Compare Electricity - Variable Rate Plans

A nice feature of the "Power to Choose" website is the option to look only at "variable" or "fixed" rate plans, as opposed to all plans together.

Why is this important?

Simply because there was (or still is) a lot of consumer confusion with regards to the differences between the two types of rate plans.

My understanding of the variable rate plan is that the price can change from month-to-month, and in some cases without a cap to the actual rate of increase. Since Texas electricity rates are particularly sensitive to the price of natural gas (the biggest source of generation here), the direction of variable rates depends upon that price each month.

The primary draw to variable rates are lower prices than fixed rates (secondarily is the flexibility to switch reps at any time without incurring a cancellation fee).

Consequently, the price variability can come back to haunt, as seen last year when Texas temperatures reached record highs (70 days over 100 degrees here in Dallas!). I imagine that a lot of folks on variable rate plans saw significant rate increases over the course of the summer.

Here are some examples of variable rate plan language from various reps...

Like this one from Direct Energy:

The 30% limit on monthly rate increases sounds okay initially, but a $0.10/kWh rate would go to $0.13/kWh, which is pretty high, and could go higher still the next month.

How about this one from Gexa:

A bit better on the 25% monthly rate increase, so a $0.10/kWh rate would go to $0.125/kWh, however, it could still go higher in subsequent months.

Think that all variable rate plans have this sort of protection in place?

Check out these examples from Mega, Pennywise and Reliant:

A bit scary to say the least as rate increases are not capped and up to the "sole discretion" of the retail electric provider.

That last bit of language does make some sense as the electricity that we're paying for has to be procured by the rep in the first place. The rep has to know a few things like how much power their customer base may use that month and what the weather will be like in order to contract generation for the right amount of energy. Get any of that wrong and my guess is that some (or much?) of the cost burden gets passed on to variable rate customers, on top of the actual rise in the cost of energy that month.

Bottom-line, variable rates can provide lower rates, but they are a risky bet and I (stretching it here) think they can only make sense during milder seasons, like the fall or spring.

A better bet would be a fixed rate plan, which I'll cover in the next post.