If you live in Texas, you know how important a good price is for your power. August temperatures can send your bills through the roof. A few years ago, the Public Utility Commission of Texas launched a website called PowerToChoose to serve as a centralized hub for all retail energy providers to post their offerings and give consumers the ability to shop around for their electricity. What started out as a great idea has now morphed into a pricing comparison site based on fine print tricks, giving the average customer little or no value at all when trying to actually to compare on price.

500, 1000, 2000

The original intent of the 500/1000/2000 metrics was to allow customers a quick glance into what the average price would be if they chose that particular deal. Simply, the 500/1000/2000 metric breaks down to apartment/small house/large house, and most consumers can quickly put themselves in the right bucket based on these metrics, pool owners notwithstanding. The real reason behind the 500/1000/2000 metric was due to normal pricing policies at the time, most retail energy providers charged a flat fee for consumers who used less than a certain amount of electricity. The retailers profits are normally built into the energy charge, but economic realities of the retailers fixed costs (people, office space, IT systems, etc) requires that for each contract processed, if a threshold of volume isn’t meant, they could literally lose money on the deal.

The flat services fees were nominal, but they had an impact on the 500/1000/2000 prices, as the flat fees were spread across the volumes in these prices. For example, if you got charged $10 as a flat fee and had 500 kWh of usage, then the $10 would look like $0.02 per kWh. However, if you use 1000 kWh, then it looks like $0.01 per kWh. If the energy charge was $0.05, then the 500/1000/2000 would be $0.07/0.06/0.065 respectively. However, the 500/1000/2000 prices don’t really give the consumer a good picture of what the costs of the entire contract will look like.

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If you have a smart meter, you have access to all of your usage data, down to 15 minute increments (which no one uses, but that’s a story for another day). If you go to https://www.smartmetertexas.com and register, you can access the data and print nice excel reports of your monthly usage, which is actually needed for a consumer to determine what the best deal is. Let’s take a look at my families’ usage last year.

Quite a range, from 508 kWh in Feb/Mar to a whopping 1824 in July/Aug. No pool, smallish home, built in 2005. The problem is the pricing – the 500/1000/2000 kWh prices are useless to me! Some months, the 500 kWh price is close to what I am paying, but for 5 months out of the year, I am using more than 1000 kWh. Without pulling my actual usage, and sitting down to do the math, the 500/1000/2000 representative prices don’t truly reflect what I am going to be charged.

1000 kWh Manipulation

The problem comes from the way the products are organized. When you put in your zip code and hit enter, the deals come up sorted by the 1000 kWh prices, lowest to highest. The retailer with the lowest 1000 kWh price is the winner, so to speak. They are the “top result” which is commonly gold when it comes to marketing. Using a parallel from Google, the result positioning for search can have a dramatic effect on “click through”, meaning the users will click on the top result 32.5% of the time and the top three get a whopping 61.5% of traffic share on Google. As a retailer, the PowerToChoose results that pop up after the user enters their zip code should hold the same value, where the top result is highly coveted, the top three a must and the first page essential. As a retailer, how do I go about getting these positions? Having the lowest 1000 kWh value wins and that’s where bill credits rear their ugly head.

Let’s look at the top three spots on Feb 16, 2016 at 7:00 AM for a downtown Houston zip code, 77002. The first result from Infuse Energy has a 3 month contract with the 1000 kWh price of $0.013 per kWh. Less than 2 cents for my power, let’s sign up immediately! Slow down, buddy. Let’s look at the reality of the contract otherwise known as the fact sheet. The fact sheet gives you what you really need to know about the contract you are signing. The fact sheet, in combination with your historical usage, can give you a very nice picture into what you’ll actually be paying. First, let’s assume you are free and clear of your previous contract and can sign with whoever you want. If I signed up for this three month contract on Feb 19 and used last year’s usage as the estimate, I would assume I would use 508, 725, and 909 kWh respectively over the next three months. But looking at the fact sheet, the price has a full paragraph with the use of bill credits – “$90 Usage Credit per billing cycle if your usage is greater than 999 and less than 1,501 kWh; $40 Usage Credit per billing cycle if your usage is greater than 1,500 and less than 2,001 kWh”. So according to their bill credit structure and assuming my usage holds true based on historical, then I wouldn’t get any bill credits and would end up paying closer to $0.11 cents per kWh – not anywhere close to $0.013 advertised by the 1000 kWh price. If over the next three months, you are using a little more than 1000 kWh every month, then this deal is awesome for you and you’ll get a rate closer to the 1.3 cent advertised price.

I hear what you are saying and I agree with you – caveat emptor. I should know what I am buying and ultimately, it’s up to me to understand the contract but for me to properly gauge the pricing and impact of the contract I am purchasing requires me to know my monthly usage for the past year and to take each and every prospective deal and map out the bill credits, minimum usage fees, service fees and other fine print items based on my usage patterns to determine what the best price is. If this is reality, then the only value PowerToChoose is to me is an aggregated place to find all the fact sheets.

What needs to change

The 500/1000/2000 values used for the ranking are ineffective and can be manipulated by retailers. They need to be replaced with a value in which consumers can do apples-to-apples comparisons across all the retailers in their service area. Assuming we are leaving out the one-off scenarios, such as contract termination fees or service cut fees, there are two different ways consumers can compare deals in an effective manner.

The more complicated but most effective way to accomplish this is to get PowerToChoose and SmartMeterTexas to create an interface to share usage data. As a retail customer, I would love to be able to log into PowerToChoose, give my ESIID or my service address and authorize PowerToChoose to pull my historical usage and apply that usage to the contracts available to show a total cost of the contract. If this is possible, then consumers would be able to compare contracts based on term (3, 6, 9, 12, 24 months) and do a true comparison between retailers. However, this is easier said than done. First, the interface to pull data from SmartMeterTexas would be difficult based on the current processes in place as SmartMeterTexas has some tight and unwieldy security requirements on sharing data outside of retailers themselves. Additionally, all of the fine print in the contracts would have to be standardized in a way to allow the software to do the math without having to parse the text of the contracts, which would be impossible using the current structures. Both would create fairly large changes to the ecosystem and without financial incentives to do so.

The second way would be to produce a standardized set of contracts for 3, 6, 12 and 24 months, where all of the baseline information is exactly the same across retailers except for the energy charge component of the price. Doing this would allow the multiple variable spreadsheet math needed by consumers today to be reduced down to comparing a single number between retailers, but to get a monthly estimate of the bill would still require some manual math using your historical usage.

Here’s an example of a standardized contract. Every retailer can offer the exact same contract terms and compete only on the highlighted energy charge.

 

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Conclusion

I don’t blame the retailers for the prices they publish. The residential and small business retail energy market is highly competitive and the ability to get a consumer to even click is highly sought after. As a retailer, you are almost forced to play the game, even if you don’t agree with the practice of using bill credits to manipulate the 1000 kWh price because of the value of being the “top 3” or “first page”. In a sometimes cutthroat and non-differentiable market, such as retail power, airlines, cars and others, companies are forced down to the lowest common denominator of marketing because not doing so, holding the proverbial moral high ground, brings the possibility of loss of market share, revenue and profitability – something that gets marketing people updating their resumes. Until the PUC decides to make some changes, the PowerToChoose website will continue to be a land of caveat emptor. It’s up to you to do the math.