Tag Archives: cheaper electricity rates

Unraveling the Electricity Pricing Mystery

Many people ask “How is electricity priced” and “What makes the price of Electricity move up and down so frequently and many times seasonally?” Without getting entirely too technical, we’ll try and explain this pricing and free market mechanism in Layman’s terms.

First of all electricity has been and always will be produced by a generator consuming some type of fuel source.  Today, numerous fuel sources exist that can be used to generate electricity.  All of these fuel sources; solar, wind, coal, natural gas, fuel oil, or lastly uranium in nuclear units, have differing costs.

 Wind Turbines

Wind that turns a wind turbine, the sun that heats a solar panel, or water that turns a turbine at a hydroelectric dam, we might call FREE sources of fuel.  BUT, these wind turbines, solar panels and dams have costs to manufacture, install and commission the equipment that must be paid back over time.  This capital is returned to the investors by the generator selling electricity into the wholesale power markets.  The idea is to hopefully sell the power above the cost it took to: produce the power and the other costs involved to keep the generator continually in good operating condition so it can generate and sell electricity.

The price of power in the wholesale market is determined by the demand for the electricity.

  This supply/demand relationship is why in the summer months in Texas, consumers tend to see higher electricity prices.

These higher electricity prices, in August versus March, are a direct result of the generators that are being called upon, or dispatched, into what is called the market generation stack.  In March there is not a great demand for air conditioning, but in August, the electricity demand to keep Texans cool is significant!  Also, as consumers, we use electricity differently during different parts of the day.  During the night we are sleeping and not demanding as much electricity but when we return home from work at 5:30 in the evening we may want the house cool, so our electricity consumption rises with the air conditioning load.

 

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As the demand for electricity rises the stack begins to get taller as more and more units are called upon and dispatched.  Below is a graphic of a generation stack from a U.S. power market other than Texas, but the illustration applies to Texas, as well.

Market Price Graph_Lyman Wilkes

As the graph above shows, the greater the demand for electricity, the more generation units must increase output or come online as can be seen by the Peaking (purple) line adding to the amount of electricity generated and so the price of electricity will rise.  As the less efficient generation units that require higher prices for their generation and investment return to their investors come online, the market heat rate rises.  Simply put, heat rate is a measure of the efficiency of a generation unit to convert fuel into electricity.  A nuclear generator or a Qualified Facility (QF) are generators that are running almost constantly so they are what is called baseload and are some of the lowest cost generation in the stack and generation that cannot move up or down easily with changes in demand.

Being smart about how we use electricity and how we shop for electricity, is the best way to get the lowest electricity price.

In conclusion, it is the demand for electricity that affects the market prices whether it is the time of day or time of the year.  The graph above shows hypothetical prices for electricity occurring over a 24 hour period ranging from $28 to a high of $49 per megawatt hour.  As consumers, we buy electricity by the kilowatt hour, or 1/100 of a megawatt, so this equals 2.8 to 4.9 cents per kilowatt hour.  Also, the steepness of the valleys and peaks will also change during the different times of the year. We hope this blog helps you understand this component in the electricity market.  Stay tuned for more.

I Want a Pay-as-You-Go Electricity Plan and it’s Not What You Think.

I’m not broke. I have pretty good credit these days and I can afford to pay once a month for power. I have a social security number, a co-signer if I needed one (thanks, mom!) and access to all kinds of post-paid electricity products. So why the heck do I want to try a “pre-paid” or Pay as You Go plan for my very own home in C-Town, USA?

The story starts with two Payless Power employees coming into the office this morning to chat over coffee about why Pay as You Go is a great addition to our site. We already wanted it. My (albeit simpler) thinking was that there is a whole world out there of folks with no credit and that a no-deposit, cash option, pre-pay, or pay-as-you-go electricity plan would be a good option for those folks… but now I want it for my family, and its not JUST because you get a cool text each day to tell you how much power you use or because you can call customer service for free and talk to a real person. It might actually be great for our planet. (Plus you get a cool text each day and get to talk to a real person for free.)

Phillip Armenta, Director of Sales at Payless Power mentioned explained the process to me. He explained that it isn’t really pre-paid anymore, “Literally, it is paying as you go one day to the next based on household needs and customer awareness.” He went on to explain that his customers get notified of their consumption via text, which means that, “with real time readings, I could make changes immediately that I can see within a day or two.” Therefore, pay-as-You-Go users are engaged and cognizant of their usage and so they use less power over all. It’s like they put a little pink post-it on your phone every morning.

Little pink post-its

 

Phillip says their pay-as-you-go plans offer “real time readings for real time savings.’” Of course!

Many of us want that magic pill right? If I am going to lose weight, I do not want to eat less food or move my body, I wish for a pill to make me not only thin but toned too. If I want to pay less for power, I don’t want to watch consumption (turn the bathroom light off, Terra!), I might prefer to just find a cheaper electricity rate. Sometimes the obvious way seems….hard. But Pay as You Go option makes it all seem pretty simple.

