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More Tricks and Traps from Usage-Based Billing: Pay A Penalty for Not Using Enough Service

Phillip Dampier August 25, 2011 Consumer News, Data Caps, Video 3 Comments

The telecommunications industry better not take a tip from some Texas power companies that have found new ways to increase profits: charging customers a penalty when they do not use enough electricity during the month.  Imagine if broadband providers with Internet Overcharging schemes followed suit.

After Texas deregulated electric utilities, an increasing number of companies are using their freedom to find new, creative ways to tack on additional fees and surcharges that might normally be considered the cost of doing business.

CenterPoint Energy, a Fortune 500 corporation providing service in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma, and Texas would like to introduce you to its Minimum Usage Penalty — a $9.95 fee applied to Texans caught using too little electricity from the company.

While most utility companies set a basic customer charge applicable to everyone, which covers the cost of your electric meter, power lines and their upkeep, billing, and other administrative expenses, many Texas power companies are billing consumers a monthly fee for conserving too much electricity.

The concept flies in the face of common sense, especially as the state contends with dozens of 100+ degree summer days and pleas from utilities for customers to cut back on energy use.  But if some do, especially low-consumption customers in apartments or those who maintain part-time residences, they’ll pay a penalty for doing so.

The Texas Electricity Ratings Blog found more than a dozen power companies with similar policies, with penalties as high as $12.96 for using less than 1,000 kWh per month:

Ambit Energy: $9.99 for less than 1000 kWh per month
Amigo Energy: Depending on the plan it is $9.95 of $6.95 for less than 1000 kWh per month
Bounce Energy: $4.95 for less than 1000 kWh per month for almost all of their plans, except intro plans are $6.96 per month for less than 1000 kWh.
Champion Energy: $4.95 for less than 500 kWh per month
Cirro Energy: $5.25 for less than 1000 kWh per month
Direct Energy: I couldn’t find a Monthly Fee in their Terms of Service or EFLs
Dynowatt: $6.95 for less than 1000 kWh per month
First Choice Power: $5 for less than 650 kWh per month, plus a $4.95 base charge
GEXA Energy: Seems to simply use a sliding rate per plan for different usage w/o a minimum charge
Green Mountain Energy: Didn’t seem to see any minimum usage charge in the EFL or Terms of Service
Mega Energy: $12.96 for less than 1000 kWh per month
MX Energy: Seems to simply use a sliding rate per plan for different usage w/o minimum charge
Reliant Energy: $9.95 for less than 800 kWh per month
Southwest Power & Light: I didn’t see minimum usage but they had a $7.95 monthly meter fee.
Spark Energy: $8.99 for less than 1000 kWh per month
StarTex Power: $4.99 for less than 500 kWh per month
Tara Energy: $6.95 for less than 500 kWh per month
Texas Power: $10.00 for less than 1000 kWh per month
TXU Energy: TXU uses a base $4.95 charge and sliding rates for less or greater than 1000 kWh, per plan.

[flv width=”600″ height=”358″]http://www.phillipdampier.com/video/KTRK Houston Higher Bills for Not Using Enough 7-11.flv[/flv]

KTRK in Houston provides surprising information about Texas utility usage-based-billing rates — power companies will charge you a penalty for not consuming enough electricity.  Better hope broadband providers angling for UBB don’t catch on.  (3 minutes)

Currently there are 3 comments on this Article:

  1. In all fairness, Minimum usage charges to a certain degree DO make sense for the electricity companies. Within reason. It costs money for electricity companies to have customers in the sense that they have to BUY electricity on estimated usage by customers each month to cover their customers. If a customer uses less than a certain amount, an REP is losing money on them. And that’s in addition to operating costs that are essential to running any business. The question is, are the fees reasonable? Some I would say yes, perfectly so. Otherwise I would say, no, they’re too high.

    Additionally, I don’t think anyone is worried about minimum usage charges this summer. They won’t come into play by default, I’d wager, just because of the heat.

    And one correction to your post. Centerpoint Energy is the “Pole and Line” guy, so to speak. They aren’t actually charging the minimum usage charge. It would be the individual REP’s, like the list above. Such as Reliant, TXU, etc. Centerpoint is not the same thing at all. They’re a TDSP, the same as Oncor, AEP, etc, not an actual Retail Electricity Provider.

    • As a comparison, here in New York where we also have rate deregulation, every ratepayer pays a basic customer charge which covers the infrastructure. Looking at a CenterPoint bill, they appear to charge this to customers already. What New Yorkers don’t have is a minimum usage fee from the REP (we call them ESCO’s here).

      Providers in New York have the benefit of decades of historical electric use estimation by the former regulated utilities that can uncannily predict usage based on past history, usage trends, and climate factors. Smart meters are not that common in western New York, so the utility reads them every other month, charging estimated usage in-between.

      Our competing providers in New York are often deregulated providers affiliated with the former regulated utility, neighboring utilities, or wholesale power buyers or generators.

      I can’t think of any provider that would consider charging a minimum use fee or require a minimum level of power consumption for a rate tier. Instead, customers are offered fixed or floating rates which honestly don’t fluctuate that much between competitors. Savings, to be honest, have been negligible and most consumers have never been well-educated about how to effectively choose a competitor. In fact, most just stick with the default provider that always provided them with power.

      ESCOs do not make it easy. Most do not even publish their rates on a website for comparison shopping, even for fixed contract prices (which are almost always a lousy deal.) In fact, most seem to be trying to draw customers with promises of sign-up bonuses and aggressive door to door marketing of term contracts, and have often delivered higher rates than the traditional utility charges.

      New York is a very high cost state for electricity and natural gas, and deregulation has honestly done nothing to change that. Part of that has to do with the fact generation costs are higher (good luck building a new coal or nuclear plant) and building more power plants has proven difficult because of population centers, environmental concerns, and an unwillingness by providers to invest in them (providers make more collecting the high prices they earn now, why do something to lower them.)

      I’d say a light user, say one living in an apartment, will have a reasonable reason to complain if their $20 electric bill is suddenly $30+ because of a minimum use penalty charge. As you wrote yourself on your blog, educating consumers has been an issue, much the same way it has been here in New York.

  2. Philip,

    Everything you described is pretty much how everything works in Texas. Which isn’t a shock, since New York and everywhere else have modeled their market after ours here in Texas.

    We’ve also gone through our growing pains with door to door sales, and unclear pricing. In fact, there’s even laws that keep door to door salesmen from crossing boundaries, and complaints can be made of unlawful switches in those situations called Slamming.

    The reality of the situation is that just because you’re not seeing a minimum usage charge spelled out in your Electricity Facts Label doesn’t mean that rates aren’t adjusted accordingly to compensate. Then the rates just seem higher. Texas went through this as well.

    One other correction: The base charge you’re talking about goes to Centerpoint, Oncor, and the other Pole and Line guys. It’s for basically upkeep of the grid and electricity delivery system. Electricity companies don’t see a dime of that money, it goes straight to infrastructure. The Minimum Usage charges go to the REPs, the actual guys to whom you pay your bill. So they’re not double charging you in the way you’ve illustrated above. It’s two different entities. I understand why minimum usage charges exist. In fact, what most people don’t realize, is that the net profit for an electricity company on a single customer over the course of a year is, on average, a little more than $200. The margin for profit is razor thin. But I also think some providers are absolutely abusing the system.

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