How Bill Credit electricity plans work in Texas
The Bill Credit plan has become a popular product among Texas electric companies. Providers love these plans because they allow them to design their electricity rates so they are the cheapest at exactly 1000 or 2000 kWh of usage. These are the usage levels that are typically marketed on Power to Choose and other electricity rate comparison websites. These are also the usage levels that are included in the electricity facts label that every electric company must produce for every electricity plan they sell in Texas.
Is a Bill Credit plan right for me?
As a consumer, there are both pros and cons to bill credit plans. Not all bill credit plans are created equally and the specific terms of the plan you are considering will determine if a bill credit plan is a good deal for you.
How Bill credit plans work
As the name implies, a bill credit plan involves a credit to your bill when certain conditions are meet. This credit is a fixed dollar amount that differs from plan to plan. A common amount is anywhere from $50 to $100.
The details of the plan will dictate what criteria must be met in order to receive the credit. This usually involves hitting a certain usage level threshold within a billing cycle. For example, the 1000 kWh usage level is a common level.
In addition to having a lower usage limit to qualify for the credit, many plans have an upper limit to qualify for the credit. This means that if your energy usage exceeds a certain level, you will lose the bill credit. This creates a situation where you get the credit each month only if you use between 1000 and 2000 kWh. If it’s any more or any less then you don’t get the credit. Without the credit your bill will be higher and your average electricity rate jumps.
How bill credit plans effect the math of your electricity rate
To understand how bill credit plans effect your electricity rate, you have to understand that there are really two electricity rates.
There is the advertised electricity rate. This is the electricity rate the plan has for a theoretical customer that uses exactly 500 kWh, 1000 kWh, or 2000 kWh. As mentioned before, these are the rates commonly advertised in Texas and the rates consumers use to compare one plan against the other. Not surprisingly, it benefits the electric company to design their plans so that they are they have the cheapest rate at exactly one of these usage levels.
The second rate is the actual real-world rate or the average electricity rate that is on your light bill. Unless you use the exact amount of electricity that is used in the advertising, your real-world average electricity rate is going to be different each month under a bill credit plan. This is true with most electricity plans unless you find one that is both a fixed rate and a bundled rate plan. But these are rare.
The chart below illustrates what the average electricity rate would be at each usage level for a typical bill credit plan. Notice that the electricity rate is the highest just before the bill credit kicks in. Once the bill credit kicks in, it immediately drops the average down to the rate advertised for 1000 kwh of usage.
If your usage exceeds the upper bounds of the bill credit plan, your electricity rate once again jumps. That is why its so critical to understand how much electricity you typically use before choosing an electricity plan. Here is an example of a bill credit plan with both a minimum and maximum usage threshold. The Express Energy Flash Bundled 12 plan is an example of a plan with just a minimum threshold.
If you routinely use between 1500 and 2500 kHw each month then a bill credit plan with a 2000 kWh limit might not be right for you. Your electricity bill would be very unpredictable because you would never know if you would be eligible for the bill credit or not.
Elements of a Bill credit plan
Let’s take a closer look at the plan represented by the chart above.
Bill credit plans are marketed as fixed rate plans. This is because the energy usage charge is a fixed amount. For a bill credit plan, the energy usage charge is going to be high relative to other plans.
In this plan from New Power Texas the energy charge is 12.9¢ per kWh. When you add the 4.6¢ TDU delivery charge you come up with a total per kWh charge of 17.5¢ per kWh before the bill credit is factored in. When you account for the effect of the $95 bill credit, the average electricity rate drops substantially at 1000 kWh. You can see this illustrated in the chart above.
The rate begins to slowly climb with each kWh used because the bill credit has a smaller impact on average rate as the total kWhs increase. At 2000 kWh the rate has moved up to 13¢ and will continue it trend toward the 17.5¢ rate as you use more electricity.