Candidates for Pay as You Go plans may not have access to the lowest electricity rate in town so what do they do? They use less power. THEY USE  LESS POWER!

These savvy customers may find that their bills are equivalent to that fancy post-paid plan holder’s bill AND they are helping the grid by conserving energy. Doesn’t seem like a “second rate” rate after all, does it?

 

 

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What Gives? 13 Reasons Why Your Neighbor (Seems to) Have a Lower Electricity Rate

 

What changes rates from business to business in the same zip code? Or, as my customer put it, “What gives? Am I paying a higher rate than my neighbor?”

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Great question. Knowing that we shopped his rate with 13 suppliers who like muti-metered accounts (this customer is an RV park owner discussing a neighboring RV park up the road), I suspected that his neighbor’s “lower rate” does not necessarily mean he has a lower bill. The way to know for sure is to get from the neighbor a bill copy, a utility usage file, and a copy of the contract he signed. This might be intrusive unless you are really great friends so in the end it can be hard to know for sure.

Instead of staying awake at night scolding yourself with what you should have done better to get a lower rate, try this instead: Realize that maybe you have a great rate, after all. There are plenty of good reasons why rates vary between businesses!

So here it is, 13 Reasons Your Neighbor Might Seem to Pay Less for Their Power:

  1. Number of Meters – The number of meters you have can make your location more or less desirable to a supplier depending on who the supplier can better service. Some suppliers are better suited for multiple metered facilities. Generally the more meters you have, the higher the rate (unless there are per meter fees.)
  2. Seasonal Usage – If you use most of your power in a few months, your rate can be higher. This information can be found on your utility usage file.
  3. Load Zone – This has to do with where the power is delivered to. Even if just a few blocks away from each other, supply charges can vary based on location.
  4. Load Profile – This information is also found on your utility usage file. If you have a “low load” profile and your neighbor has a “high load profile” then his pricing might be lower.
  5. kWh used – Generally the more kWh’s your business consumes, the sharper the rate.
  6. Meter Fees – As I mentioned above, there might be hefty meter fees as high as $15/month per meter, hiding behind that seemingly lower rate.
  7. Portals or Other Ease of Use Tools – These handy supplier tools are not free! If you can log in and turn meters on or off in a portal to avoid hefty delivery charges when the meters are not in use, that can save you a fortune over time in delivery charges, but calling the supplier and the utility every time to manage this can be really difficult. Some suppliers offer programs for users with multiple/seasonal meters, and the pricing for programs like this can be higher.
  8. Billing Differences – some states give you an option to bill with your utility (Single billing) or get a separate bill from your supplier (Dual billing). Generally the rate will be lower if you opt to let the supplier send you a separate bill (Sorry Texas, not you guys!)
  9. Credit – if you are less of a risk, you will have less of a bill! Be sure to know how you fare with Dunn and Bradstreet.
  10. Contract Language – some suppliers offer a dirt cheap rate, but there are items in the contract that allow for them to change the rate without any reason at all – and sometimes, they do! It is always better to go with an established supplier if the rates are comparable.
  11. The contract is with a bad player. Bad players might not hedge properly, are gaining market share for an upcoming acquisition, or plan on changing your price or selling your contract in the months to come. Supplier reputation matters!
  12. Term – if your neighbor signed for a different term, they will have different pricing. A lot of the time, a longer term means a higher price, but this is not always the case. Also on certain days, there is sweet spot pricing where an odd term is significantly cheaper. It is important to get back to your broker when they reach out to you with offers – you may miss the boat if you wait even a week. A good broker will be keeping an eye out for your renewal prices up to a year before your end date to make sure you get the best deal waiting for you when your current contract ends.
  13. Start Dates – If your neighbor had a more favorable start date for their contract, or bought at the right time in the past, they could have had access to cheaper pricing. You can’t compare your pricing to your neighbors unless you have similar usage profiles, and signed for the same product, term and start date at the least.
  14. Type of Product - Are you fully fixed? Did we go with a block product? Is your neighbor enjoying a blend and extend product? Index? Even if they say they are “fixed” that can mean different things.

I understand the feeling of trusting your broker only to find out that you may have been “had.” Because our power bills can be our main expense, it is the one place we can really save money. Locking in for two years on a wing and a prayer can be exhausting. But take heart! Just because your neighbor is bragging about his rate does not mean you did not also get a fabulous deal. They say the devil is in the details, but so are the savings! It is important to know where these savings can hide, and Shop My Power wants to make sure you feel good about your contract so that you don’t get rattled by fear in this marketplace. And by the way, if we find your neighbor has a great deal with a supplier we don’t work with, we will actively pursue that supplier to include their pricing in your future offers.