In this executive insight, Energy Ogre’s Chief Operating Officer David Kinchen examines why many people that signed up for a long-term electricity plan in 2022 need to take another look at their electricity plans.
We’ve heard it our whole lives: Stop overpaying.
Stop overpaying on your taxes, for airfare, for gasoline, etc. Of course, most people hate overpaying for things, but change isn’t easy. It’s often more work or requires specific knowledge to get the best deal. Even then, are you sure you got a good deal? As time goes on, is it still a good deal? This is also true when it comes to your home electricity bill.
Determining Energy Rates in Texas
Energy rates depend on a variety of factors, with weather as the main one. For us Texans, the weather has been intense the last few years. We had freezing conditions in February 2021. Then in 2022, a hot summer was followed by a cold winter. And then this year? It was one of the hottest summers in recent memory. I’ve reviewed thousands of bills for Energy Ogre, and we certainly saw the weather play a factor in electricity usage and bills. But another thing is clear, many people are paying more for electricity at the moment than they need to be. But why? Let’s take a look.
As many are aware, in the spring of 2022, natural gas prices increased far above recent norms, and that continued into the summer. This ultimately led to some of the most expensive electricity prices in recent history. Texans suddenly found themselves looking at prices that were double or more than what they were used to.
This sudden spike in energy costs led us to a market condition called backwardation—that’s where the current price for a commodity is more expensive than it will be in the future. But, we all need electricity and you can’t just decide to go without it until prices come down. It was not a fun position to be in, and many people saw longer-term contracts as a solution. Because the market was in backwardation, the longer-term contracts looked ‘cheaper’ than the shorter-term contracts. Seems like a no-brainer right?
Well, right off the bat, we had a small issue—the longer-term contracts were too expensive compared to what they should have been priced at, when considering the natural gas or electricity futures at the time. What this meant was the wholesale price was lower than what people locked into with their residential and commercial contracts. Still, people went ahead and got locked in at the peak of the market.
Fortunately for this busy Dallas mom, Gena G., she was able to switch to the best plan in her area after being stuck in a high-priced rate. Her new plan was chosen for her by Energy Ogre. As a result of this new contract, Gena saved nearly $3,500 in her first year as an Energy Ogre member.
Where Are Electricity Rates Now?
And that brings us to today. Based on our information at Energy Ogre, it appears a lot of Houstonians have stayed in longer-term contracts. We see this in the amount of time people have remaining on their current contracts when they switch to our service. Early in 2022, people would have an average of five months left. But now, for August-October 2023, on average people have a year left remaining. And worse, their previous rates are higher than what’s currently available.
On average, the people coming in with a year left were paying 18-19 cents per kWh effective rate (energy charges plus delivery). On the market now, you can easily sign up for a new plan with a 14 cents per kWh effective rate. Those four or five cents really matter. Think about it, if you use 2,000 kWh a month, you’re saving $80-$100 a month.
Are you curious what prices look like in your neighborhood? Use our tool below to see how much the lowest 6- and 12-month plans cost today.
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What You Can Do To Improve Your Electricity Bill
Long story short, if you got into a long-term contract from mid-2022 and on, you should take a look at the market and see if it makes sense for you to switch to a lower contract rate. The market has come down materially from the peak. Over the last year, I’ve seen a record number of people where it made sense to exit their current contract into a new one. But many people aren’t.
Why is that? I typically find that either people aren’t paying attention or they are hung up on an early termination fee (ETF). For anyone who is currently locked into a longer term electricity contract, you really should look to see if a better deal is available. You have the right to pay your ETF and exit your contract at any time.
How do you decide? It just takes a little math. What you want to do is find your termination fee from your plan’s Electricity Facts Label (EFL). Then, shop the market, find a top rate and compare it to the rate you’re currently paying. You can figure out the difference and then multiply that by how much usage you will use for your remaining contract term. If that ends up being more than your ETF, it very well could make sense to switch.
Basically, I’m saying don’t overpay for electricity. But, I also get that it's easier said than done.
Are you curious how your current plan compares to the best plans on today's market? Are you wondering why your neighbors always have cheaper electricity bills? If so, please run our Savings Calculator below for a free savings projection. We'll tell you exactly how much money you could save when Energy Ogre finds your next plan!
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