Will Extreme Weather Cause Huge Rate Spikes?
Following Winter Storm Uri in February 2021, Texans are rightly concerned about their electricity bills during extreme weather. The term “variable rate electricity plan” has residents wary of choosing any plan that varies its price each month, which may result in sticker shock when the bill comes.
However, not all variable rate plans are created equal. We’ll explore some myths and facts about variable rate electricity to help you determine the right plan for your household.
To define the types, two main categories of prepaid plans are offered by Payless Power and most other Texas retail electric providers (REPs):
- Variable rate plans — The price per kilowatt-hour (kWh) fluctuates with the market and is a month-to-month plan, with no contract or early termination fees.
- Fixed rate plans — The price per kWh remains the same for the length of the contract.
Myth #1: Variable rates equal unaffordable price spikes.
During Texas’s historic storm of February 2021, power plants and natural gas providers went offline leaving millions of residents without power, causing electricity prices to spike due to such high demand on a very limited supply. Because of the duration of Winter Storm Uri’s extremely cold temperatures, some residents emerged with shocking $17,000 bills! However, this was only for a minority of customers who got power through companies with wholesale indexed pricing (see the fact below), not the variable rate plans available through Payless Power.
Fact: Variable plans do not equal wholesale prices passed on to customers.
Indexed, variable electricity plans pass real-time wholesale pricing on to customers, with prices varying every 15 minutes with enormous swings in rate prices. In February 2021, that meant up to $9 per kWh, or 75 times the average rate! Many wholesale power companies even tried to warn customers to switch to other providers to avoid the looming weather crisis, but for many it was too late because other companies couldn’t handle the load of new customers. These predatory plans were outlawed by the Texas legislature in May 2021, and a dozen such retail providers left the market or filed for bankruptcy.
Payless Power has never offered indexed, wholesale pricing plans. While more power was required to maintain indoor heat (with less power available), customers with fixed-rate and standard variable plans also saw higher energy bills during the 2021 weather crisis — but not the astronomical bills experienced by wholesale plans.
Yes, prices on variable rate plans fluctuate, but not the extreme of the now-defunct, real-time wholesale costs mentioned above. You can view the historical monthly rates of both variable rate and fixed rate plans to see the long-term pricing impacts.
Myth #2: Variable rate plans are always more expensive.
Because there are no contracts and no early termination fees, the average cost per kWh is typically more than the fixed-rate plans. For example, a Payless Power customer in the Dallas area may pay 13.5 cents/kWh on a fixed plan and pay an average of 15 cents to 16.5 cents/kWh for a variable rate plan. But the market cost of electricity also influences the price, so lower market rates typically equal lower bills for variable rate customers.
Fact: Long-term savings are possible with variable-rate electricity.
Energy-savvy Texas residents can achieve long-term savings with variable-rate plans if they understand the market. With daily usage alerts, customers can adjust their energy consumption during higher-demand, higher-rate seasons. Read these tips on how to conserve energy during hot weather and extreme cold weather. Additionally, during most mild-weather months when the demand on energy and cost is lower, variable rates can save money. Consumers on fixed-rate plans don’t enjoy the savings from dips in market rates.
If you’re moving during summer months, for example, consumers may choose a variable rate plan then lock into a fixed-rate plan when prices drop in cooler months. In weather without extreme swings of hot or cold over long periods of time, it’s possible for variable-rate customers to save hundreds of dollars a year if they pay attention to their usage and market rates.
Myth #3: Variable rate plans are too unpredictable to budget.
A fluctuating energy bill might seem too risky to some consumers. They want the predictability and security of a set price per kWh each month. But what may seem unpredictable for one customer is needed flexibility for another.
Fact: Variable rate plans provide flexibility.
Variable rate plans offer the freedom of no contracts. Fixed-rate plans typically mean contracts of 12 months or longer, with a set rate and early termination fees, sometimes leaving customers feeling stuck. The flexibility of variable rate electricity also buys you time to shop for the right plan. For example, if you are new to the area and in a rental property eventually looking to buy a home, a variable rate plan may be best for you. And the month-to-month plans mean no early cancellation fees.
Benefits of choosing a variable-rate plan:
- Flexibility with no contract or early termination fees
- Useful for a short-term residence or while shopping for a plan
- Lower costs and energy savings by adjusting consumption during higher-rate seasons and enjoying lower per kWh prices during market lows
When regulating the inside temperature of your home, extreme weather will likely impact electricity bills whether you have a fixed or variable rate plan. But it doesn’t mean crippling bills when you consider the long-term history of month-to-month pricing and reputable companies like Payless Power providing consumer-centric plans. Budgeting with an annual overview may help you decide which plan is best for you. Enter your zip code to compare Payless Power electricity plans in your area and find what’s best for your household.