Like most people looking for a residential electricity plan, you scour the internet in search of the cheapest available rate. When you finally find a list of offers, an enticing 1.2¢ rate appears at the top of the search.
1.2 cents! Currently, wholesale electricity prices fall into the 2-3¢ range - making a 1.2¢ rate seem to good too be true. I guess that means, even experts in energy are suspicious of how such a low rate can be possible.
I needed to ask myself a few questions. Is this 1.2¢ rate actually cheaper than say a 5.5¢ rate? And if so, how do those numbers add up? Even though I asked myself these questions and had a general idea of the answers before contracting my residential electricity, I decided to sign up to get the answers firsthand.
Are 1¢ electricity rates to good to be true?
As someone who's been in the energy business for many years, family and friends tend to ask me, “JB, what do you think about this cheap rate or that cheap rate?" I've never felt 100% comfortable telling them to lean one way or the other on these "too good to be true" plans – I was always somewhat skeptical.
From my experience, many of these low rates are actually a big gimmick. For example, the "Free Nights and Weekends" plan actually ended up costing people more than a standard plan more often than not. As much as the people believe they can run their dishwasher, pool pump, and other applications at night, there is no way they will actually get the better of a large retail electric supplier with these minor adjustments.
Suppliers charge high premiums for electricity they sell during the day – when the price of electricity is most volatile and expensive. During nighttime hours, however, electricity is predictable so it's cheap. Although you might think you're saving money with a "Free Nights and Weekends" plan, the prices balance out on the total bill. The old adage applies, “if it’s too good to be true, it probably is." In reality, you're much better off on a fixed-rate plan.
So the big question is, what fixed rate plan will actually work for me? When looking at the 1.2 ¢ rate plan, obviously something wasn't adding up correctly. It seemed much too good to be true, but the 1.2 ¢/kwh was listed under the fixed plans, so why would I not sign up for this "cheap" plan - I decided to jump in and sign up.
1¢ Rate Increased My Energy Bill
In the first month, my low 1.2¢ rate hit my autopay credit card. I was beaming with pride at the money I'd saved. I gave myself a big pat on the back, thinking the rest of my contract term would be the same.
Then the second month rolled around for the months of June – July. I got my bill, and lo and behold, my monthly electricity charge was nearly 6x what I thought it should be. I was completely dumbfounded. I looked at my usage level for the month and that’s when it hit me – it had been a HOT month. It had hardly rained, without a cloud in the sky to bring relief from the heat. My family and I had rarely left the house too (3 young kids will take a toll on your social life).
So there I was, a 10+ year veteran of the electricity industry, and I was paying a substantially higher amount than most people for residential power. So much more in fact, that I sent my bill to a colleague to see what she thought. She openly laughed, asking me if I realized how much more I had paid for my electricity bill than my available options. Thanks a lot.
What I Learned
In truth, the 1.2¢ plan was a bit of an experiment. I had known what I was getting into for the most part, and I was excited to see the results. I wanted to make myself vulnerable, because after all, experience makes for the soundest advice.
I knew the 1.2¢ plan was fraught with danger, and when I say danger, I mean restrictions. The main restriction being that in order to qualify for the 1.2 ¢ rate, my electricity usage for the month needed to be between 1,000 – 2,000 kWh/mo.
It seemed easy enough. I looked at my past 12 month electricity consumption and saw that I was within the 1,000 – 2,000 kWh range every month (granted, a few months were close to breaching the top of that 2,000 kWh mark). So I did the math and assumed that at the low 1.2 ¢ rate, I’d be okay if I strayed outside for one, maybe two months. But here I am, 3 months in, and I’m already losing the game.
You see, the supplier charging the 1.2 ¢ rate is banking on people doing exactly what I did. They are counting on you to: 1) sign up without doing your due diligence. They assume that simply seeing a flashing red beacon of "1.2¢ RATE - PICK ME" at the top of the search will be enough to convince you to sign up, and then 2) go outside the usage range so they can charge you substantially more money than the market dictates.
I’m in month 3 of my "experiment" and I know I’m going to get slammed this month because it’s been even hotter than June-July. Knowing that next month will bring on the 6.8 ¢ rate, I want to give others fair warning so that you don't have to find out the fate of a 1.2 ¢ rate the hard way.