In a state where electricity choice is both a right and a challenge, EnergyBot's latest research unveils significant discrepancies between expected electricity rates and the actual costs incurred by consumers.
The Texas deregulated electricity market offers consumers a vast array of choices, yet selecting the most cost-effective plan can be a challenge. This study investigates the discrepancies between expected rates and actual costs, utilizing interval usage data from 501 participants in the Dallas and Houston metropolitan areas.
Key findings reveal that real rates deviate from expected rates by up to 45%, with many consumers lacking the tools to accurately compare plans. Despite 87% of surveyed consumers prioritizing cost, 98% did not select the least expensive option when given a choice. The study underscores the need for tools to help consumers better understand and select the most cost-effective electricity plans.
Free nights and weekends plans are popular. Do they make sense for most Texas homeowners?
Our study takes 501 Texas homeowners and does a thorough analysis to determine which type of energy plan is best for each one. We use actual energy usage for each home and calculate the bills these homeowners would receive for each plan over a 12 month period.
To capture the energy plans that most people would encounter, we include the most heavily advertised plans and also those that rank the highest on popular comparison websites.
The study compares:
In 2002, Texas deregulated its electricity market, breaking up the monopolies held by regional utilities and allowing consumers to choose their electricity providers. This move aimed to foster competition, drive down prices, and encourage innovation in the energy sector. Deregulation provided consumers with the "power to choose" from a variety of electricity plans, transforming how electricity was bought and sold in the state.
Since deregulation, the Texas electricity market has experienced significant growth. As of 2024, the Public Utility Commission of Texas (PUCT) reports that there are over 130 Retail Electric Providers (REPs) (“Alphabetical Directory of Retail Electric Providers”) in Texas, offering a wide array of plans. Consumers can shop for electricity plans directly with the providers directly or through shopping comparison sites such as, powertochoose.com, the state-sanctioned website. Each platform showcases different variations of plans, providing consumers in deregulated areas with hundreds of options.
While the variety of plans allows consumers to find options that align with their seasonal usage patterns and financial goals, the complexity of these plans often leads to confusion and, in some cases, higher-than-expected electricity bills.
Despite the apparent variety and competitive rates, there are significant discrepancies between the advertised rates and the actual costs incurred by consumers. Advertised rates often apply to specific usage amounts listed on the Electricity Facts Label. Calculating the true cost for every month of the year requires time and tools that the average consumer may not have. This complexity can lead to potentially higher-than-expected rates and dissatisfaction.
The primary objectives of this study are:
The Public Utility Commission of Texas (PUCT) has established several rules under the Texas Administrative Code, specifically the Customer Protection Rules for Retail Electric Service Providers (RULE §25.474), to safeguard consumers. One significant requirement is the clear disclosure of all charges through an Electricity Facts Label (EFL). These labels were designed to facilitate "apples-to-apples" comparisons of different electricity plans by providing standardized information on pricing, contract terms, renewable energy content, and other essential details. Theoretically, EFLs make it easier for consumers to understand and compare their options.
The number of plans with non-traditional (irregular) rate structures has increased significantly. These plans include those with rates that vary based on electricity usage times, bill credits, or other usage stipulations. Although the PUCT removed plans with bill credits from the default search on powertochoose.com in 2019 to simplify choices and enhance transparency, as of 2024, four out of the top five plans on powertochoose.com on a given day still have non-traditional rate structures. This complexity continues to challenge consumers in selecting the most cost-effective and suitable electricity plans.
Our market research concluded that 73% of consumers are influenced by these advertisements and believe the advertised plans will save them money. The use of complex rate structures, such as multi-tiered rates and time-of-use pricing further complicates the process for consumers to determine if the promoted plan will actually result in cost savings.
This study collected data from interval usage data for 501 participants, categorized into different household types: apartments, small homes, and large homes. The dataset includes interval usage data for 12 consecutive months for customers served by ONCOR and CenterPoint Energy (CNP).
Consumers in the deregulated markets of Texas have the flexibility to shop for an electricity plan directly with providers or through comparison shopping sites. A 2024 survey revealed that 49% of consumers in the Dallas and Houston metropolitan areas prefer shopping directly with providers, while 48% use comparison websites to find their plans (with the remaining 3% not shopping online). Additionally, 80% of consumers reported seeing advertisements for electricity plans on television, billboards, or online. Of these, 43% signed up for their current electricity plan after being influenced by an advertisement, believing it would save them money. Furthermore, 87% of consumers indicated that cost is the most important factor when selecting an electricity plan.
The plans included in this study were chosen based on this consumer feedback, reflecting the most commonly selected options.
The plans analyzed were selected from various sources:
The study focused on various rate structures listed from the sources above, including:
The cost calculation involved analyzing the interval usage data to determine the actual monthly and annual costs for each plan. This calculation accounted for all charges, including energy charges, supplier fees, TDU charges, and any applicable bill credits.
The analysis revealed significant discrepancies between the advertised rates and the actual costs paid by consumers.
*The pricing and plans listed above were captured on June 26, 2024. Please note that these plans are subject to change and may no longer be current.
*EnergyBot will continuously run cost comparisons to provide the most up-to-date and accurate representation of the current market conditions.
The calculated Real Rate takes seasonality into account: how usage changes over the course of the year by using real interval usage data from each month throughout the year.
The study found that the real rate of electricity often deviated from the advertised rate by up to 45%. This significant variance underscores the necessity of calculating the actual cost of electricity based on the specific rate structure for each consumer's home to determine the most cost-effective plan. This complexity requires consumers to have a comprehensive understanding of their usage patterns and the various charges involved, which can be overwhelming and difficult to manage without proper tools and knowledge.
Selecting the most suitable electricity plan remains a significant challenge for consumers due to the complexity and variability of rate structures. The wide array of available plans, each with its own set of rules and conditions, complicates the decision-making process. Consumers often struggle to decipher multi-tiered rates, time-of-use pricing, and promotional credits, which can obscure the true cost of a plan.
A 2024 survey conducted in the Dallas and Houston areas presented consumers with the ten plans used in this study and asked them to select one plan to enroll for their home. Participants were provided with the supplier name, plan name, and advertised rates. Despite 87% of consumers stating that cost was the most important factor when selecting an electricity plan, 98% did not choose the least expensive plan.
Our research indicates that many consumers lack the necessary tools and understanding to accurately compare these plans, leading to suboptimal choices and potentially higher electricity bills. For instance, 50% of survey respondents selected a time-of-use plan (Free Nights & Weekends) believing it would save them money. However, as our study concluded, selecting this plan would cost the average consumer over $1,400 more than if they had chosen the plan calculated to have the lowest rate for their home. The consumer would need to change their energy usage habits to save with the Free Nights and Weekends Plan.
The perceived savings from promotional offers can be misleading, as the actual costs may differ significantly once the promotional period ends. Consequently, consumers face difficulties in identifying the most cost-effective and suitable plans for their specific needs.
This study aimed to investigate the discrepancies between advertised electricity rates and the actual costs incurred by consumers, focusing on the Texas deregulated electricity market. By analyzing interval usage data for 501 participants, the research highlighted the challenges consumers face in understanding and comparing electricity plans. The study also examined the impact of complex rate structures on the true cost of electricity plans.
Differences Between Expectation and Actual Rates: The study found that the customer’s expectations for cost and what they actually would be vary by 45%.This significant variance underscores the need for consumers to calculate the actual cost based on specific rate structures to identify the most cost-effective plans.
