, so you’ll pay a high rate for two to three years. Always review the EFL of each plan to determine the rate you’ll pay at various usage levels, and compare the rates of cash reward plans to those of regular straight-forward rate plans. You’ll find guides on how to read an EFL and choosing the correct plan for your home at HomeEnergyClub.com.

No Cancellation Fee Plans:

If a provider offers to not charge you an early termination fee, make sure that the plan you’re offered doesn’t have a high rate. The odds are good that the provider is offsetting the loss of cancellation fees with a higher energy rate you’ll pay each month. There’s no free lunch when it comes to energy plan offers.

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