Electricity plans like Reliant Truly Free Weekends, TXU Free Nights, and Griddy all charge based on when you use electricity, but beyond that they’re very different. We do the math to see which are gimmicks and which deliver the goods.
Risk vs. Reward
When shopping for electricity, most consumers choose plans with a “Fixed” rate over the contract term. Such plans offer predictable bills and relatively simple math. In theory, however, they do not offer the lowest cost.
To offer you a fixed rate for a period of time, retailers must first estimate how much they’ll pay for your electricity. The wholesale price of electricity depends on many variables. These include the price of natural gas, weather changes like heat waves, hurricanes, and wind, and consumers’ daily patterns of electricity use. As a result, electricity pricing can vary a lot: from -260% to over +11,000% of the ~2.6 ¢/kWh average just last year. Facing these uncertainties, retailers add safety margin to their cost estimates so they don’t undercharge customers and go bankrupt. The longer the contract, the more uncertainty and risk, so the more they have to add to your rate.
To offer lower rates, some retailers create plans that shift some or all of their pricing risks to you. “Indexed” plans base their pricing on underlying market indices like the monthly price of natural gas. “Time-Of-Use” (TOU) plans generally increase their pricing during late afternoon peak use periods. And some plans do both with rates based on the real-time wholesale price of electricity, which changes every 15 minutes. To the extent they transfer pricing variation risk to the consumer, these plans have the potential to offer lower prices. (They’re also more difficult for consumers to quantify, but Texas Power Guide is here to help with that.)
To see how they stack up, we pitted 9 indexed and/or Time-of-Use plans from PowerToChoose.org and elsewhere against each other. We ran the numbers using the past twelve months of pricing data matched with the actual usage of two Houston-area homes. Home #1 is a 1-story, 2-occupant house with an average consumption of ~1130 kWh/month — about the Texas state average. Home #2 is a 2-story, 4-occupant house with a pool and average consumption of ~2100 kWh/month. Neither home participated in an indexed or TOU plan during the sampling period, so their owners weren’t shifting their normal consumption behavior. We’ll discuss the practicality of doing so in the results.
For comparison, we also included the current best 3- and 12-month Fixed rate plans per our RateGrinder tool. While the best plans from one year ago would make a better comparison, those details are hard to come by. Energy prices are slightly higher in 2017 than 2016, which unduly benefits Indexed/TOU plans computed using last year’s pricing.
We did not include plans that PowerToChoose.org categorizes as “Variable”. Unlike Indexed plans tied to a public index, retailers can often change pricing on Variable plans at their sole discretion. Finding details of price histories can also be challenging. As a result, Variable plans don’t meet our threshold for either predictability or transparency.
Per TPG’s philosophy, all our data and calculations are posted here. If you export your home’s usage data from SmartMeterTexas.com, you can paste it into our file to see your own results. We also include historical data on wholesale electricity and natural gas prices to lend insight into the frequency and severity of [usually weather-related] price spikes.
The table below summarizes our results. Time-of-Use plans are in blue. Plans indexed to the monthly price of natural gas are in purple. Plans indexed to real-time (15-minute) electricity pricing are in green.
|Results: Indexed and Time-of-Use Plans Comparison
|Retailer / Plan
|[Best 3-month Fixed rate plan]
|[Best 12-month Fixed rate plan]
|Volt EP Signature Index Plan
|Champion Energy Free Time-12
|Direct Energy Free Power Weekends 12
|Reliant Solar Sell Back
|TXU Energy MarketEdge
|Reliant Truly Free Weekends 24
|TXU Free Nights 24 (9pm)
For both homes, a 3-month fixed-rate plan undercut the Indexed/TOU options by at least $230/yr. And for the average Texas home (~ Home #1), a 12-month fixed rate also beat out those options.
For those with higher usage, however, Griddy Energy may be worth a look. New to Texas in April, Griddy’s prepaid daily plan offers the real-time wholesale rate (plus TDU charges) for $9.99/month and 2.9%+30¢/payment. The fees overshadow the wholesale benefit at low or average usages. But above ~2000 kWh/month usage Griddy starts to compete with the better 12-month fixed rates. Griddy also offers the most potential for consumers to shift their consumption for more savings — including occasional negative pricing — with a phone app for real-time pricing, forecasts, and alerts. If you’re willing to assume the risk of pricing disruptions (see first chart, above) in exchange for a lower long-term bill and/or less frequent shopping, Griddy may work for you. That said, Griddy is brand new and TPG hasn’t directly sampled their service, so stay tuned for more. If you have, let us know your experience in the comments.
Beyond that, there’s currently little else in the Houston market in worth considering:
Volt EP‘s Signature Index Plan is the other product indexed to the wholesale price of electricity, but on a monthly postpaid basis. With a different fee structure, it is cheaper than Griddy only for lower-than-average usages. Unfortunately, that’s the space where fixed-rate plans outcompete both.
Three “Free Weekends” options from Champion, Direct Energy, and Reliant are nominally Time-of-Use plans, but not in the traditional sense of passing through higher afternoon pricing. Instead, they’re largely marketing tactics to lure customers into higher average rates obscured by trickier math. As such, they are frequently panned on the Internet. Only an extremely weekend-focused consumer might come out ahead of the better fixed-rate options.
The three plans indexed to the NYMEX Natural Gas Futures index also performed poorly, due to their unremarkable pricing.
Finally, TXU‘s Free Nights 24 plan cripples its usage-shifting potential with a staggering 13+ ¢/kWh average cost, ranking worst in our survey.
For those seeking the lowest cost, a shorter-term fixed-rate product such as those found with our RateGrinder tool is still the best bet. But for risk-tolerant consumers with higher usage or a desire to capture savings by shifting their consumption, Griddy may be a worth a look.